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Are Employers Re-Defining Compensation Norms?

Posted on November 26, 2012

Perhaps it is uncertainty surrounding the January 1 fiscal cliff, which has cast a pall over business spending for much of 2012.

HR Practices ReportOr perhaps companies have re-defined compensation norms.

In either case, Massachusetts employers are planning to award virtually the same 2.9 percent to 3 percent average salary increases in 2013 as they did this year, according to the Associated Industries of Massachusetts HR Practices Survey released today.

Overall salary growth has remained in a narrow range of 2.5 to 3 percent for the past three years as employers have faced a balky economic recovery, a recession in Europe and a series of governmental debt crises both here and abroad.

The AIM survey found that a company’s perception of business conditions is a key ingredient of its approach to employee compensation. Ninety-three percent of companies that view business conditions as “excellent” expect to grant pay increases of 3 percent or more, while only 47 percent of companies that believe conditions are “fair” have budgeted the same raises.

Uncertainty surrounding the fiscal cliff – the simultaneous expiration of tax breaks, introduction of tax increases and spending cuts at the end of 2012 if Congress fails to enact long-term deficit reduction – has been pervasive for employers. Nonresidential fixed investment fell 1.3 percent during the third quarter, and more than 40 percent of companies surveyed by Morgan Stanley this summer cited the fiscal cliff as a major reason for spending restraint. Bottom line: The days of six, seven and eight percent salary increases appear to be a distant memory.

Not all the news is grim, however. Employers in Massachusetts and throughout the nation are enjoying at least temporary relief from the spiraling cost of health insurance. Rate increases for health insurance appear to be holding steady in the range of 4 to 6 percent as the weak economy dampens demand for medical services and employers manage costs through plan design.

And employers have only scratched the surface of controlling health costs. A paltry 15 percent of Massachusetts employers plan to implement tiered or limited network health insurance plans, while twenty-eight percent expect to take no steps to control health-care costs.