The Hard New Facts Of Pay

You're not safe from recession yet. But if you can keep your job for just three months more, you might be in the clear. The bleeding of workers out of corporations is finally being staunched-as measured by the smaller number of people who signed up for unemployment insurance last month.

Reading all the tea leaves, I'd bet on an end to this unhappy recession sometime this summer. By late fall, employers should start needing more workers to fill the new orders coming in. Here's where the strongest jobs rebound is apt to be, in the view of DRI/McGraw-Hill, Inc.:

The Pacific states-thanks to their high-tech industries and their advantage in the Asia trade.

The Southwest-thanks to the prospect of free trade with Mexico and the growing amount of business diversification since the horrifying oil bust.

The South Atlantic states-thanks to new business investment, lured by the area's low labor and living costs.

The slowest to recover will be the regions hardest hit by this recession: New England, New York and the Middle Atlantic states. These areas have a lot of strikes against them. The bust in commercial real estate decimated their banks and restricted local credit. Taxes, labor costs and housing costs are all too high to attract new businesses or even to retain the firms there now. State governments, strangled by steep budget deficits, can't yet afford to help their economies rebuild.

The agony of the East repeats the pattern of the rolling, regional depressions of the 1980s. First the rust belt, then the farm belt, then the oil patch collapsed under the weight of complacency and inflationary excess. Now it's murder in the money belt, as banks, securities firms and commercial builders have all been forced to shrink.

The epicenters of the last decade's downturns, the Southwest and Midwest, have spent the intervening years restructuring; they now face the 1990s in far sounder shape. The East, by contrast, is just starting to get a grip on itself. It has several years of repentance ahead.

But while job openings may increase, pay raises are quite another matter. Surveys of employers suggest that about one quarter of them are reducing planned merit raises by about 1 percentage point. The average projected gain this year for salaried employees: around 5 percent-just a hair above inflation. That's a break-even raise; you neither gain ground nor fall behind.

The Conference Board's Elizabeth Arreglado is surprised that raises look even this good, in view of the poor economy. Even profitable companies have been shaving salary increases when they could, reports Michael Conover of the consulting firm Sibson & Co. Why go overboard on pay, he says, when your competitors are letting workers out? As a friend of mine told me a couple of weeks ago, "My raise this year was not getting fired."

Increasingly, pay is made up of two parts: basic pay and either a bonus or a merit raise. One way of guessing your merit-raise potential is to learn (if you can) the salary range for your particular job. Say, for example, that managers at your level earn from $35,000 to $39,000. If you earn toward the low end of that range, and are considered a superior employee, you'll get an above-average raise, says Andrew Richter, a principal at the consulting firm Towers Perrin. If you're at the top end, however, you may not get much; the company figures that your salary is the best it can give for what you do. Once you top out, your pay stays pretty level unless you're promoted or find another job.

Marc J. Wallace Jr., of the University of Kentucky's business school, thinks that the way most of us are paid today is unproductive and obsolete. More employers, he says, should be asking the question, "What should the organization get in return for pay?"

Currently, the answer is time. eight hours or more a day, for 40 years of your life. Base pay plus an effective cost-of-living allowance is one's reward for showing up.

Increasingly, however, the answer to the pay question ought to be performance: bonuses paid for specific goals reached. In a survey of companies that are experimenting with alternative approaches to pay, Wallace found two main directions: (1) Skill-based pay-where the company grants raises as workers learn to perform new job-related tasks. And (2) gain-sharing-where the team or unit gets incentive pay for meeting certain quality or productivity goals. Performance-pay systems have gotten a bad name, from insatiable top executives who take zillion-dollar bonuses whether they achieve or not. But properly used, incentive compensation links up with workplace reform, which is the best hope for keeping American wages up.

In a must-read report called "America's Choice: High Skills or Low Wages!" ($18 from the National Center on Education and the Economy, P.O. Box 10670, Rochester, N.Y. 14610), the authors argue that traditional business practices are condemning American workers to Third World paychecks. If a plant finds itself uncompetitive, its managers think first of replacing workers with machines or of moving offshore. Low wages, high turnover. They rarely try the alternative, namely to reorganize the work so as to give the average employee more skills and responsibility. That could raise productivity and increase pay without sacrificing profits.

Executives have been raising Cain about the low skills of American workers-and, without doubt, schools must do better. But corporations are making things worse by mindlessly de-skilling their workplaces rather than training people to do a better job. There's a paradox in low pay: any company may earn more by paying its employees less. But when all companies pay less, workers wind up with so little money that all American businesses decline. The road back begins with the belief that lower wages will not do.

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