Californians’ Raises Are the Lowest in 25 Years, Survey Says : Labor: Continuing decline--to 3.7% this year--reflects changing relationship between employees and employers.

Californians are getting their lowest raises in more than 25 years--an average of 3.7%--and, despite improving economic conditions, may face layoffs or disruptive reorganizations in the workplace this year, according to a survey by compensation consultant William M. Mercer Inc.

The decline in pay raises for California employees, from 3.8% last year, continues the downward trend begun in 1990, according to Mercer. It mirrors national figures reported by Towers Perrin, another compensation and benefits consultant, which last month said 1995 merit pay increases nationwide were at a six-year low.

The trends reflect the continuing evolution of the employer-employee relationship in California, said Kenneth R. Wechsler, a compensation consultant in Mercer’s Los Angeles office.

“We’re seeing the recession prolonged in this state, and it’s having an effect on salary increases and the way employers are doing business,” he said. “Employers are outsourcing more, looking for more flexibility in the work force, hiring more part-timers.”

Traditional raises, Wechsler said, are falling by the wayside in today’s workplace. “Employers will reward their employees in the future,” he said. “It won’t be in base pay, but in incentive programs and alternative rewards, such as individual bonus programs, small-team incentives or organization-wide programs tied to productivity factors.”

The 3.7% average raise for Californians this year exceeds inflation as measured by the consumer price index, the Mercer study found, but other factors may actually be reducing Californians’ real earnings. Among them: the increasing numbers of employees and retirees who are being asked to shoulder some, or more, of the costs of health care insurance for themselves and their spouses, and a continuing trend among employers to discontinue traditional pension plans and instead offer plans that rely on an employee’s own contributions.

In 1995, according to the Mercer survey, 72% of employers required employees to contribute to their health care plan, about the same as last year but up from 47% in 1989. Also this year, 90% of employees covered by the survey were required to contribute to their spouse’s health care coverage, up from 71% in 1989.

Wechsler said he is surprised by the percentage of employers saying they are considering layoffs or anticipating re-engineering this year. In the survey of 284 California companies and organizations, accounting for 1.8 million jobs, 45% of the firms said they will make job cuts this year, up from 37% last year. Also, 57% said they are planning structural changes in the organization, up from 45% last year.

“I think what’s happening is that re-engineering is working its way into smaller organizations,” Wechsler said. The total number of employees affected by such changes will probably be lower than in years past, when major companies throughout the state were restructuring and laying off, he said.

Last month, Towers Perrin said its nationwide survey of merit increases found that this year’s raises were below both what companies had planned to give and the 1994 figures. This year, the firm said, merit raises for top management and exempt employees (typically, middle management and professional staff) averaged 3.6%, while non-exempt (clerical and hourly) employees got raises averaging 3.5%.

Mercer’s survey indicates that for 1996, California employers are projecting salary increases of 3.8% to 4.2%, with a statewide average of 3.9%. The survey found that employees in Northern California are generally getting higher raises than their Southern California counterparts and are likely to again next year.

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Lean and Leaner

Continuing a steady downward trend, California workers this year are getting the smallest pay raises in a quarter century, a new study says. Average raises are marginally higher than the inflation rate, but experts say most working Californians are losing purchasing power.

1995*

Average raise: 3.7%

U.S. consumer price index: 3.2%

* Pay raises for 1995 are those budgeted by surveyed firms.

Source: William M. Mercer Inc.