Expect Smaller If Any Pay Increases During 2009

By: Mike_Shedlock

The latest business survey from Hewitt Associates Inc. suggests that Pay Raises Will Take A Hit

Employers, who as recently as October said they were barely modifying their salary budgets for 2009, have changed their tune in December, this time bringing some workers' projected annual pay raises to a low not seen in three decades.

Overall, workers are now projected to receive average annual merit increases of 3% next year, according to a new survey from Lincolnshire, Ill.-based Hewitt Associates Inc. When polled in October, employers said they had already lowered their budgets to 3.6% from 3.8% in July.

The latest study, to be released Tuesday, shows that pay raises for some workers are expected to sink even further. "It's a clear signal that companies are very concerned about managing their fixed costs," says Ken Abosch, North American compensation practice leader at Hewitt. As a result, workers at the firms that say they've already cut their budgets can expect to receive average annual pay raises of just 2.5%.

"Three percent has always been this psychological threshold that companies have never been willing to cross before," says Mr. Abosch. "Now it looks like they've blown that away. This is really dramatic."

No Raises For Nevada State Workers

CNBC is reporting Nevada Governor: No Raises For State Workers

Nevada Gov. Jim Gibbons says he won't propose any step or cost-of-living pay increases for public school teachers or state employees because of an expected drop in revenues in the next two fiscal years.

"These are tough times," Gibbons said Tuesday. "We worked to get everyone a 6 percent pay increase this biennium when a lot of companies in the private sector did not give employees any increases in salaries."

The governor said "step-in-grade" pay increases that many state employees and teachers now get can add 4 percent to 5 percent to their pay each year. Raiding step pay raises could turn costly

The Las Vegas Sun is reporting Raiding step pay raises could turn costly .

If Gov. Jim Gibbons succeeds in suspending step raises for state employees and teachers, it would be the first time in at least 45 years that the state has not paid the built-in salary increases.

The annual pay raises, which average 4.5 percent, are typically granted during state workers' first 10 years of employment. Doing away with the step increases and cost-of-living raises would save the state about $160 million over the biennium, said Andrew Clinger, the governor's budget director.

The state has left the step raises untouched since at least 1963.

Nevada faces a $1.5 billion budget deficit for the 2010 and 2011 fiscal years.

Although the call to suspend raises for state employees and teachers could save the state millions, according to teachers union leaders, it might cost school districts millions.

Lynn Warne, president of the Nevada State Education Association, said unions have contracts with county school districts guaranteeing the raises. So it's possible, she said, that the districts would have to make up the shortfall for teachers.

“Unfortunately, he's (Gibbons) trying to solve the state's problems on the back of an education system that has already had to cut,” Warne said. “The fact he's going after contractually negotiated raises with school districts is outrageous.”

In response to the teachers union argument that districts might be forced to pay the raise if the state doesn't, Josh Hicks, Gibbons' chief of staff, said: “We've heard those same comments but no actual contracts have been provided to this office so we cannot comment on whether there is any merit to the statement.”

Expect More States To Follow

Expect other states, especially California to be forced to implement similar ideas. State budgets simply have to be balanced and doing away with the step increases and cost-of-living raises will help.

Those who get that projected 3 percent raise will find that it will beat the CPI easily. This will be the first real wage increase for a long time, assuming of course, one has a job.

Deflation is intensifying. People are going to be frightened by it.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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