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Archived: AIM Report: Projected Raises Finally Top Levels Prior to Recession

Posted on January 21, 2014

Massachusetts employers plan to increase wages and salaries by an average of 2.96 percent during 2014 as pay raises finally surpass the levels that were in place prior to the Great Recession, according to the AIM Human Resource Practices Report released today.

2014 HR PracticesThe projected raises for this year continue a trend that has seen salary growth climb from a low of 1.7 percent in 2009 to 2.1 percent in 2010, 2.4 percent in 2011, 2.55 percent in 2012 and 2.8 percent last year. The prospect of employers offering fatter pay envelopes to recruit and retain talent comes despite the fact that the Massachusetts unemployment rate rose from 6.4 to 7.2 percent between April and November.

The HR Practices Report indicates that Massachusetts employers appear to be on the same compensation page as their colleagues around the United States. National surveys from World at Work, Mercer and Hay forecast 2014 salary increases of 3 percent across industry sectors, while the Economic Research Institute forecasts a 2.9 percent increase.

But Bay State employers also face a wild card in their compensation calculations for this year ” the prospect that the Massachusetts Legislature will increase the commonwealth’s $8-per-hour minimum wage. The state Senate last year passed a bill that would boost the base wage to $9 per hour in 2014; $10 per hour in 2015; and $11 per hour in 2016 and thereafter index it to inflation.

The House of Representatives is expected to take up the issue soon, potentially in tandem with an overhaul of the Unemployment Insurance system.

The issue for employers is not simply increasing hourly pay to meet the new minimum wage. A $3 increase will require employers to plan for dealing with wage compression when inexperienced and new employees are brought up to pay rates currently given to experienced workers.

Companies with salary ranges will also need to adjust them annually between 2014 and 2016.  Salary ranges are developed by setting range widths (difference between minimum and maximum) and relationships between range midpoints.  The result will be an overall increase in compensation spending.

The bottom line: employers need to review their wage structures to determine budgetary impact and assess their internal compensation expertise to carry out a multi-year compensation plan responsive to the potential changes in the minimum wage.

The other major compensation challenge facing Massachusetts employers remains the cost of providing health insurance to workers.

Companies continue to rely heavily on cost shifting to control health premiums, but an increasing number of employers are moving gingerly into the world of plan-design options ranging from high-deductible policies to tiered health programs in which workers pay smaller amounts to be treated at high-quality, moderate-cost community health facilities.

This fifth annual HR Practices Survey from Associated Industries of Massachusetts is intended to provide employers with timely information about compensation, health care, recruiting, training and development.

Watch for our biennial Benefits Survey Report to be published in February.  Our annual General Wage and Executive Compensation survey data collection period will kick off the first week of January and the report will be published in May.