Managing Pay Expectations

Recent survey results find employees unsure about their prospects for salary increases in the next year. Experts say companies must take special care when making compensation decisions in these shaky economic times, and HR professionals should take a lead role in communicating the organization's plans regarding salary increases to the workforce.

Tuesday, July 19, 2011
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Experts and prognosticators continue to struggle getting a grip on the state of the U.S. economy, and, depending on the day, we are either well on the road to recovery or still miles away from getting back on stable ground. 
If recent survey findings are any indication, American workers are feeling every bit as fickle about the current economic climate and, consequently, their own financial prospects going forward.

Nearly half (48 percent) of employees indicated that they do not expect a pay raise in the next 12 months. That number is the highest in six quarters, according to Glassdoor, an online job and career community headquartered in Sausalito, Calif.

About one-third (36 percent) of respondents expect a raise in the next year, a four-point decrease from the first quarter. One-sixth of employees (16 percent) are unsure if they will see a bump in pay.

The Q2Glassdoor Employment Confidence Survey, conducted online by Harris Interactive, polled 2,203 U.S. adults aged 18 and over.

The results of a recent WorldatWork survey are more positive. It shows, for instance, that only 3 percent of employers are planning across-the-board salary freezes this year, compared to 43 percent in 2009 and 10 percent in 2010.

The 38th Annual WorldatWork Salary Budget Survey also saw salary increases trending upward toward pre-recession levels. It polled 2,256 respondents representing 15 million U.S. employees.

Organizations report awarding at least some base-salary increase to 88 percent of all employees in 2011, on average, compared to 86 percent of all employees in 2010.  

Employees have reason to hope for better financial days ahead, says Kerry Chou, compensation practice leader at WorldatWork, a Scottsdale, Ariz.-based non-profit organization that provides education and research focused on global human resources issues.

"Optimism should be returning to employees that at least some increase will be granted as the number of organizations not granting increases has steadily dropped over the past two years," Chou says.

Depending on employee category, he says, the percent of organizations not granting increases is currently between 6 percent and 10 percent. Those figures hovered between 28 percent and 43 percent just two years ago.

Still, the current economic climate dictates that companies and HR leaders carefully weigh a number of factors -- employee performance, chief among them -- in determining salary increases.

"Whether increased budgets are large or small, employee performance should be a primary consideration in determining salary increases," says Chou, adding that business and labor market conditions -- including supply and demand for the organization's critical skills -- and the company's pay strategy are also important variables to consider.

Rusty Rueff, Glassdoor career and workplace expert, agrees.

"Companies and HR leaders should be focused on rewarding employees that have provided notable and measurable contributions to the company," he says. "Each individual employee should be evaluated on what they bring to the table, how they have helped the company weather the economic storm and what they have done to push the company forward."

In the current market, where jobseekers outnumber job openings by a wide margin, companies may feel little pressure to provide significant pay increases, if they are able to provide an increase at all. In such cases, experts say, HR executives must find other incentives to keep high-performing employees onboard and engaged.

Chou notes "there are many elements of a total rewards package -- in addition to cash compensation -- that may be utilized. These include additional time off to improve work/life balance, flexible-work arrangements, employer-sponsored training to increase an employee's human capital value, or non-cash recognition to highlight a job well done."

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Rueff adds that "accolades that honor employees in the presence of their peers can help not only offer value to that individual, but help demonstrate to other employees the types of values and efforts the company appreciates."

"Benefits and perks are another type of reward in a strategic-reward system," he continues. "Companies that don't match or exceed the benefit levels of their competitors will have difficulty attracting and retaining top workers."

Indeed, current conditions would indicate that employers "will need to act more aggressively when it comes to attracting and retaining critical-skill employees," says Lori Wisper, a Chicago-based senior rewards consultant with consultancy Towers Watson.

Some employers may actually grant larger-than-average base-salary increases for top performers, she says.

"But that won't be enough," Wisper says. "To really provide a meaningful value proposition for them, employers will also have to look beyond base pay at other things such as career development and promotional opportunities, incentive pay and challenging work assignments."

Whatever the organization's plan regarding salary increases, or lack thereof, Rueff says, HR professionals must take the reins in communicating that plan early and often to the workforce.

"The moment a decision is made about the direction of compensation, the next immediate steps should be an actionable plan on how and when to convey [those steps] to employees," he says.

"In addition, HR professionals are hopefully having ongoing conversations about pay issues, which help to establish trust, avoid surprise announcements and pave the way for good news, bad news or a lack of any news," he says.

Being the bearer of such news may not always be a pleasant task for HR leaders, but it provides a unique opportunity to educate employees on the organization's business strategy during trying times, Chou says.

"No one likes to communicate that there is little or no money available for pay increases or bonuses," he says. "But it is much easier to communicate such information if there is a strategic context that helps employees understand how these decisions fit within the organization's long-term plans and strategic vision."

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