What’s in store for 2006?  Research organizations have made their predictions, but unstable oil prices can cause even the most positive projections to take a drastic turn.

According to Michael Maciekowich, National Director of Astron Solutions, organizations need to review 2006 salary budget projections with a cautious eye.  "While inflation and unemployment levels have remained steady throughout 2005, this may change as we get closer to 2006.  The price of a barrel of oil, now priced in the upper $60s, may ultimately have an impact on the nation's unemployment rate. When consumers divert spendable cash away from non-durable goods, such as electronics, to the fuel pump, companies may end up with a surplus of goods, causing them to reduce production.  These events can lead to layoffs and a higher unemployment rate.  Higher unemployment often leads to reductions in salary raises, due to the increased supply of workers."

However, economists in the federal government are optimistic.  The Congressional Budget Office (CBO) believes that the economy is growing at a healthy pace.  When considering the impact of inflation, the CBO believes that real gross domestic product (GDP), which is the total value of all goods and services produced by a country in a year, will grow by 3.7 percent in 2006, before slowing to a pace of 2.9 percent.   

What then, according to recent economic projections, can we expect in the coming year in regard to compensation budget planning?  The CBO forecasts a percentage change of 1.9% (down from 2.4% in 2005) in the Consumer Price Index and a 5.2% unemployment rate (no change from 2005).

According to the 2005-06 WorldatWork Salary Budget Survey, we should expect to see a slight drop in the use of variable pay programs in 2006.  In 2005, the average budgeted incentive for exempt employees was 12.7%.  The projections for the average budgeted incentive in 2006 reveal a possible decrease to 12.2%.

The following table is a summary of 2006 average preliminary base pay budget levels for twelve key industry groupings.  These increase amounts include all base pay adjustments including merit, promotions, and market equity. Information for this table was compiled from recently published studies by Mercer Human Resource Consulting, The Conference Board, and WorldatWork.
 

The following is a summary of projected formal salary range or structure adjustments by industry group at the exempt salaried level:

(Source: 2005-06 WorldatWork Salary Budget Survey)

Curious as to how the United States compares to the rest of the world?  The following statistics were taken from the Executive Resources Limited (ERL) 2005-06 Salary Increase Projections.  If you start to get concerned about your own budget adjustments, just be grateful that you aren’t instituting employee salary increases in Zimbabwe!