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Pain in the Check

Hard Times Force Businesses to Scale Back Raises
Meredith Wise

Meredith Wise called the current economic conditions a ‘perfect storm’ that is creating anxiety and uncertainty in employers.

According to a survey by the Employers Assoc. of the NorthEast, most area companies planned as late as last summer to give healthy raises to their workers for the upcoming year. A recent followup survey, however, delivered much different news. It seems the deepening recession has employers feeling skittish about increasing salaries, and has forced workers to adjust their expectations from anticipating a heftier paycheck to feeling relieved that they still have a job.

Looking forward to that raise in your paycheck? Right now, the odds say … don’t count on it.

Reflecting both national and statewide trends, Western Mass. employers are largely holding off on giving raises this year — even though a solid majority planned to increase salaries just eight months ago.

The startling turnaround is documented in a survey conducted by the Employers Assoc. of the NorthEast (EANE), and it reflects what appears to be widespread skittishness among employers as to how deep and long-lasting the current economic downturn will be.

“It’s not unexpected, but I’m a little bit surprised that it happened as quickly as it did,” said Meredith Wise, executive director of the EANE.

“When I think back, the most recent downturn before this was after 9/11,” she recalled. “People were not busy; orders were drying up, but we found that, for the most part, companies took it in stride for another 12 to 14 months before they started saying, ‘OK, we can’t ride this out,’ and started looking at cutting out increases, cutting back, doing some of those things.”

This time is different; employer behavior has changed much more rapidly, as the EANE report clearly demonstrates. The survey basically asks four main questions: were you planning in July to give increases to employees, and if so, how much? And are you planning now to give raises, and again, if so, how much? The results are broken into five categories of employees:

Union production, maintenance, and service workers. In July, 19 of 21 respondents in this category were planning to give raises, with an average increase of 2.61%. Now, only 3 of 23 plan to boost salaries — at an average hike of 0.67%.

Non-union production, maintenance, and service workers. Last summer, 87 of 105 companies planned raises, at an average of 3.18%. Now, it’s just 32 of 105, at an average increase of 1.03%.

Non-exempt clerical and technical workers. In July, 114 of 136 companies planned to fatten paychecks, by an average of 3.14%. Now, it’s 41 of 135, at an average of 0.99%.

Exempt supervisory, managerial, and professional workers. Out of 137 companies, 112 planned raises last summer, with an average hike of 3.17%. Now, it’s down to 41 of 134, with an average increase of 1.03%.

Finally, executives. They fare a little better, with 40 of 126 companies planning raises for their top dogs at an average of 1.21%. But that’s still way down from July, when execs at 98 of 128 companies could expect average raises of 3.38%.

Quick on the Draw

Clearly, unlike the post-9/11 slowdown in the economy, employers aren’t waiting to take sometimes-painful action.

“A lot of this started hitting in the summer and fall, so it was a pretty quick reaction,” said Wise. “We’re seeing layoffs, companies not doing increases … the bottom dropped quicker here than in the most recent downturn.”

The regional trend mirrors statewide reports.

Sandra Reynolds, executive vice president of Associated Industries of Mass., said a new employer survey conducted by AIM — crossing all major sectors and companies of all sizes — reports that 55% of employers say they’ve cut out raises for 2009, while others are delaying them by three to six months or more.

Furthermore, 47% of respondents say their company’s performance will be “significantly weaker” due to the downturn, and 38% say it will be “slightly weaker.” Meanwhile, 13% say they don’t expect much change from last year, and only 2% project a stronger year — hard evidence of the anxiety that has contributed to the widespread raise freezes.

“I think it’s surprising that so many have decided not to give an increase at all,” said Reynolds, noting that employers seem to be responding to the economic downturn in the same way that consumers are in delaying purchases: with a lack of confidence.

According to the AIM survey, 46% of employers have either laid off workers recently or are planning a layoff. In addition, 23% have a freeze on new hires, and another 23% will hire only to fill vacated positions. Only 14% of companies said the current conditions have not impacted their staffing plans at all.

“It seems that everyone’s reaction, employers as well as individuals, is to stop spending, which is part of the problem,” Reynolds argued. “I think this reaction is more intense than what we’ve seen in past recessions, and it’s happening more quickly.”

It’s a story being told nationwide, too. According to a survey conducted by human-resources consulting firm Hewitt Associates, a full 50% of U.S. employers are cutting salary increases for 2009. In addition, 35% are laying off workers, and 39% have instituted hiring freezes.

However, Massachusetts seems to lag behind the national average when it comes to the amount of the raise when one is offered. According to a December survey by the nonprofit human-resources organization WorldatWork, employers who are giving raises this year are increasing salaries an average of 3.1% nationwide.

Still, that’s below the 3.8% they anticipated for 2009 when surveyed by WorldatWork last April, and many companies’ plans might have changed further as the recession has deepened in recent weeks. In addition, 17% of executives polled in the survey said they would not grant themselves a raise in 2009.

Why Pay More?

Many companies that do offer raises, even in a recession, say they need to keep their people happy, as well as attract top talent.

“There are a few reasons to give raises,” said Paula Dennison, vice president of Human Resources for Baystate Health, the region’s largest employer, which will be giving pay increases for 2009. “First, we want to acknowledge our employee contributions and recognize our talent, and obviously we want to be able to secure and retain our people. On top of that, we have to remain market-competitive.”

Those are not just empty words in health care, an industry that has struggled with shortages in certain fields — from nursing to radiology to pharmacy — for some time, both locally and nationally.

“We still have openings for sure, and we have a lot of projected labor shortages,” Dennison said. “There are some significant projections around the nursing shortage, and nurses play a key role for us, so we have to be sure we’re competitive with our salary.”

She noted, however, that this year’s raises are, on average, a bit lower than recent years in terms of the overall budget, while still based on performance. “The market has dropped a little bit for some of our positions, so that’s why they’re slightly lower.”

Workers in other industries would no doubt be happy with even a modest raise right about now, said Wise. “But most of the manufacturers are not giving increases. They’ve actually cut pay,” she said.

“The health care organizations are giving increases to their people because they’re still doing pretty well,” she added. “They’re still bringing people in and making money. Financial institutions are also still giving increases. But in manufacturing, they’re seeing their increases drying up.”

Part of the problem, said Wise, is that many business owners recognize the current economic crisis as the result of several systemic failures, which will take time to repair, as opposed to a quirk of history, as the post-9/11 downturn was.

“They’re seeing it as based on more long-term problems, so it’s not something that’s going to pick up right away,” she said. “They know changes need to be made, and there’s not going to be a quick fix.

“But this is also coming on the heels of the gas prices soaring as much as they did last year, which hurt companies with shipping and transportation costs, and businesses with people on the road a lot. That increase really hit their budgets, as well as employee morale when they were paying so much for gas,” she noted. “So it has really been a perfect storm of things happening, and the reaction was a lot faster than in the past.”

That adds up to some short-term pain — hopefully, anyway — for employees around the Pioneer Valley. But with unemployment creeping up each month as well, just holding onto a steady paycheck might be job satisfaction enough.

Joseph Bednar can be reached at

[email protected]

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