Now that the economy and labor market has started to (weakly) recover, does this mean that it's back to business as usual for rewards professionals? The short answer, in my opinion, is no.
Not that we won't be performing many of the same activities that we have for years, but ongoing trends along with the devastating impact of the 2008-2009 recession have combined to create the perfect storm of potential change in the ways we look at base pay management, variable pay, and qualitative (non-financial) rewards.
Just as many economists feel the recession has led to some fundamental changes in consumer behavior, I believe that some fundamental changes in in the way that various forms of rewards are utilized are already underway. For instance, a report done by Hewitt last year, predicted that over the next decade variable pay budgets will continue to rise (to 16% of payroll, up from about 12% today and half that back in the early 90s), while base pay increase or "merit" budgets will continue downward, from close to 4% prior to the recession, to about 2.5% to 3.0% today, and to about 2% in 2020. While no one knows if these specific numbers will hold up 10 years out, I believe they have nailed the general trends with their predictions.
Over the next decade employers will continue to endure painful benefits costs increases (healthcare reform or not, medical costs are rising out of control), crowding out potential spending on other rewards programs, especially for base pay increases.
Base pay is destined to be a serious "pinch point" for both employers and employees, as companies strive to keep fixed cost increases moderate, while employees lament the lack of pay growth. Between the long-term shift towards more variable pay, the cost squeeze provided by medical costs, and the weak labor market (and predicted to be weak for some time), base pay has no where to go except barely up. Some pundits also see a change coming in the way merit pay is doled out. For instance, see "Paying it Forward:Ideas Beyond the Traditional Merit Matrix" by the our own Ann Bares.
To augment the lack of excitement at the base pay level, many savvy employers are paying more attention to qualitative rewards, i.e., rewards that are not based on monetary payouts, but more focused on addressing other "higher order" needs (in Maslow's Hierarchy of Needs), such as building a culture of appreciation and recognition, offering greater opportunities for training and skill development, offering greater work schedule flexibility and other work-life fit options, and in enhancing the overall culture of the organization in ways that are more employee friendly.
There are not going to be a lot of fixed dollars to throw around in the next few years, and so it will be incumbent on organizations and rewards professionals to make better and more creative uses of the various rewards alternatives available to them. Motivating and retaining workers has never been "just about the money," but that concept will prove to be even more relevant in the 2010s.
Doug Sayed is principal at Applied HR Strategies, a Seattle area compensation consultancy, and author of the StrategicPay Series Base Pay Toolkit, a guide for helping non-compensation experts to develop their own strategic compensation programs. Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience, and a Master's degree in HR management from the Ohio State University.
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