Late summer compensation surveys indicated that 2009 raises would keep pace with those of recent years. A lot has changed since these results were published. Companies are pulling back on expected 4% increases in response to events that have shaken the business world.
Two major consulting firms have publicized survey results that predict a trend. 42% of the large companies surveyed by Hewitt Associates are revising salary budgets downward in reaction to economic pressures. These companies project pay increase budgets to be 3.1%, the lowest since reductions made after 9/11.
Watson Wyatt reported slightly different but still gloomy expectations with 28% of the companies in their pool planning to lower merit pay budgets. These companies are now working with 2.5% pay increase budgets, an even steeper drop.
The 4% budget for 2009 increases that was already announced did not cause employees to celebrate. An announcement of a reduction in expected increases will be a difficult message to send. If a new budget is going to be a reality don’t wait until the last minute to spread the word. Make a decision and communicate the reasons behind the change. Employees will not be surprised.
Within any budgets many employers choose to reward the best performers. Reductions and careful allocation are a better approach than choosing to freeze wages altogether. An announcement of a wage freeze can really backfire. It provides just the impetus for your best performers to respond to a job offer or search firm phone call. Hiring may be tough but many employers are always looking for top talent. Wage freezes can be hard to apply consistently, just like hiring freezes. The announcement itself is cause for alarm, gossip and just plain bad for morale.
Compensation decisions are tough. Making decisions as a knee jerk reaction without planning will only make them harder.