Employers Plan Slight Acceleration of Wages, Salaries in 2019

Posted by Kyle Pardo on Jan 3, 2019 8:30:00 AM

Massachusetts employers plan slightly larger pay increases in 2019 than in 2018, though the projected raises remain below the national average, a new AIM survey has found.

WageIncreases2019The 2018 Associated Industries of Massachusetts HR Practices survey found that employers project a 2.86 percent salary increase for 2019, up from 2.66 percent in 2018. Salary increase budgets have remained less than 3 percent since the recession of 2009, despite a 3.4 percent state unemployment rate and a persistent shortage of qualified workers.

AIM survey participants also project an increase in recruitment activity during 2019. Forty-two percent of employers expect an increase in recruitment activity versus 33 percent last year.

National surveys predict average salary increases of 3.2 percent this year. MassBenchmarks reports that wages and salaries for Massachusetts workers rose an average of 3.2 percent during the second and third quarters.

“With unemployment trending down and the January 1, 2019 minimum-wage increase, HR professionals across the state will continue to face new challenges. They’ll need to stretch payroll budgets; attract, retain and reward top talent; and comply with new and existing requirements across the entire HR spectrum,” said Gary MacDonald, Executive Vice President of AIM HR Solutions, which conducted the survey.

Manufacturing companies anticipate the most generous 2019 salary increases at 2.9 percent.  Service companies expect to boost wages 2.65 percent.

The salary projections come amid a swirl of contradictory economic and regulatory signals ranging from an impending increase to the Massachusetts minimum wage and implementation of paid family and medical leave to a slowdown in cost increases for health insurance.

Health premium increases for HMOs slowed to 6.35 percent during 2018 from 8.32 percent in 2017. Similar price moderation took place within consumer-driven health plans, tiered networks and high-deductible health plans.

Still, rising health premiums continue to force employers to shift costs to employees. Forty-eight percent of companies plan to increase co-payments for HMO plans during 2019, while 33 percent will boost deductibles and 55 percent will increase employee costs.

Eight companies are seeking to control health costs by prohibiting spouses from enrolling in coverage if they have access to health insurance through their own employer.

The Massachusetts minimum wage will increase to $12 per hour in 2019 and then accelerate to $15 per hour by 2023, a shift many employers believe will cause wage compression and drive up annual pay. Premium pay for Sunday retail work will be phased out during the same period.

The HR Practices survey results are based on responses from 170 companies, more than half of them manufacturers.

Download the HR Practices Report

Topics: Compensation, wages, AIM HR Practices Survey

Survey Shows Wage Growth Slowing in 2018

Posted by Russ Sullivan on Dec 4, 2017 8:00:00 AM

It seems that Massachusetts employers embody all the ambivalence and contradictions that have marked the longest economic recovery since the Second World War.

Image.jpgOn the one hand, the 205 employers who participated in the 2018 AIM HR Practices Survey predict lower salary increases, less hiring, and higher health-care costs for 2018 than this year.

On the other hand, employer confidence in the state economy stands at a 13-year high, the state economy grew at a brisk 5.9 percent pace in the third quarter and unemployment throughout the commonwealth has dropped to 3.7 percent.

The year 2018 promises to be an interesting one.

Participants in the AIM survey project a 2.66 percent increase in salaries in 2018, down from a 2.75 percent increase in 2017. Non-manufacturing companies are fueling the overall decrease, with an expected increase of just 2.43 percent. Manufacturing companies held steady at 2.70 percent, slightly down from the 2.71percent increase within this sector in 2017.

Survey participants also project a decrease in recruitment activity in 2018. Last year, 44 percent of participants projected that recruitment activity would increase over the previous year. This year, only 33 percent of participants project an increase in recruitment activity.

These lower projections for salary budgets and recruitment activity come at a time of increased confidence in the economy, as measured by AIM’s Business Confidence Index. In October 2017, the index reached 62.7, its highest level in 2017 and an increase of 6.5 points since the October 2016 recording of 56.2.

“The acceleration of the Massachusetts economy in the third quarter provided additional fuel to an already solid sense of confidence among employers as we head for 2018,” said Raymond G. Torto, chair of AIM’s Board of Economic Advisors and a lecturer at Harvard University’s Graduate School of Design.

Health-care costs continue to rise for Massachusetts employers. Survey participants report increases in the annual renewal rates for health plans. The average annual premium increase is 7.84 percent, with higher percentage increases reported for HMOs and consumer-driven health plans. Average premium increases in 2016 were 6.1 percent.

The Centers for Medicare and Medicaid Services indicate that Massachusetts, at 30 percent above the national average, is the second highest spending state for health care. Per-capita personal health-care spending in Massachusetts increased more than 12 percent in five years—from $9,417 in 2009 to $10,559 in 2014.

In response to the escalation of health-care costs, more employers (42 percent) are limiting the number of health-plan options available to employees to just one.

In addition, more employers are offering high-deductible health plans. For the second year in a row, there has been a 33 percent increase in the number of companies that provide high-deductible health plans as the only health plan option for employees. Although only 16 percent of all survey participants offer a high-deductible health plan as the only plan option, these employers represent 38 percent of participants that offer only one plan.

Massachusetts employers will have an additional health-care cost come 2018. Companies will pay an additional $180 million over two years as part of an assessment designed to close a budget deficit with the state Masshealth program for low-income people. Companies with employees currently using MassHealth will shoulder the bulk of the new assessment.

Meanwhile, the Massachusetts legislature is currently developing legislation that Beacon Hill leaders say will address the overall cost of health care.

Survey participants also commented on their preparations for compliance with the Massachusetts Pay Equity Act. This law, which takes effect on July 1, 2018, creates a potential liability for employers who pay different rates to men and women who perform comparable work. Employers who perform a self-evaluation to identify and remove gender-based pay inequities can maintain an affirmative defense to employee claims under the act. However, successfully performing a self-evaluation requires an investment in time and resources to build a compliant compensation process.

Despite the impending July 1, 2018 deadline for completing a self-evaluation and implementing remedial actions to secure the affirmative defense, only 19 percent of survey respondents state that they have completed the self-evaluation. Even fewer participants (12 percent) state that they have taken remedial actions.

Completing self-evaluations may be further complicated by a lack of pay-equity-compliant job descriptions. Fifty-seven percent of participants state that their job descriptions are either out of date or nonexistent. An additional 8 percent state that while they have updated their job descriptions for pay equity compliance, they do not have job descriptions for all positions.

The act also affects employee recruitment through its prohibition on asking applicants to disclose their current salary or their salary history. While employers acknowledge that this fundamentally changes the recruitment process, 17 percent of participants state that they do not currently have a plan to comply with this requirement, and another 38 percent plan to wait until July to remove requests for salary information from their applications.

Survey participants see a strong 2018 for their companies, with 82 percent rating their business conditions as either excellent or good. Addressing pay equity, employee recruitment, limited salary budgets, and increased health-care costs will stretch the capacity of most HR departments as they try to stay ahead of the economic recovery. Employers are encouraged to integrate their compensation, benefits, and recruitment strategies into a pay-equity-compliant value proposition that establishes them as an employer of choice in 2018 and beyond.

Topics: Compensation, Human Resources, wages

Raising Minimum Wage Would Boost Costs for Majority of Employers

Posted by Christopher Geehern on Jan 3, 2017 7:55:31 AM

Three-quarters of Massachusetts employers would face increases in their compensation costs if state lawmakers pass a $15 per hour minimum wage, according to two recent surveys by Associated Industries of Massachusetts.

TeenJobsCrop.jpgAnd those compensation increases would be enough to force some companies to postpone hiring or consider leaving the commonwealth altogether.

Both the monthly survey question attached to the AIM Business Confidence Index in December and the annual AIM HR Practices Survey, also taken a December, found that 13 percent of companies employed people at the former $10 per hour Massachusetts minimum wage, while another 24 percent employed people at between $10 and $15 per hour and would have to raise those wages if the minimum moved to $15.

Thirty-four percent of companies employed people at slightly more than $15 and would have to increase pay for some of those employees to deal with wage compression. Thirty-seven percent of companies said they pay much more than $15 per hour and will not be affected by a minimum-wage increase.

The Massachusetts minimum wage rose by $1 to $11 per hour on January 1, the final step in a three-year increase.

“While we are empathetic with the challenges facing lower wage staff, it is also the case that we will employ fewer hourly employees at higher minimum wages. Each dollar increase costs our company $1.5 million per year,” wrote one employer on the Business Confidence Survey.

Another commented: “This would be too much for the small business community to absorb. You'll lose many small businesses. The Massachusetts legislature should concentrate on cutting costs and make Massachusetts a more affordable place to live.”

AIM believes that raising the minimum wage to $15 per hour, while emotionally appealing and politically expedient, is an ineffective way to address income inequality.

Raising the minimum wage, in fact, represents a fundamental distraction from addressing the real economic impediments that prevent all Massachusetts citizens from sharing in the state’s prosperity. These are the same impediments, ironically, that contribute to the persistent skills shortage that threatens innovation and economic growth in Massachusetts.

Workers are ultimately compensated according to the skills, education, work ethic and value they bring to the enterprise.

Minimum-wage increases impose an arbitrary standard of value on entry-level jobs, disproportionately burdening small businesses while creating no long-term improvement in living standards for people at the lower end of the wage scale. The issue in an economy with a staggering 3.3 percent unemployment rate is not how to raise the wage but instead how to raise the economic value of each employee.

Consider a sandwich shop in Cambridge serving food to employees of companies such as Google, Biogen, or Novartis that have made Massachusetts a global center for information technology, biosciences, research and development. Many of the engineers, software designers, researchers and professional services workers who come to the restaurant for lunch make six-figure incomes from companies locked in a pitched battle for talent that will determine their success or failure in the global markets.

Given the degree to which those highly compensated employees are bidding up housing and other prices in Massachusetts, increasing the minimum wage for the restaurant workers represents a dead-end and pyrrhic victory that keeps them outside the economic mainstream.

The task instead should be to pave the way for those restaurant employees to cross the street and join the high-value economy, which will once and for all allow them to support their families and achieve financial stability.

How does that happen? Start by improving the ability of our educational system to teach all students; reduce the long waiting lists for vocational schools; make community colleges accountable for graduating students with the skills needed in the marketplace; create more high-tech software coding academies; and promote other efficient structures to provide people with the skills to succeed in the areas of fastest economic growth.

Those tasks are far more complex than raising the minimum wage but ultimately more effective. The alternative is not attractive.

“If we move to minimum wage of $15 per hour in Massachusetts, we would immediately terminate many unskilled positions and use temps.  That would allow us to better eliminate labor in the slower seasons.  Note that our competition is located outside Mass and would end up with a significant competitive advantage,” said one employer in the survey.


Topics: Compensation, Minimum Wage, Massachusetts Legislature

Employers Plan Modest Wage Growth, Despite Pressures

Posted by Russ Sullivan on Jun 20, 2016 7:34:03 AM

An acute shortage of skilled workers, a state economy near full employment and an increase in the minimum wage all spell accelerating wage increases for 2016, right?

Well, not exactly.

Wages2016.jpgThe persistent and curious disconnect between the tight labor market and wage increases will continue this year, according to the results of the 2016 Associated Industries of Massachusetts General Wage Survey. The study indicates that employers plan to increase wages by a modest 2.78 percent, more than last year’s 2.69 percent, but still less than the 2.9 percent budgeted by employers before the financial crisis of 2008.

The AIM results mirror national and global projections that wages will increase an average of 3 percent this year. The slow pace of wage increases appears to defy conventional economic theory that wages rise as the number of people looking for work falls – a process called the erosion of “spare capacity,” which ensures that all those who want to work do so, and leaving as few resources unemployed as possible.

Baffled economists have attributed the wage-recovery disconnect to everything from the rapid growth of low-wage positions to outsourcing to historically low rates of labor-force participation. But few of those factors pertain to the AIM survey results, which are heavily tilted toward higher-wage manufacturing companies that are particularly challenged by the shortage of qualified production workers.

Current economic conditions only deepen the mystery.

Massachusetts approached full-employment levels this spring as the state jobless rate dropped to 4.2 percent. The AIM Business Confidence Index rose to a 10-month high during May and has remained in positive territory since October 2013.

“The good news is that the Massachusetts and US economies have proven remarkably resilient in the face of weak growth globally that unsettled financial markets at the beginning of the year,” said Raymond G. Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.

So, how to explain a projected 2.78 percent average wage increase?

Start with the fact that many employers remain cautious about increasing wages or expanding amid what has become a wildly inconsistent economy. Just when the nation appears to be building momentum in terms of output and financial performance, the pace of job growth dropped to its lowest level in May since 2010.

Inconsistencies also infuse the Massachusetts growth picture. The shortage of software professionals, scientists and engineers that has prompted some companies to pay five-figure referral bonuses in the white-hot Greater Boston region becomes far less acute in Gateway Cities and in other regions outside the Route 128 technology belt.

Consider as well the relentless development of technology that allows companies to automate products, operations and services. Massachusetts manufacturers now turn out far more product with far fewer people than they did 25 years ago, changing the demand equation from finding large numbers of people to finding smaller numbers of more qualified people.

The lingering question is whether employers will be able to hold to their modest wage-increase budgets in the face of all the upward pressure on compensation. The employers who participate in the AIM General Wage Survey are generally cold-eyed and realistic about their wage plans, but experts believe the tight labor market may force them to raise their projections to attract and retain key performers.

In the meantime, employers are considering multiple strategies to manage compensation costs:

  • Target variable and incentive pay to reward top performers so the company provides incentive without incurring pyramiding year-over-year increases to base wages.
  • Differentiate between top and low performers with a broader range of merit increases, enabling employers to spread their merit dollars further, though at the risk of turnover in a tight market.
  • Budget for adjustment, promotional or emergency wage increases in addition to the planned merit budget, allowing the flexibility to respond to compliance and market pressures, but at the expense of operating costs.

Here are details about some of the factors influencing wages in Massachusetts:

Massachusetts Minimum Wage

The minimum wage increased from $9 to $10 per hour, effective January 1, 2016.  It will increase again on January 1, 2017 to $11.  These increases will strain the year-over-year salary budgets of many employers in two ways.  First, employers with employees at the minimum wage will experience a 22 percent increase to labor costs in those positions. Second, as wages for minimum-wage earners increase, employees in positions currently compensated in the $11-$15 range will be seeking above- average increases to maintain their differential to minimum wage.  Employers will be hard pressed to meet these needs within a 3 percent increase budget.

“Tough to Fill” Positions

Many Massachusetts employers have expressed concern about the shortage of potential employees possessing the necessary skills needed in an increasingly complex economy.  Filling these positions will result in newer employees entering the work force at wages equal to, or higher than, existing employees with more years of experience.  Employers will thus face internal pressure to dedicate additional dollars to experienced employees to maintain internal equity.  A detailed discussion of “tough to fill” positions is included in the AIM 2016 General Wage Survey summary, including listings of positions experiencing the largest annual increase from 2015 to 2016.

Managing Poor Performers

For the fourth year in a row, participants in the annual AIM General Wage Survey have identified managing low performers as their compensation priority.  The strategic handling of poor performers may provide additional budget strain as low performers exit the work force and employers seek to replace them in a tight employment market.  Strategies for effectively managing performance are discussed in more detail within the AIM 2016 General Wage Survey summary.

Employers will need to choose wisely and set priorities for targeted employee groups.  Treating 3 percent as a hard cap on wage escalation might not be the best option for 2016.

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Topics: AIM General Wage Survey, Compensation, wages

Top Signs that Your Compensation Plan is Broken

Posted by Russ Sullivan on Oct 5, 2015 1:34:42 PM

The first inkling that your company’s compensation system is out of balance often comes when a key performer suddenly leaves to take more money somewhere else.

FourpeopleI have heard the same story many times in the years I have taught compensation management to experienced HR people as part of AIM’s HR Leve Two certificate series – a valuable performer is recruited to another employer, perhaps even a competitor, because the compensation program at your company has drifted away from the market.

What are the top signs that your pay and benefits are out of balance?

  • The company has no job descriptions or poorly written job descriptions.  Not knowing what the job is makes it impossible to know what to pay the job.
  • Title creep.  Companies often award titles, rather than compensation, so there is a disconnect when the employee compares her or his pay to others with the same title outside the company.
  • Lack of salary ranges. There is no understanding of the minimum or maximum value of a particular job.
  • When they do have salary ranges, companies often forego increasing those ranges when they have had a difficult year financially.  The market still moves ahead and so they find themselves out of sync with the market.
  • Lack of consistency among departments in the way in which employees are compensated.  One department is conservative when it comes to pay while another department looks for every opportunity to give money.
  • Across-the-board increases.  The company compensates high performers and low performers with the same percent of increase, leading to a culture of mediocrity.  High performers start to wonder why they put in superior effort when they receive the same increase as an employee who puts in half effort.
  • Failure to periodically check the internal equity of the pay structure.  Companies sometimes make the mistake of hiring people at or above the salaries of workers doing the same job and who have more experience.  This drives turnover.  It is a little like the bank that gives special rewards and rates to new customers, but existing customers are not eligible.
  • Lack of a well-defined pay philosophy.  How does the company want to pay in comparison to the general market?  Does the company want to be a market leader, pay the same as market or be a market laggard?  Having a plan and managing to the plan makes a company more likely to be in control of their compensation system.
  • Trying to manage compensation with people who don’t have expertise in compensation.  You would not go to a general practitioner if you needed back surgery.  Getting the right help is critical.

Register for HR Level Two Certificate Series

Topics: Compensation, Management, Human Resources

Loss of Economic Momentum Gives Employers Pause

Posted by Christopher Geehern on Jun 2, 2015 8:16:00 AM

Two reports issued today by Associated Industries of Massachusetts (AIM) suggest that employers have grown wary of an economic recovery that appears to have lost momentum during the first half of 2015.

BCI.May.2015The big question, according to analysts, is how much has momentum slowed and for how long?

The monthly AIM Business Confidence Index fell for a second consecutive month in May after reaching a 10-year high in March. The Index lost 1.8 points to 57.3 on a 100-point scale, still comfortably in positive territory but showing moderating expectations for growth during the remainder of the year.

Meanwhile, the annual AIM General Wage Survey Report found that for the third consecutive year, a majority of AIM-member companies have targeted merit and general increase spending at 3 percent for 2015. Economists say the modest wage gains reflect the fact that many organizations have decided to keep pace with an expanding economy by boosting productivity and capital investment rather than payrolls.

Both reports come four days after the government announced that the US economy contracted 0.7 percent during the first three months of the year. The economic numbers have prompted the Federal Reserve to postpone an interest-rate hike that was widely expected in June.

Raymond G. Torto, Chair of the AIM Board of Economic Advisors (BEA) that produces the Business Confidence Index, said employer optimism is up 2.5 points from last May, “but coming off an upward surge from August through March, business confidence seems to have lost momentum.”

“The Index performed well during the first quarter of this year, but now it is weakening even as growth appears to be picking up,” said Torto, Chair of AIM's Board of Economic Advisors (BEA) and Lecturer, Harvard Graduate School of Design.   

He noted that economists’ forecasts for expansion in 2015 have moderated. “Our survey does reflect lower expectations for the six months ahead,” he said. “We also see lagging confidence among manufacturers, whose exports are hurt by the strong dollar, and among mid-size companies.” 

AIM’s Business Confidence Index has been issued monthly since July 1991 under the oversight of the Board of Economic Advisors. Presented on a 100-point scale on which 50 is neutral, the Index attained a historical high of 68.5 in 1997 and 1998; its all-time low was 33.3 in February 2009. 

The May confidence report showed employer assessment of current business conditions down nine-tenths at 57.4, while their expectations for the next six months, lost 2.8 points to 57.1.

One bright spot came in the Employment Index, which reached its highest level since September 2005. Employment expectations for the next six months were particularly strong, with 37 percent of responding employers planning to add staff, while 14 percent expect reductions.

The General Wage Survey report, based on responses from several hundred Massachusetts employers, showed that overall merit increase budgets for 2015 average 2.69 percent when companies planning a zero percent increase are included. That figure is down from the 2.71 percent posted in 2014; higher than the 2.53 percent in 2013, 2.55 percent in 2012 and 2.4 percent in 2011.  The percentage of companies providing no wage increases dropped in half from 14 percent in 2013 to 7 percent this year.

Those numbers are consistent with national compensation surveys that appear to agree that wages generally have not risen as predictably as they have in previous recoveries.

But Andre Mayer, Senior Advisor at AIM, says those aggregate numbers mask growing wage acceleration in many of the technical and managerial fields in which Massachusetts is strong.

“Even as the overall averages show only modest increases in compensation, the competition for experienced incumbent workers with high-demand skills is heating up. Employers are not only becoming more willing to hire, they are becoming more willing to pay a premium for the skills they need,” Mayer said.

Topics: Compensation, AIM Business Confidence Index, Massachusetts economy

HR Practices Survey - Predictable Wage Growth, Unpredictable Laws

Posted by Karen Choi on Dec 22, 2014 7:34:31 AM

The year 2015 will be anything but business as usual for Massachusetts human resource professionals.

HR.Practices.2014Sure, compensation increases will average a predictable 2.9 percent amid a persistently slack labor market. And Massachusetts will continue to keep pace with national projections of an overall average 3 percent increase in pay for American workers.

But the annual HR Practices Report published by Associated Industries of Massachusetts finds that beneath that placid surface lurk new state laws ready to roil the waters for anyone who manages pay and benefits at a Massachusetts company:

  • The impending three-year phased increase in the Massachusetts minimum wage from $8 per hour to $11 per hour. The $9-per-hour minimum that takes effect on January 1, 2015, will force some employers to raise entry-level pay rates while also bumping up wages for workers who currently earn slightly more than minimum. Employers face another $1-per-hour increase in the minimum wage in January 2016 and a third in January 2017. The result is that human resource professionals are scrambling to develop multi-year approaches to the minimum wage that will require both actual paid rates and salary ranges to be adjusted.
  • Federal health care reform kicks into high gear for employers on January 1, 2015. Employers with 100 or more full-time plus full-time equivalent employees face possible assessments. All employers with 50 or more full-time and full-time equivalent employees must start to collect data to meet the reporting requirements of the Affordable Care Act (ACA). These companies will need systems to track employee hours, health-care eligibility dates, number of full-time employees each month, employee participation in health insurance, and employee contributions to health insurance to meet ACA reporting requirements. Added to these calculations are the establishment and tracking of standard and initial measurement and stability periods. HR professionals will need some combination of new processes, systems, or partnerships to avoid adding staff to comply with these regulations.
  • The new Massachusetts paid sick days law approved by voters on November 4, 2014. The measure will force many employers to restructure their paid time-off policies prior to the July 1, 2015, effective date. The specific accrual, usage, and carryover provisions of the law do not mesh well with existing employer policies. Employers will need to develop separate time-off tracking to accrue, deduct, and carry over time pursuant to the new law. Once again, processes, systems, and the assistance of key partners such as their payroll providers will be important to meeting the requirements without adding staff.
  • The Massachusetts Wellness Tax Credit. It is available to employers with 200 or fewer employees. Qualifying employers may receive an annual tax credit equal to the lesser of 25 percent of their wellness program investment up to $10,000. Employers must demonstrate that they have taken steps to determine the health needs of their employees and developed a program tailored to address those needs.

That’s a full menu of challenges, especially for small companies that struggle to implement complex laws and regulations. So fasten your seatbelt—it’s going to be an interesting ride.

Topics: Compensation, Health Care Costs, Human Resources

Wage Growth Remains Muted Despite Labor Shortages

Posted by Karen Choi on Jun 10, 2014 12:10:00 PM

Economic theory holds that rising employment and widespread labor shortages drive up wages.

Compensation and WagesWell, so much for theory.

At a time when employment in Massachusetts has finally surpassed its all-time high set in 2001 and employers in multiple industries cannot find qualified workers, wage and salary growth in the Bay State remains strangely muted.

The 2014 AM General Wage Survey finds that Massachusetts employers increased wages and salaries by an average of 2.71 percent this year, a slightly faster pace than the 2.53 percent posted in 2013, 2.55 percent in 2012 and 2.4 percent in 2011. Fifty-five percent of the companies taking part in the survey are giving raises of exactly three percent as employers coalesce around what appears to be a safe wage increase level that does not get out ahead of the economy.

The percentage of companies providing no wage increases dropped in half from 14 percent in 2013 to 7 percent this year.

Wages at 2.71 percent are growing faster than prices, which are increasing at 1.7 percent annually in the Boston area.

Analysts believe employers still fear economic and political uncertainty, even though incomes, balance sheets, credit availability and other factors driving consumer and business spending are improving. It is a fear that kept the AIM Business Confidence Index locked in a narrow, four-point range for 18 months before turning upward in April and May.

"The ongoing strengthening of the economy still feels more like a prolonged convalescence than like robust health,” said Raymond G. Torto, Global Chairman of Research at CBRE and Chair of AIM's Board of Economic Advisors (BEA.)

“Consumer confidence reports are mixed; federal spending cuts continue to affect Massachusetts companies and institutions; quantitative easing is winding down; the Affordable Care Act is raising more issues for many employers than expected; and financial problems in emerging economies cast a shadow on global prospects.”

Wage and salary increases are fairly steady across industry and employee types. Average raises for 2014 fall between 2 and 3 percent across manufacturing, service and other companies. Executives are seeing the smallest jump in paychecks at 2.55 percent, while exempt employees lead the pack at 2.75 percent.

Only one percent of companies plan salary reductions for any class of employee in 2014. One in five companies, meanwhile, maintains a formal incentive compensation program that offers bonuses ranging from 7 percent to 30 percent of salary.

The conservative approach by employers to compensation may be consistent with a state unemployment rate that has dropped only haltingly to 6 percent after peaking at 8.7 percent in October 2009. But the numbers also belie a growing body of evidence that both the US and state economies are strengthening:

  • U.S. equity markets surged between 25 and 30 percent during 2013.
  • The national economy has created an average of 183,000 jobs per month during the past year.
  • Massachusetts economy grew at an annual rate of 3.5 percent during the most recent period for which statistics are available.
  • Bay State venture capital firms raised $5.4 billion for new investments, more than triple the amount raised in 2012.
  • The commonwealth posted 3.396 million jobs in March 2014, finally surpassing the previous high of 3.391 jobs recorded in February 2001. Employment gains in Education & Health Services (+34%), Leisure & Hospitality (+20%), Other Services (+11%) and Professional, Scientific and Business Services (+2%) offset declines in Manufacturing (-39%), Information (-22%), Financial Activities (-11%), Construction (-11%), and Trade, Transportation & Utilities (-6%).
  • Worker shortages caused by both skill gaps and demographic changes are pervasive throughout the Massachusetts economy. The 2013 Massachusetts Job Vacancy Survey indicates that five percent of all jobs in the Bay State – 135,000 positions in all – stood vacant at year end. Vacancy rates ran 6.1 percent in computer and mathematical occupations, 4.8 percent in healthcare support occupations and 2.7 percent in manufacturing.

Economists believe that continued steady job growth coupled with increasingly critical skill shortages will inevitably push wages beyond the 3 percent comfort barrier for employers. The question is, how soon?

It’s already happening in a few specialized technical areas. Software engineers command six-figure paychecks and companies such as Cambridge-based Hubspot are paying bonuses of up to $10,000 for referring engineers.

Manufacturing, heavily represented in the AIM General Wage Survey, may provide a more interesting long-term test case. The significant decline in manufacturing employment since 2001 has clearly created a short-term buyer’s market for labor among companies that build things. But a projected 100,000 job vacancies through retirements during the next 10 years and relentless technological innovation will at some point exert upward pressure on wages, especially in advanced manufacturing occupations.

It’s shaping up to be an interesting decade.

Topics: Compensation

Don't Increase Minimum Wage in Middle of the Year

Posted by Brad MacDougall on May 20, 2014 1:55:00 PM

There are sound economic reasons not to raise the minimum wage in Massachusetts.

Minimum WageThere are even sounder reasons to avoid doing so in the middle of most employers’ fiscal year.

Both chambers of the Massachusetts legislature recently passed bills to boost the commonwealth’s $8 per hour minimum wage – the House to $10.50 over three years and the Senate to $11 over three years and then indexed to inflation. The two proposals agree on one point – the minimum wage would take its first step up from $8 to $9 per hour on July 1, giving employers less than a month to budget for a change that will affect hundreds of thousands of employees.

Tipped employees currently earning $2.63 per hour would see that amount increase to $3.75 per hour over three years under the House bill and $5.50 per hour under the Senate version.

A House/Senate conference committee will hammer out the differences, but few expect a final vote to send the measure to Governor Deval Patrick until close to – or even after – July 1. The proposed $8 to $9 increase would raise the wages of an estimated 284,000 people at a total cost of $201 million.

“The clear solution, should the Legislature decide to increase the minimum wage, is to have the increase take effect on January 1, 2015. It’s patently unfair to ask employers to change their entire compensation budgets midway through the year,” said John Regan, Executive Vice President of Associated Industries of Massachusetts.

The minimum wage would rise to $10 an hour on July 1, 2015, and $11 an hour indexed starting July 1, 2016 under the Senate bill, while the House bill would increase the level to $10 per hour on July 1, 2015 and $10.50 on July 1, 2016. The minimum wage in Massachusetts last increased to $8 an hour in January 2008.

The Economic Policy Institute estimates that an $11 per hour minimum wage would provide an average pay increase of $2,573 to 491,900 Massachusetts workers who currently earn between $8 and $11 per hour. It would indirectly push up wages by an average of $727 for an additional 317,200 workers because of union contracts linked to the minimum wage and general upward pressure on wages.

That comes to a total tab of $1.5 billion for Massachusetts employers. The research raises the specter of massive wage compression in which newer and lesser skilled workers suddenly earn as much as more experienced employees who are providing value to an organization.

Companies will be forced to address the problem by adjusting their entire compensation systems, usually upward and across-the-board.  The adjustments will include salary ranges, which are developed by setting range widths (difference between minimum and maximum) and relationships between range midpoints.

AIM opposes increasing the minimum wage but acknowledges that supporters have the votes to pass such a measure. Employers remain concerned about the action because it misses the real reason that many of our fellow citizens struggle to achieve an adequate standard of living - lack of appropriate training for the high-value jobs driving the state economy.

A market-based economy provides financial compensation to employees according to their ability to contribute to the success and profitability of the organization. That’s why AIM has for decades supported education reform, school-to-work initiatives, increased opportunities for training, community-college-based training initiatives, tax credits for training, and funding for the Massachusetts Workforce Training Fund.

Increasing the minimum wage has the perverse effect of limiting opportunity for young and lower-skilled workers and pushing jobs out of the market. Far from helping poor people, moving the minimum wage to $11 an hour will simply ensure that people whose skills do not justify that wage will not find jobs.

The more targeted approach to assist families is through the Earned Income Tax Credit (EITC), a credit currently set at 15 percent of the amount of the federal credit in Massachusetts.  These sole earners derive greater economic benefit from the combined state and federal EITC.  Because the EITC does not have a correspondingly negative impact on job creation and business costs, AIM has supported this approach rather than simply raising the minimum wage, or here simply indexing the wage to CPI.

Supporters of raising the minimum wage are seeking to place a question on the November statewide ballot the ballot that would bring the wage to $10.50 in January 2016. Tipped wages would climb to 60 percent of the minimum wage.

Topics: Compensation, Minimum Wage, Massachusetts Legislature

AIM Report: Projected Raises Finally Top Levels Prior to Recession

Posted by Karen Choi on Jan 21, 2014 8:48:00 AM

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.

Topics: Compensation, Associated Industries of Massachusetts, Human Resources, Benefits

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