Why You May Never Get an Annual Pay Raise Again

Source: iStock

Source: iStock

For millions of American workers, the passing of another year on the job is insignificant, with the exception of the traditional performance review and subsequent pay raise. Though a good deal of workers aren’t afforded this annual luxury, the yearly earnings bump has become very much ingrained into America’s corporate culture, and have come to be expected by thousands, if not millions of employees.

In fact, this year, the average raise is expected to be around 3%. Not much, but it’s better than nothing. And nothing is what a lot of people may be getting in the future.

There are troubling signs that the annual pay raise ritual may be coming to an end, at least for some people. The phasing out of annual pay raises in lieu of larger bonuses and additional perks is being seen in some industries, including among the high earners of Wall Street, according to a recent article from The New York Times. While the shift from annual salary increases to big bonus checks among Wall Street’s elite is something the vast majority of Americans think nothing of, it’s the potential for the trend to trickle down that should have workers worried.

The New York Times cites the results of a compensation survey conducted by human resources company Aon Hewitt, which annually releases insight into the pay of workers with several classifications. In this case, we’re looking at salaried workers, and what we’re seeing is that pay raises are apparently being phased out as a cost-cutting method for businesses.

“There is a quiet revolution in compensation,” Ken Abosch of Aon Hewitt told The New York Times. “There are not many things in the world of compensation that are all that radical, but this is a drastic shift. It affects the CEO all the way down to the guy who sweeps the factory floor.”

The numbers reflect it as well. Many companies have budgets within their payrolls for salary increases and reward programs (bonuses and perks). In 1988, per Aon Hewitt’s tracking, the annual percentage of those payrolls for reward programs was 3.9%. Last year, it was 12.7%. And the number of companies employing these programs has seen a dramatic rise as well, with 47% of companies surveyed using such programs in 1991, and 91% using them today.

What that means is that raises are not only being phased out, but that the trend has been going on for decades now. On an individual level, it’s unlikely that many people would have noticed, but now the practice seems to be picking up steam and is becoming more apparent, especially as companies scramble to cut costs following the recession.

According to Aon Hewitt’s findings the trend looks to be contained, for the most part, to high-earners and salaried workers. But as we know, compensation and wage growth has been a real thorn in the side for our leaders, who have been scrambling to find ways to get the economy back up to full speed. Even as unemployment has dropped considerably — which would normally put upward pressure on wage growth — we just aren’t seeing much improvement.

And that’s why this trend should be particularly worrisome for workers composing the middle and lower classes. If even the big-time earners aren’t getting raises anymore in an effort to save businesses money, then mid or low-level earners sure as hell probably aren’t either. Presumably, employees on the upper-end of the pay spectrum are more valuable to the company, so if a business is unwilling to extend pay raises to their most valuable human assets, those on the lower rungs had better temper their expectations.

The curtailing of raises speaks to a broader trend in the economy, which again, is that wages aren’t going up. According to data from the Pew Research Center, wages in real terms have “barely budged for decades.” There are a lot of reasons for that, but we can see now how there is an actual manifestation of it occurring with workers being offered additional perks, or single bonus checks, instead of bigger paychecks.

While we don’t know if the trend of offering employees perks and bonuses instead of pay raises will continue, it’s probably a safe bet to say that it will. What we really don’t know, and need to worry about, is what the effects will be down the road. The outcomes do depend on what kind of bonuses and perks we’re talking about, so really, it may vary according to individual circumstances.

Your annual raise may be something to look forward to in the near-term, but be aware — it may be on the chopping block.

Follow Sam on Twitter @SliceOfGinger

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