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Economy Grows, But Raises Won't in 2006, a Survey Says

By Teresa Rivas

That raise you are waiting for might turn out to be smaller than you think.

As white-collar workers look forward to base salary increases for 2006, they shouldn't look further than this year's average 3.7%, according to projections from Sibson Consulting, a human-resource consultancy unit of Segal Co. of New York. Sibson examined data from its own clients and from six studies conducted by other corporate and consulting institutions, surveying a total of more than 3,000 employers.

Despite the economy's continued growth, increases forecast for 2006 match those from 2005, and only inched up 0.2 percentage point from the increase seen in 2004.

When there are enough applicants for jobs, companies don't have to lure new workers, or keep existing employees happy, with wages as tempting as those they might offer amid fiercer competition.

"Employers base the overall increase in salaries primarily on the labor market or cost of talent, and there hasn't been a big change in the labor market, so salary increases are expected to be about like they have been in recent years," says Sibson Senior Vice President Jim Kochanski. Employees may also consider other criteria when deciding to leave a job.

Still, workers can take heart that their raises aren't decreasing, and for most people, layoffs aren't looming. The slow but steady rise in salaries is likely to continue in the near future. The trend of 3% to 4% increases becoming the norm could be frustrating for employees, as the rewards for efficient workers won't be much higher than those for their less capable counterparts.

Some professionals are likely to fare better than others. This year, those in the banking and finance and the insurance industries had the highest merit increases, according to the survey, averaging more than 4%. These sectors, with manufacturing and services, are projected to top the list again in 2006.

Education workers, who received the lowest raises in 2005, will most likely find themselves at the bottom of the pile again next year, seeing their checks swell only 3.2% on average, the study predicts.

Yet overachievers may still have reason to burn the midnight oil. Some companies are beginning to implement techniques to differentiate the highest-performing employees from their more lackluster co-workers, and reward them accordingly. For instance, having more than one manager evaluate staff makes for more nuanced appraisals, as one supervisor's generous opinion may be balanced with more moderate views.

"It helps to avoid the 'Lake Wobegon' scenario, where everyone is above average," says Mr. Kochanski.

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Article from Today – December 2005