Where is the Money?

With the economy showing some signs of coming back, more employees are starting to hope that their patience and diligence from the last few years will be rewarded.  In many organizations, we are entering year four or five without any type of sizable increase.  As we have discussed before, the lack of raises has created a rather strong demand that employees anticipate being met.  In other words, employees are waiting to be rewarding for “sticking with” their employer through a crisis that many associate with big business.

The good news is that more compensation money seems to be on the way.

A recent survey by Glassdoor.com found for the first time since 2008 that there were more raise optimists than pessimists or more people believe there will be raises than believe otherwise.  Among the 2,000 workers included in their Employment Confidence Survey, 43 percent expected a raise in the next 12 months.  Moreover, 46 percent expected their company outlook to improve in the next 12 months for a six point increase over three months ago.

The interesting news is that pay practice may have changed for now.

Aon Hewitt most recent compensation survey of 1,500 companies found that employers plan to increase pay on average 2.9 percent in 2012.  The increase to almost three percent is a definite improvement over the low point of 1.4 percent in 2009, yet still below the high flying days before the economic downturn.  One reason why this number may seem better than it really is relates to how this pay is provided.  Most companies when they have wanted to reward stars during the downturn have utilized more flexible pay strategies, such as bonuses or uniform allotments.  The Aon Hewitt study found that 90 percent of surveyed companies have been providing one time bonuses to various employees.

Similarly, a recent HCS survey confirmed that more than 60 percent of respondents are not going back to previous compensation practices, but moving to more strategic approaches.  The emphasis of decision makers is on improving future performance and increasing the quality of applicants.   There is less concern for rewarding those that remained with the organization during the downturn or even those who increased productivity to do more with less as workforces were reduced.  Put simply, there are numerous organizations that feel that keeping a job is payment or reward enough.

What do these changes mean when money starts to become available again?

  • Organizations are going to be more careful and use flexible pay options.
  • Human resource leader need to examine the short and long term consequences of this change related to recruitment, engagement, and retention.
  • Employees will need to receive large enough increases to offset their disappointment of not “being made whole.”
  • Differentiation will be more important as organizations focus on performance more than equity over the next few years and tools and procedures need to be robust enough to endure the extra employee scrutiny.
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