Merit Pay Could Be A Budget-Buster As Workers Age

As the average age of the U.S. population rises, so will payroll costs -- especially merit raises, according to a survey by consulting firm Watson Wyatt Worldwide. That's because workers view merit increases as an entitlement triggered by longer tenures as opposed to a reward for specific behavior. The aging workforce has already triggered a 9% increase in total payroll costs during the '90s, while merit pay increases have been 4%, according to the survey of 397 U.S. companies. The survey indicates that merit pay will be even more inflationary in the next decade as the number of workers over the age 55 will increase by 50%. "Employers who shift more resources away from paying people for showing up, and instead pay more closely with performance will be in a better position to manage the cost impact of an aging workforce," says Rick Beal, strategic rewards leader at Watson Wyatt. "And companies need to start now, before they get caught in the spiral of changing demographics and rising costs."