IN '97, BENEFITS MAY DENT THE BOTTOM LINE It's no surprise that economists are worried that rising wages could take a bite out of margins in 1997. After all, with the unemployment rate at a low 5.2% and job growth projected to average a healthy 150,000 per month for most of 1997, wages should rise about 3.5%--the same hike expected for 1996. But the bite could be even bigger than many forecasters are projecting. Until now, companies have offset the upward creep of wages by trimming the growth in benefits (chart). Since benefits account for more than 25% of an average company's labor bill, any change in the cost of workers' compensation, health insurance, or pensions has a big impact. And the cost of perks is expected to start rising again. With little left to cut, companies may no longer be able to offset pay raises in 1997 by squeezing benefits. MEDICAL BILLS. For the last several years, that squeeze has come in handy. In the third quarter, for example, total compensation for civilian workers rose 2.8% from a year ago--the same rate as in each of the previous four quarters. But wages rose 3.3%, faster than the 2.8% hike a year earlier. Companies controlled total compensation by slowing benefits growth to 1.8%--down from 2% in 1995 and a steep 6% in the early 1990s. The benefits slowdown came mainly in health care. Companies slimmed their medical bills by using managed care and making workers carry more costs. According to a survey by Washington-based benefits consultants Foster Higgins Inc., health-benefit costs for active and retired employees rose 2.1% in 1995, compared with 1990's 17.1% surge. DRI/McGraw-Hill forecasts private workers' total compensation will increase 3.5% next year, with wages and salaries alone up 3.4%. That means benefits will rise 3.5%, since some, such as social security taxes and pension contributions, are determined by salary increases. With salaries rising since 1995, benefits growth is catching up, too. To maintain profit margins, companies are starting to rethink their benefits packages. Managers must introduce ''more variability in fixed pay and benefits so that as we go into downturns, the costs of labor will also go down,'' says Emmett Seaborn, a principal at benefits consultant Towers Perrin. As a result, employees will see more benefits tied to profits, such as profit-sharing, worker training, and stock options. In addition, a growing number of companies are trying to control benefits growth by getting more bang for their bucks. One way to do that is by allowing employees to choose among a variety of ''work/life programs.'' While a working parent may choose day care, a childless employee may opt for a concierge service that picks up the dry cleaning. Seaborn says what increases worker satisfaction is the belief that benefits plans serve their own individual needs. And satisfied workers will often go the extra mile--always a plus for the bottom line. By Kathleen Madiganin New York Return to main story

Updated June 14, 1997 by bwwebmaster
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