Raises Small in 2003, 2004, Survey Says

Third consecutive year that salary hikes will come in under 4 percent. Elsewhere: here come the CGOs, SEC says how-dee to Gaylord, and ERP rollout forces Cummins to restate.

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It looks like it’s going to be a buyer’s market for labor a lot longer than many economists had anticipated.

Indeed, the Labor Department reported late last week that 44,000 jobs were cut in July, the sixth straight month that jobs were lost from the economy.

In addition, the workforce declined by 556,000, as 470,000 unemployed people threw in the towel and stopped looking for work.

Given the lack of hiring, it’s not overly surprising that pay increases will probably average just 3.3 percent in 2003, according to a recent survey from Mercer Human Resource Consulting. The survey, which includes responses from more than 1,700 U.S. employers and reflects the pay practices of nearly 15 million workers, predicts salaries will go up a mere 3.5 percent in 2004.

If so, that would mark the third consecutive year that annual employee pay increases have been less than 4 percent.

Bear in mind that during the eight-year period prior to 2002, annual pay increases averaged 4.1 percent to 4.4 percent, before dipping to 3.8 percent in 2002.

The Mercer forecasts include data from employers who are planning to freeze salaries for at least part of their workers. Take those companies out of the mix, says Mercer, and pay increases will likely average 3.6 percent for both 2003 and 2004.

As for 2004 pay increases: not surprisingly, executives are slated to receive the largest increases next year (3.7 percent), while nonunion hourly employees should expect to receive the smallest raises (3.4 percent).

Although salary hikes are still anemic, fewer companies are forgoing pay hikes altogether. The percentage of companies that instituted pay freezes in 2003 dropped to 12 percent, down from 16 percent in 2002. And very few employers indicated that they will freeze employee pay in 2004, according to Mercer.

For executives, salary freezes were most common for the computer software/services industry (28 percent froze executive pay in 2003) and real estate (25 percent).

At the other end of the spectrum, executives in research and development and pharmaceutical/biotechnology firms were unaffected by salary freezes.

Other results from Mercer’s study:

  • For the fifth straight year, non-monetary recognition awards were the most popular emerging award program, with 72 percent of respondents offering them — and another 11 percent of the respondents considering them.
  • Spot cash awards were the second most popular emerging program, with 53 percent of survey participants saying they use them, while another 8 percent said they are considering implementing such awards.
  • Individual non-management incentives are currently offered by 38 percent of the respondents, with another 15 percent considering those incentives.
  • Employers are paying more attention to employee careers: 22 percent of respondents currently have formal career planning, and another 20 percent are considering implementing similar employee retention programs.
  • Competency-based performance management is currently used by 34 percent of the respondents, but another 18 percent are considering this approach.

“Such trends reflect the fact that employers today are placing a greater emphasis on building talent from within versus buying talent on the market,” says Steven Gross, a compensation consulting leader at Mercer. “They want to spend their time and resources to develop the employees who already have demonstrated commitment to their companies.”

(Editor’s note: Next month CFO.com will publish its annual CFO compensation survey, produced in conjunction with Mercer Human Resource Consulting. If you’d like to be notified when the survey has been published, sign up for email alerts on compensation.)

Latest Trend: CGO

Another sea change for Corporate America?

Actually, it’s another “C” change. On the heels of huge accounting scandals at Enron, Tyco, and Worldcom, and with new rules coming from the New York Stock Exchange and the Securities and Exchange Commission, a growing number of companies are adding “chief governance officer” to their roster of executive titles. In many cases, companies are hiring attorneys to fill CGO positions.

The latest example: Hershey Foods, which on Monday named Susan Angele as vice president, deputy general counsel, and chief governance officer. Angele will report directly to Burton Snyder, the company’s general counsel, secretary, and senior vice president (International).

Angele will oversee Hershey’s compliance with corporate governance guidelines and regulations set by Congress, the SEC, and the New York Stock Exchange, noted company management.

Angele joins Hershey from Kraft Foods, where she has held a variety of legal positions over the past 20 years. Most recently she was head legal counsel and a member of the executive team of the biscuit, snacks, and confections segment of Kraft Foods.

“Susan brings to Hershey Foods an impressive depth of experience in the snack food industry as well as corporate governance matters and certain requirements of the Sarbanes-Oxley act,” said Snyder.

Last week, Eastman Kodak Co. named Laurence L. Hickey, the company’s assistant secretary, as its first chief governance officer.

Management at Eastman Kodak said Hickey will be responsible for leading its efforts to comply with SEC and NYSE mandates. Hickey is also being counted on to identify and adopt corporate governance best practices. Toward that, he will perform ongoing assessments of the governance practices and structure of the company’s board of directors.

Hickey will report both to corporate secretary James Quinn and to the corporate governance and responsibility committee of Eastman Kodak’s board of directors.

“Good governance is good business,” said Quinn, in a statement. “A platform of best-practice governance principles, together with strong support from senior management and the board of directors, is vital to ensure shareholder confidence.”

Late last month, Tenet Healthcare Corp., which has been the subject of a number of government probes, named Cheryl Wagonhurst as its chief compliance officer, according to Reuters. The news service also reported that Trevor Fetter, Tenet’s chief executive, mentioned the appointment at the company’s annual meeting on July 23. Wagonhurst will reportedly oversee a 40-person in-house team that will include clinicians, accountants, and legal experts.

In addition, the embattled Tenet named D. McCarty “Mac” Thornton special adviser to the company’s compliance department. Thornton was formerly chief counsel to the Office of Inspector General of the Department of Health and Human Services.

Other companies to recently name CGOs include Tyco International Ltd., Walt Disney Co., Krispy Kreme Donuts, and Sunoco.

“Some companies are indicating to the marketplace a new level of corporate governance is in place,” Patrick McGurn, senior vice president at Institutional Shareholder Services, said in a wire service report. “Others are giving in to a fashionable trend.”

So is the naming of a CGO good governance or merely PR? Hard to say. In July, for example, document management specialist Pitney Bowes Inc. named Amy Crean Corn, vice president and corporate secretary, to the newly created position of chief governance officer.

In announcing the move, Pitney Bowes chairman and CEO Michael J. Critelli stated: “At a time when corporate governance has come under fire, creating this position will further solidify our commitment to maintaining the highest standards in corporate governance and integrity, as well as to maximizing shareholder and customer value.”

It’s unclear, however, whether the board at Pitney Bowes has any intention of separating the posts of board chairman and chief executive — a move often advocated by shareholder rights groups.

How-dee! SEC Introduces Itself to Gaylord

Management at Gaylord Entertainment said the SEC is conducting a formal investigation into the financial results and transactions that were the subject of a company restatement earlier this year.

As you may recall, Gaylord restated its historical financial statements for 2000, 2001, and the first nine months of 2002 to reflect certain non-cash changes, which resulted primarily from a change to the company’s income tax accrual and the manner in which the company accounted for its investment in the Nashville Predators hockey team.

Management at Gaylord, which owns three hotels and attractions such as the Grand Ole Opry and Nashville’s Wildhorse Saloon, says it has been cooperating with the SEC and intends to continue along that line.

“Although the company cannot predict the ultimate outcome of the investigation, the company does not currently believe that the investigation will have a material adverse effect on the company’s financial condition or results of operation,” the company’s management noted in a government filing.

As we pointed out earlier this year, the company claimed that the restatements stemmed from a re-audit after Gaylord hired Ernst & Young to review the company’s financials for 2000.

Gaylord management said the re-audit was necessary because its previous auditor, Arthur Andersen, went out of business. Andersen was the company’s auditor for 2000 and 2001.

Cummins Restates Results

Cummins Inc., formerly Cummins Engine, restated its results for 2000 and 2001.

Why the rejiggering? According to a Cummins filing with the SEC, the restatement was triggered by an accounts payable adjustment associated with — get this — a new enterprise resource planning system in one of the company’s plants.

The adjustment required a complete re-audit of 2000 and 2001 by the company’s new independent auditor, PricewaterhouseCoopers. As with Gaylord, Cummins’ former auditor was Arthur Andersen.

“Our employees have worked extremely hard to complete the re-audit work over the last several months and I am very grateful for their outstanding effort. We remain committed to providing complete and accurate financial reporting,” said Tim Solso, Cummins’ chairman and CEO, in a statement.

Cummins management had said in April it would re-audit its 2000 and 2001 results because of a previously announced understatement of accounts payable at two plants.

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