2006 Pay: How Will Federal Increase Compare With Private Sector?

How will the 2006 pay raise compare to the typical private sector increase? Here is a likely scenario.

The annual pay raise for federal employees is always a touchy subject for many readers. From the e-mail and comments posted on the FedSmith.com site, many (probably most) readers think federal employees don’t get paid enough. Others (perhaps readers who are not federal employees) say federal employees already make more than most people in the private sector so they should get a minimal pay raise, if any.

As the chart in one of our previous articles shows, federal employees have done very well compared to workers in the private sector over the past five years.

What about 2006? We know that the president has proposed a pay raises of 2.3% but, at the same time, proposed a pay raise for the military of 3.1%. Most federal employees are undoubtedly hoping they will get the same 3.1% as proposed for the military when January rolls around. And, based on experience in recent years and under different presidents, it is likely that the 3.1% raise will be what employees actually receive by the time the political dust has settled as pay parity has often become a rallying cry for those who support larger pay increases for federal employees.

If employees do get the 3.1% pay raise, how does this compare to what those in the private sector are getting? While federal employees have fared very well compared to those working for private companies, that may not be the case this year.

A recent report from Mercer Human Resource Consulting says that the average pay increases for 2006 are going to be about 3.6%. In part, this is because the number of companies imposing pay freezes (i.e. no pay increase at all) have decreased. Only 2% of employers report salary freezes now compared with 16% back in 2002. In industries such as auto manufacturing or airlines where the competition, changes in the marketplace, or financial obligations have exceeded revenue, most employees won’t be getting a wage increase and may be losing their jobs and at least some of their expected retirement benefits..

Companies are also using other ways to increase salaries. These can include using bonuses for a particular project. This is often cheaper for the company because it does not impact future financial obligations and, from a positive standpoint, most people like getting a check for a job well done–especially when it was not expected.

And, like the federal government which is moving toward a pay for performance system, a number of companies determine salary increases based on job performance and not just on seniority or length of time a person has held a job.

This may not make you feel any better if you are of the view that federal salaries are lagging behind those in the private sector. On the other hand, the pay increase you are likely to get as a federal employee is likely to be in the same ballpark as the typical raise for private sector workers and has exceeded that of most private sector workers in recent years.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47