With the first half of this year just around the corner, and in consideration of a difficult economy and the new Administration in Washington, D.C., now's the time to dust off and resuscitate your merit pay budget projections and practices for the second half of this year. Your first reaction might be to ask, "What merit pay budget?" You'll be surprised to learn just how many U.S. organizations have recently reinstated their '09 merit pay budgets in anticipation of an improved economy for the second half of this year.
Let's briefly revisit where we've been to appreciate where we are now. My '09 merit pay budget forecast of 3.9% that I made last October was based upon input from top notch compensation resources including SHRM, ERI, and World at Work. That was before the economy tanked, though.
Eight months later, we're in a much different situation having endured drastic cost reductions, layoffs, and the elimination of merit pay increases. Even in a declining economy, talent is always in demand. Isn't it time as we reach the bottom of the economic decline to consider resuscitating merit pay increases, particularly for our top 20% of employees?
Smart employers focus on their most productive employees to find ways to recognize, reward and engage them, even in financially challenged times. The economy at some point will recover, and when it does so will the job market. Act now to mitigate your losses when economic recovery arrives.
Consider following the lead of a little more than two-thirds (67%) of U.S. employers who are planning pay hikes for some of their employees before the end of this year, according to a recent survey by Mercer. They surveyed 850 employers to determine merit pay practices and budgets for the balance of 2009.
Overall, results showed that second half '09 merit pay budgets will rebound to reflect a surprisingly slim decrease from last fall's forecast of 3.9% to 3.2%. That's good news, certainly. Manufacturing, engineering, and information technology jobs are most likely to realize pay increases; marketing, sales and finance jobs are expected to remain stagnant or even decrease. 72% of trades, production, and service jobs will see pay increases.
"Companies realize that they need to be poised for a turnaround," said Steve Gross, global leader of Mercer's compensation consulting practice. "Continuing cost-cutting measures like salary freezes may put them at a disadvantage once the economy recovers."
The economy can't help but improve in the short term in view of all of the Federal spending that's occurred. Inflation concerns are still at least one year away, but expected to kick into gear in late 2010. Recognizing and rewarding your employees using a modest merit pool of funds is a prudent, proactive measure you can take now to avoid playing "catch up" and awarding near double digit increases when keen competition for employees re-emerges in the marketplace. It's time to get it out of your bookshelf and dust it off......
Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients. Becky is passionate about designing HR programs and compensation plans that build organizations. To learn more, visit www.ReganHR.com.
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