Raises likely to lag inflation

October 10, 1990|By Chicago Tribune

Inflation seems to be heating up, but salary increases next year aren't expected to keep pace, according to consultants and compensation executives.

"It's likely to be a year that a lot of people get merit increases not equal to inflation," said David Kreidler, compensation manager at British Petroleum Co.'s BP America Inc. unit, based in Cleveland. "A lot of people are budgeting 4.5 to 5 percent (raises), and inflation will probably run 5 to 6 percent."

If such predictions are right, it would be the first time since 1980 that salaries haven't kept up with the cost of living. Employers, worried about what many regard as a weakening economy, aren't focusing on the possibility of runaway price increases, experts said.

"We're going to be real conservative because of the uncertainty of the economy and our own economic situation," said Kathy Wolf, vice president for human relations at Acco World Corp. in Deerfield, Ill. The office-products unit of American Brands Inc. hasn't "factored in inflation at all," Wolf said.

Recent surveys by compensation consultants generally indicate that average salary increases in 1991 will be flat or slightly down from this year, despite the expected rise in inflation.

The consulting firm of William M. Mercer Inc., New York, said its survey of 3,000 employers showed an average increase of 5.4 percent, compared with 5.5 percent in 1990. Similarly, Washington-based Wyatt Co.'s poll of 2,200 companies indicated an average 5.3 percent merit increase in 1991, steady with this year.

Most of the surveys were completed before Iraq invaded Kuwait on Aug. 2. But Philadelphia-based Hay Group, which recently began polling employers, has found similar results.

Forty-one Midwestern companies represented at Hay's recent compensation conference in Chicago, for example, said they plan average salary increases of 5.3 percent for middle managers, the same as last year. The outcome surprised Hay officials, who had expected that predictions of higher inflation, caused by surging oil prices, might boost raises.

"We thought inflation would be more of a driver," said a Hay spokesman.

Instead, the Middle Eastern crisis seems to be prompting companies to rein in raises in fear of an economic slowdown.

"It looks like it will probably come down somewhat," from last year's 5.5 percent average increase, the compensation manager of a Chicago area products distributor said at the Hay conference. "We see a dramatic slowdown in what our customers are buying. It's going to impact our sales. Our philosophy has been to look at what we can afford to pay based on our customer base."

Many economists have scrambled to revise their inflation forecasts since the Iraqi invasion.

Georgia State University's economic forecasting center recently predicted an annual increase of 5.8 percent in the consumer price index in 1991, up from a prior forecast of 5.3 percent.

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