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November 20, 2008
Advice for Compensation Strategies During Tough Times

The HR consulting firm Astron Solutions is offering advice to employers as they attempt to navigate through the economic downturn and adjust pay budgets for 2009.

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The firm says that while employers are trimming pay budgets in light of the economic turmoil, they also face the challenge of retaining employees that are vital to their organizations both during the downturn and after conditions have improved. The firm says these “mission critical” employees fall into two categories a) workers who have an important skill set 2) workers who are outstanding, loyal performers who go above and beyond expectations and whose contribution is important to the survival of the organization.

The firm recommends that employers hold a meeting among senior management to finalize an economic “crisis compensation strategy.” After the meeting, employers should develop a communication plan covering the economic situation, how it affects their organization, and how employees can help the organization emerge from the downturn in a strong position.

The firm has developed a five-step hierarchy of decisions for employers facing tough times. As you can see, mission critical employees are the focus.

  1. Institute a hiring freeze and enforce strict controls on the approval of filling open posiitons (with mission critical positions to be filled first).
  2. Make other parts of the organization's expense budget more efficient.
  3. Reduce planned pay increases with the exception of mission critical staff.
  4. Trim the overall pay budget but maintain a pool for discretionary bonuses for mission critical staff.
  5. Layoffs of non-essential staff.

In late October, Business & Legal reports conducted a survey to see if employers were readjusting their pay budgets in light of the economic turmoil. The survey found that the average planned merit pay increase for 2009 is now 2.8 percent, down from the average merit pay of 3.71-percent increase that employers reported in June.

In the October survey, 39.9 percent of respondents said they are changing their pay budget plans because of the economic situation. The survey also found that another 30.5 percent said that changes are “under consideration.” Nearly 25 percent of respondents said they are making no changes to their pay budget plans.

The survey found that the possibilities under consideration for making changes to pay budgets include reducing it (39 percent of respondents), having smaller or no rate range increases (nearly 34 percent), putting a freeze on all raises (nearly 25 percent), and delaying effective dates of raises (nearly 15 percent). Respondents could pick more than one option.

The survey included nearly 750 respondents and was conducted online beginning October 24.

You can read more of the results here .

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