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Being Happy About 3%: Rewards in the Time of Recession - Workscape HR Institute
Being Happy About 3%: Rewards in the Time of Recession
There is a political debate playing out in the media regarding the recession we are currently experiencing in the United States. While some see a credit crisis, explosion of foreclosures, weakening of the employment market, collapse of financial services giants, ever-increasing fuel and energy prices, and downward spiraling consumer confidence as the “canaries in the coal mine”, there are others who say it is all part of the healthy signs of a market economy that is seeing some strengths and some weaknesses. Senator Obama calls it a “recession,” President Bush calls it a “slowdown”.
Follow up:
I’m not going to argue about these descriptions, because I have a different viewpoint on the economy, and it starts with how comfortable people feel about their jobs and prospects for compensation awards. It’s difficult to ignore how the economic situation has affected my friends and neighbors, and their personal economic outlooks. What is pretty clear is, in short, that we have lowered our expectations. I’m not talking about lowered from the 1970s double-digit salary increases to the 1980s paltry high single digits. No, I’m talking about being happy with 3% merit increases.
The facts about prices and wage growth pretty much speak for themselves. According to the Bureau of Labor Statistics (BLS), the Consumer Price Index for Urban consumers (CPI-U) growth from April 2006 to April 2007 was 2.6%. CPI-U accounts for roughly 87% of the U.S. population, so this figure is pretty significant. If you received a salary increase of 3%, I guess you were ahead of the curve for 2007. However, CPI-U growth from April 2007 to April 2008 revealed a 3.9% increase, while private worker wage growth only increased 3.6% for the same period. For those of you keeping score at home that means that wage growth has not kept pace with inflation over the past 12 months.
This may not be surprising, given a few clear cost spikes. We have seen a big jump at the gas pump, where prices have skyrocketed and taken a large chunk out of the weekly budget. Gas prices over the period of March 2007 to March 2008 have jumped 26% ($3.26/gal from $2.59/gal). This increase not only affects how we drive, but also has downstream effects on the price of all goods and services that we use everyday; from the post office, to groceries, to heating our homes, to our children’s education.
While disturbing in many ways, these problems are not new to us as employees, managers, consumers and corporations. There have been many economic cycles like this in the past, and will continue to be more in the future. The key for us today is to make the best of the current situation, changing our behaviors to minimize more expensive choices (walking to the corner store instead of driving to the strip mall), buy more fuel efficient cars, turn the air conditioning off and open our windows, and make other sacrifices that we would not normally make.
While three percent merit increase budgets don’t seem to be rising soon, they don’t seem to be decreasing either. But, what can you do with a three percent merit budget to drive performance? The same thing you can do with a ten percent budget – give more to the higher performers and less to the low performers. In an economy where some people are getting no merit increase at all, a four or five percent jump goes a long way. And in 2008, where gas is going to be $4 a gallon during the summer vacation season, every bit helps.
As a final thought, be sure to keep a dialogue open with your team. While always important, constant communication is imperative in an uncertain economy.
Sources:
http://www.nytimes.com/2008/05/03/washington/03bush.html?scp=2&sq=slowdown+bush&st=nyt
http://tonto.eia.doe.gov/dnav/pet/pet_pri_top.asp
http://www.bls.gov/cpi/cpifaq.htm#Question_12
http://www.bls.gov/cpi/cpifaq.htm#Question_1
http://www.bls.gov/cpi/cpid0704.pdf
http://www.bls.gov/cpi/cpid0804.pdf
http://www.bls.gov/cpi/cpid0704.pdf
http://www.bls.gov/news.release/archives/empsit_05042007.pdf
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