Workscape Institute

Hubris, or some other human instinct in each of us, says that in years of growth, we should expect our total compensation to go up. That may be in the form of a salary increase or in the form of an incentive award, or both. It should go without saying that after 2009, we should not be holding our collective breaths for a salary increase this spring. That would cause confusion, bitter feelings, not to mention that lots of people will pass out.

Follow up:

Already, we see signs that the economy is recovering. There are positive indicators in each newspaper hitting our doorstep (or email in-box) on almost a daily basis. Unemployment slowing down, economic expansion returning, investments made in infrastructure and incentives to grow payrolls all look like they have contributed to a more positive economic outlook.

Those of us in human resources that have survived a few recessions know that the moment one ends, employees have expectations that their compensation is going to grow. It is natural for them to think that when they sacrificed for the good of the company during lean times, the company owes them increases to make up for the time/money lost.

Well, looking at the information recently published by WorldatWork from their 2009/2010 Salary Budget Survey paints a pretty bleak picture for employees. The average increase is only 1.5% where the inflation rate is going to hover around 2%. Clearly, companies are being understandably cautious about the good news and are only planning for small, if any increase in Base. They are also funding incentive plans, but shifting more of the emphasis to long-term incentive vehicles or deferred payout plans for at least a part of the incentive payment.

In a very interesting turn of events, we may see a situation where real (inflation adjusted) wages again will fall as a result of increasing inflation and lower salary increases. As this is counterintuitive in the minds of employees, the words of warning are: LOWER YOUR EXPECTATIONS!

This will become a terrible situation for employers if salary increase discussions are met with resistant or belligerent employees who have set their sights on large increases, or even increases at all. We could see turnover, especially critical staff, and widespread discontent. The only way to fight that issue is to tell employees the truth. Come clean and manage their expectations so there is less shock and more productive discussion about the year to come.

It should be said that even with really, really small salary-increase budgets, we should focus our attention on better performers and key employees. They are the ones that lead in good times and bad. Skew rewards towards those employees even though it hurts. Pay for Performance is not dead in a recovery, it’s just more difficult to communicate.

Hand out cheat sheets, communications guides, and manager talking points, along with plentiful supplies of oxygen this spring. As salary-increase discussions take place, you can be sure that your managers and employees will need them – especially those that held their breath.