Pay as They Go

Want to make a C.E.O. nervous? Ask him what he’s doing about raises. “Hold on, I need to close my door,” one C.E.O. said when he answered a reporter’s recent call on the topic. As year’s end approaches, many firms are making decisions about raises and bonuses for their employees. Those are sensitive, high-stakes decisions anytime. With a recession howling at the door and everyone uncertain about what next year will look like, the stakes have gotten even higher. “This is a real crapshoot on what’s going to happen next year,” said Richard Webb, C.E.O. of Atlantic Financial Federal Credit Union in Hunt Valley, Maryland. “All of our steps are going to be very cautiously taken to make sure we’re well planned.” Webb expects to propose to his board a 3.5 percent increase in salaries for next year. Webb, who belongs to an informal roundtable of credit union C.E.O.s, said most are considering increases in the 3 percent range this year. A.F.F.C.U. earned $726,000 in the first nine months of 2008, down by about 10 percent from last year, but loans and assets have grown. Despite the tough economic conditions, many companies are sticking close to their regular pay increases. On average, employers plan to increase base pay—salary or hourly wages—by 3.6 percent next year, according to a survey done in October by compensation consultant Mercer. Even after the credit crunch hit home, those numbers barely varied from employers’ predictions in April. But Mercer senior consultant Jeanie Adkins warned that employers’ plans are still very much in flux. In a November survey by Mercer, 73 percent of companies surveyed said they were likely to reduce what they had originally budgeted for salaries. Bonuses will take a bigger hit, as Mercer projects that short-term incentives for 2008 performance will decline 20 percent nationwide. And all those complaints about executives taking home big paychecks while running companies into the ground seem to have taken hold. Executives on average will get bonuses totaling 35 percent of their salary this year, down from more than 40 percent last year, Mercer said. Baltimore City’s government leaders recently learned the perils of giving raises to top leaders while slashing other parts of the budget. With city revenues under pressure, Mayor Sheila Dixon cut police overtime and said the city would consider all alternatives for budget cuts. But in November, a city panel recommended cost-of-living pay increases for top officials, and the Baltimore City Board of Estimates approved them. After public outcry, Dixon said December 11 that she would donate her 2.5 percent pay raise to charity. Several other council members also said they would donate their raises. “Trying to predict where business is going to be in 2009 is like trying to predict the weather,” said Michael Imgarten, president of United Source One, a Belcamp, Maryland-based international food distribution company. United Source One expects to pay bonuses equal to 5 percent to 10 percent of employees’ salaries this year. In recent years, the company has paid bonuses worth as much as 15 percent to 20 percent of employees’ salary. The firm expects 2008 revenue of $65 million—a 23 percent increase from last year—but that unexpected growth has been a drain on resources, Imgarten said. Hanover-based specialty contracting firm Structural Group makes its salary adjustments in April and will begin the process in January. “We’re monitoring what’s going on in the economy,” said company Vice President Brian Gallagher. “We still have a little bit of time.” The firm has averaged salary increases of about 4 percent in recent years, Gallagher said. Structural Group will likely give raises in 2009, but they may be slightly less than last year, he said. The firm had revenue of $480 million for the fiscal year ended Sept. 30. “We do not hold our employees responsible for the economy going up and down,” said Howard Schloss, C.E.O. of Industry Sales Co., known as Indusco, which makes and supplies wire rope and rigging gear. The firm’s fiscal year ends May 31, and it expects to give raises on par with what it has done in recent years, Schloss said, declining to provide specific figures. “We’re having one of our best years, but that may be impacted by the last few months,” Schloss said. The firm, which reported $50 million in revenue in 2007, has a long lead time on its projects, so the downturn could hit home later, he said. Related LinksA Great Leap ForwardC.E.O.'s on the Hot Seat Over Pay What to Watch For In Wisconsin & HawaII