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December 17, 2009
Time to Unfreeze Salaries?

In spite of the presence of snow and cold weather, spring is on the horizon. Go ahead and pull on another sweater, and feel free to grumble a bit. But while you do, have faith that the thaw will eventually arrive. And even as the literal spring creeps closer, we are beginning to see early signs of another thaw: the one in the economy.

Perhaps your company took drastic steps in response to the 2008/2009 economic winter. If circumstances forced you to cut pay and benefits, you're not alone. Many companies, according to Compensation Resources, did the same. Like you, they were caught between declining revenues and increasing costs of benefits and pay and viewed these cost-cutting measures as the only way out.

With better times on the horizon, you may wonder if now is the time to restore pay cuts. After all, losing key personnel just as the recovery begins could be devastating to your business. Compensation Resources recommends taking your time, avoiding a rush back to prerecession levels. Instead, they say, take a hard look at your compensation structure to make sure it is netting the results you want.

Some companies will use the opportunity to shift more of their compensation costs from fixed base salaries to a combination of moderate salaries and variable, at-risk compensation tied to the company's performance.

For those employees who have a clear impact on the company's performance, revenues and profitability, now might be a good time to align at least some of their pay with the company's financial results. “In other words, allowing the employees to participate in achieving the desired results can result in a dramatic win/win for both the organization and its employees,” they point out.

BLR's 2010 Pay Budget Survey indicates that companies may be planning to grant small increases to their workforces. On average, companies responding to the survey said they plan to increase pay 1.27% in 2010. While the increase is small, it is higher than the 1.12% average increase actually given by respondents during 2009. In fact, nearly 54% of respondents gave no salary increase during 2009. For comparison purposes, you can review complete survey results at Compensation.BLR.com.

In the October 2009 update to their bimonthly report, the first issue of which was published as the recession took hold in October 2008, Watson Wyatt found that some employers are looking to the future with optimism. Of companies responding to Watson Wyatt's survey who said they had frozen salaries in recent months, 54% reported their plans to unfreeze them within the next 6 months, compared to roughly 1/3 in the August update and just 17% in June of 2009.

“The general economic picture right now is definitely brighter than it was just a few months ago,” said Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. “However, the recovery is uneven and most employers aren't fully convinced that the improvements they've seen are here to stay.”

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