Pay Raises Ahead?

Nearly six years after the official end of the recession, something exciting is about to happen: Americans are likely to FINALLY get a raise! Government data (the Employment Cost Index or “ECI”) showed that compensation in the first quarter increased by 2.6 percent from a year ago, up from the 2.2 percent gain in the previous quarter and the fastest pace since Q4 2008. The private sector did even better, seeing an annual growth rate of 2.8 percent, the best year over year pay gain since Q3 2008. A year ago, the rise in private sector wages and salaries was only 1.7 percent, so while growth rates are still modest by historical standards, this report demonstrates good progress and is a sign of potentially more robust increases later this year. Joel Naroff of Naroff Economic Advisors predicts, “Within a quarter or two at the most, we should be back above 3 percent,” which is just about average for an expansion.

How can we square this upbeat information with the monthly jobs report category of “average hourly earnings”, which showed annual growth of just 2.1 percent in Q1 (and for the entire recovery)? Greg Ip of the Wall Street Journal notes, “The divergence may be explained by the fact that the quarterly figures include commissions and other performance-based pay, which rose sharply in the first quarter, and may not be repeated.” That may be true, but it should also be noted that the Fed has traditionally put more weight on the employment cost index, since it tracks the same jobs over time and adjusts for the changing mix of jobs in the economy. If Janet thinks ECI is the better gauge to use, then we should too.

Other indicators have enhanced the case for future pay raises: weekly jobless claims are hovering at 15-year lows; ISM Service sector indicators are strengthening; and a variety of big companies, including McDonalds, Wal-Mart, Target, Cheesecake Factory and Aetna, have all announced an increase in pay to lower wage workers.

We’ll learn more about the state of the nation’s labor market this week, when the government releases the April employment update. Economists are hopeful that the weak March report, where just 126,000 positions were created, was a one-off event, rather than a more worrisome trend that is gripping the nation. The consensus estimate is that 220,000 new jobs were created and for the unemployment rate to edge down by a tenth of a percent to 5.4 percent.

Happy Anniversary, Greek Bailout! Time sure does fly, when you bail out an indebted nation. It has been FIVE YEARS since Europe and the International Monetary Fund first agreed to bail out Greece (May 2, 2010). Eurozone officials are busy trying to hammer out yet another debt restructuring with Greece, which once again faces a summer default without a deal.

MARKETS: That thud you heard this week was the sound of plummeting social media stocks. Twitter, LinkedIn and Yelp all tumbled by more than 20 percent on the week, after weaker than expected earnings reports and dim prospects for the rest of the year. Social media stocks have been on a massive run and even with these three misfires, the social media index (SOCL) is up over 10 percent this year, 3.5 percent better than the NASDAQ Composite.

• DJIA: 18,024, down 0.3% on week, up 1.1% YTD
• S&P 500: 2108, down 0.4% on week, up 2.4% YTD
• NASDAQ: 5,005 down 1.7% on week, up 5.7% YTD
• Russell 2000: 1267, down 3.1% on week, up 2% YTD
• 10-Year Treasury yield: 2.12% (from 1.92% a week ago)
• June Crude: $59.15, up 3.5% on week (up 25% in April, biggest monthly gain since 5/09)
• June Gold: $1174.50, down 0.03% on week
• AAA Nat'l avg for gallon of regular Gas: $2.60 (from $2.51 week ago, $3.69 a year ago)

THE WEEK AHEAD:

Mon 5/4:

Cablevision, Comcast

10:00 Factory Orders

Tues 5/5:

Zillow

8:30 International Trade

10:00 ISM Non-Manufacturing Index

Weds 5/6:

MetLife, Prudential, Whole Foods

8:15 ADP Private Sector Jobs

8:30 Productivity

Thurs 5/7: UK Election

Zynga

3:00 Consumer Credit

Fri 5/8:

AOL

8:30 April Employment Report

How to get a raise (Hint: Be a top performer!)

Ben Bernanke told Congress that despite a gradual improvement in the labor market, “the jobs situation is far from satisfactory, as the unemployment rate remains well above its longer-run normal level, and rates of underemployment and long-term unemployment are still much too high.” Because the labor market is still so difficult, employers have been able to keep a lid on wage growth. According to the latest Mercer compensation survey, despite a strengthening economy, base salaries are expected to rise by only 2.9 percent in 2014, which is just a touch better than last year’s 2.8 percent and the previous two year’s 2.7 percent. Sure, that’s an improvement since the recession levels, when increases were averaging 2.1 percent, but it still lags the mid-2000s when annual increases averaged around 3.5 percent.

There is a bit of good news, though. If you are a top-performing employee (about 7 percent of the workforce), you may see a bigger increase. In 2013, the highest-performing employees received average base pay increases of 4.6 percent compared to 2.6 percent for average performers and 0.2 percent for the lowest performers.

Obviously, employers want to keep their top performers, so it may take some creativity on your part to get the much-needed boost in your paycheck. Here are some tips for how you can make your case -- I have used all of these at various times as both a boss and as an employee!

• Create and maintain a list of your accomplishments - include everything! Management cares about results - either how much money you saved or made the company. Be sure to exclude things like how many hours you spent on a project.
• Remind your boss of your specific experience and why it adds value to the business and makes him or her look good.
• If your company has a salary freeze in place, try to get your boss to agree to revisit your compensation in six months and set a date for a future meeting.
• Ask your boss to pinpoint goals that you will achieve in that period--a certain percentage increase in sales, projects that will be completed-- be as specific as possible.
• Memorialize any compensation conversations by sending a follow up email after the meeting and provide updates as necessary.
• Think beyond pay…there's more to compensation that the dollars. Ask if the company would consider:
  • Bumping up your commission rate or stock incentives
  • Adding more flexible hours or an extra week of vacation
  • Allowing you to pursue continued education.
• Negotiate for non-monetary benefits. A better title may help position you down the line for more money. And something as simple as a better office or workspace, can improve the quality of your work life.