Many working Americans did not see much of a pay raise, if any, this year. In order to manage overhead costs and in response to the economic downturn, many businesses chose to freeze employee wages. That is one of the least invasive impacts I have seen.
In order to remain competitive, or just survive, some businesses are looking at other alternatives. For instance:
- Some companies are nixing travel and related expenses, unless absolutely necessary. For sure, many businesses are refusing to accommodate first-class/business class air travel.
- Some companies are reducing or paring back on perks such as company cars, country club memberships and company parties.
- Some companies are analyzing how to economize on their healthcare costs.
This economy is basically forcing many businesses to cut back on any expenses that are not critical to the company’s mission and/or survival of the organization.
Personally, one of my least favorite HR jobs is assisting with a company layoff, which often happens as a result of a restructuring—or, in the worst case, a business or plant shutdown. In those cases, obviously, we find that a lot more than employee pay raises are involved.
Before a business gets to that point of no return, I urge them to proactively consider other alternatives. To do that, some of the smarter businesses tackle their financial planning practices:
- They take a careful look at their budgets to determine what they need to get through this bad economic period.
- They ask questions such as, “What is our cash flow, and where are we situated, financially speaking?” These are difficult times and companies know that they have to ask themselves the tough questions and answer honestly. They are being reasonable about it and, in answering these types of questions they better know how much money they can spend.
- They ask what needs to be done, operationally, with fixed expenses and variable expenses.
Of course, salaries are being targeted, as this area represents one of the largest expenses most businesses have, and therefore salaries represent a huge chunk of the budget. So companies are initiating:
- Salary freezes
- Hiring freezes
- Early retirement, in which employees are paid a bonus for retiring early.
- Work hours’ reductions or reductions in work days
- Elimination of bonus payments
As a word of caution, employers are encouraged to seek legal counsel when taking measures that can end up reducing employee pay. Federal and numerous state laws govern issues that encompass employee pay matters, and you want to make sure you stay in compliance.
The issue of employee pay raises is not all cut and dried either, as significant factors come into play. Most businesses have their range of performers (from A to B to C). To put it plainly, there are those employees who simply do not add as much value as others. In contrast, you will have those employees who are doing exceptional jobs, and they are performing the critical jobs for the organization. They are critical to the organizational success.
So during these times, employers should be prepared to answer:
- Where and on whom are we going to spend the money available for pay raises/bonuses?
- Who are our key employees?
- Who has the knowledge and the skills necessary to keep the business operating successfully?
- What are we doing with the non value-added staff?
Of course, any business will want to spend its money on top performing employees.
Meanwhile, in addition to providing these employees with pay raises or pay incentives, a business wants to do all it can in terms of communicating its goals and where it’s heading. Not only that, many employers can be surprised to find out: When employees are kept in the loop, they will often come forward with their own solutions.
As an HR professional, I want to add this closing thought about employee pay raises. Nothing defeats employee morale more (or consumer morale for that matter) during these hard times, more than to see millions of dollars going to those at the executive level of an organization while the rank and file of the workforce get nothing, or worse—get laid off. Reductions and salary impacts should be across the board. Some companies have chosen to have a smaller percentage of reduction in pay at the lower salary levels, as the impact to standard of living is more severe at the lower salary ranges. As someone said, if you wouldn’t want your perk/pay packages disclosed for public scrutiny during these painful economic times, then they might be inappropriate or excessive.
Additional information: Pay Raises Expected to Rebound in 2010, Survey Says