Bigger raises make it ‘a good year’ to be here

The good local economy is paying off for Houstonians, who can expect higher than average raises next year.

The average raise in Houston will be 3.6 percent next year, compared to 2.9 percent for the national average, according to Mercer, an employee benefits consulting firm that surveyed nearly 1,500 large and midsize companies on their compensation plans. The companies, including 50 in Houston, employ 13 million.

This year, Houstonians got an overall 3.7 percent bump compared to a nationwide average of 2.8 percent, according to Mercer. The data include white- and blue-collar workers.

“Houston is a hot labor market,” said Jeanie

Adkins, U.S. workforce rewards practice leader for Mercer in Louisville. “It’s a good year to be a Houstonian.”

A significant driver is the predominance of the oil and gas industry, which is on top when it comes to salary increases, Adkins said.

Nationwide, the oil and gas sector will pay the biggest raises, 4.1 percent next year, according to the survey.

They’re even higher in the upstream energy segment of oil and gas, said Ann Manal, a partner at Mercer who consults with clients on compensation issues in Houston. For employees in oil and gas exploration and production nationwide, average raises will be 4.7 percent.

It’s a supply and demand phenomenon, said Manal. Petro-technical employees are in short supply. Companies are recruiting from each other. More money coming in

A continued wave of foreign investment in the upstream markets is also pushing up wages, she said. The money is being used to launch new companies that need to acquire talented workers, and that is having an inflationary effect on wages.

There is unquestionably more demand, said Stephen Newton, area manager for the Houston office of Russell Reynolds Associates.

He spoke of a CEO he knows who sold his energy company and was contacted by 40 privateequity firms to start a new enterprise.

Newton, recalling how incredulous he was when he heard the tale, asked one private-equity firm if it could be true. It turned out that firm was among the 40 suitors.

A lot of money is coming into the industry, from domestic and international sources, said Newton. That, he said, “is absolutely pushing up the demand for executives and managers.”

On the opposite end of the pay raise scale, according to the benefit consulting firm Aon Hewitt, is government. Those workers can expect an average raise of 2.2 percent next year.

The federal sequester is having an impact on the raises for government employees, said Ken Abosch, compensation, strategy and market development leader at Aon Hewitt.

But the budget squeeze is affecting raises for state and local government workers as well, he said.

Location and industry aren’t the only factors this year. Raises also depend on job performance and companies are giving much more money to their top performers this year.

As budgets have gotten smaller, companies are doing more with less, said Adkins. They’re targeting their compensation budgets much more carefully and in the hot talent markets in cities like Houston, they’re spending more to retain their top talent.

The top-performing 7 percent of employees in the U.S. work force can expect a 4.6 percent raise next year.

The vast middle — which is 54 percent of the population — will get a 2.6 percent bump in 2014, according to the survey.

Top performers have always been rewarded with bigger raises. But the trend has intensified as companies have increasingly focused on their top performers, said Newton. Local economy robust

In Houston, life is good for many workers who have been enjoying betterthan-average raises over the past few years. That illustrates the robustness of the Houston economy and its oil and gas sector, said Manal.

In cities and industries where raises are nominal or nonexistent, however, that typically signals a softening in the market or location. In those cases, she said, there is not much pressure to continue to increase pay.

That’s the story in much of the nation, where companies are under tremendous pressure to keep costs down, said Abosch. Labor supply still outstrips demand, so there is not much economic pressure to move the raises higher. Net gain for employees

To employees, getting a 3 percent raise doesn’t feel like much when the cost of living is running about 1.8 percent, he said. While it’s a net gain in purchasing power, many consumers don’t think they’re getting ahead, considering high prices for gasoline and health care.

But most workers can take some comfort in knowing they’ll be getting a raise of some kind this year as well as next. Absoch said 99 percent of companies report they are giving their employees raises, while less than 1 percent have said they’re not.