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Companies are Pumping Up Pay in a Battle for Talent

By Hal M. Bundrick

NEW YORK ( MainStreet) Earnings season for publicly-traded companies garners a tremendous amount of media attention, but the financial health of privately-held companies often hides behind the headlines. Still, the news is good. PwC, the tax and advisory service, says the CEOs of leading U.S. private companies recently surveyed have raised their 12-month revenue forecasts to 9% in the third quarter, 15% from the 7.8% they projected in the second quarter and the highest revenue growth rates since the first quarter of 2012.

In spite of the recent federal debt debacle, optimism about the U.S. economy is holding firm. More than half of the CEOs surveyed (55%) say they have a favorable view of the domestic economy, just four percentage points below the prior quarter. Pessimists were a low 9%. Two-thirds (66%) of the chief executives surveyed said they believed the nation's economy was growing.

"Private companies' strong revenue projections indicate steady improvement in the US economy," says Ken Esch, a partner in PwC's Private Company Services practice. "While growth may be slower than we would like to see, this latest forecast is a positive sign. Certainly U.S. political and economic issues continue to be of concern. That said, private-company leaders have come to expect short-term political fixes and therefore aren't making strategic decisions on that basis. Most of their businesses haven't felt the long-term effects of sequestration, and so the recent economic debate in Washington hasn't kept them from pursuing their growth objectives."

The private sector is pumping up pay, as well. Average increases in hourly wages rose to 2.89%, a 12% increase from a year ago and the highest planned pay hike in five years, as more than one-quarter (27%) of companies surveyed say the struggle to hire qualified workers is a barrier to future growth.

"Lack of skilled labor is a significant headwind for private companies, compounded by the rapidly retiring workforce," says Esch. "Among our domestic-only manufacturing clients in particular, we see challenges in finding sufficiently skilled blue-collar workers such as welders and machine operators. But we're also seeing companies searching for people to fill white-collar roles, such as such as controllers and chief financial officers."

The prospect for long-term new job creation in the private sector is still relatively bright. C-suite execs forecast a 2.2% workforce expansion over the next 12 months, far higher than expectations of one year ago, but down from the previous quarter. Larger privately-held companies seem to be scaling back their hiring plans, but overall 57% of the companies surveyed are planning new hires. Just 4% expect to reduce headcount.

The report reveals the top two possible barriers to growth over the next year are lack of demand (63%) and legislative/regulatory pressures (52%), though the percentage of companies concerned about lack of demand is 11 points lower than a year ago.