Ten years ago, the lockstep movement of salary increase budgets ceased and the course of payroll increases split into two separate paths. Small firms cut increases; big organizations did not. The effects still haunt us. Here is an insert from the January 2002 ERI Update report:
Now, in 2011, as the compensation planners consult their tea leaves, study the stars and gaze into crystal balls to predict the future, we would be well advised to remember what happened to salary increases exactly a decade ago. In the Fall of 2001, salary increase budgets bifurcated. They split into two different tracks. Plans set at year-end 2001 for calendar year 2002 were drastically revised at a lot of companies. But the changes were variable, concentrated among the smaller employers of America. The large organizations blinked but continued with their pre-set and tentatively approved salary increase plans.
Nevertheless, the news of the day at the time trumpeted the panic of small companies as 2002 began. As the year proceeded, more and more firms reacted a decade ago by trimming or even completely cancelling budgeted pay increases, feeding an increasing spiral of negative expectations that encouraged owners to hoard their payroll increase dollars even more tightly. At the end of 2002, cash-rich companies showered top management and owners with large rewards while rank and file employees received smaller incremental raises, if any.
Those changes from a decade ago still flow through the salary increase percentages reported in surveys. It continues to affect the policies adopted by top management committees. The generous pay practices of large employers were hidden behind surveys that reported simple averages rather than weighted averages or medians. That problem still remains, so be careful to compare your enterprise to comparably sized peer firms that follow pretty much the same absolute pay practices that you do.
Remember that budgeted increase rates are relative metrics that can mask true absolute realities. If you pay 10% above the average and plan increases that are less than “normal,” you will still lead the competition next year; only, your lead position will drop to maybe a relative 8% lead. Remain confident that, regardless of what anyone else does, your salary increase budget will be proper if it is right for you.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.