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Will Small Businesses Give Employees Raises in 2012?

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Most small businesses didn't give employees raises in 2011, and the situation may not improve much in 2012.
Most small businesses didn't give employees raises in 2011, and the situation may not improve much in 2012.

Big banks aren't the only ones cutting back on compensation -- small businesses are also not opting not to offer employee raises, according to a study released Tuesday by the Pepperdine Private Capital Markets Project in cooperation with Dun & Bradstreet Credibility Corp..

Fifty-seven percent of the more than 3,000 small and midsize businesses surveyed reported they had not raised pay for employees in the past 12 months, compared to 43 percent that did. About the same number of business owners planned to raise pay for employees in the next 12 months as to forgo raises: 42 percent planned to raise pay for employees in the next 12 months, while 41 percent did not plan to offer raises for employees.

John Paglia, associate professor of finance at Pepperdine University and senior researcher of the Pepperdine Private Capital Markets Project, connected the dearth of raises to a slow market and lack of small-business lending. "Many small and medium-sized businesses are still seeing soft demand and encountering uncooperative lenders," Paglia said. "As a result, they are conserving as much cash flow as possible in anticipation of self-financing new growth opportunities when the economy finally turns the corner. This generally translates into wage stagnation until evidence of better days surfaces."

The salary freeze extended beyond employees to the owners themselves. Sixty-one percent of the business owners said they did not personally make more money in 2011 than in 2010, compared to 38 percent who did. But their outlook was a little more optimistic for 2012: Half personally expected to make more money in 2012 than they did in 2011, while 38 percent did not expect to make more.