When Everything is Small, How Do You Know What’s Really Big?

Editor's Note: Today's post comes to us courtesy of guest contributor Chris Dobyns.

As a consumer, whether you’re still in denial, or not – everyone is probably at least aware of the manufacturer practice often referred to as “product downsizing”, or more euphemistically known as product right-sizing.

Whether your favorite consumer product is dishwasher soap, ice cream, peanut butter, disposable diapers, hot dogs or a bag of your favorite salty snack – they’ve probably each been the target of recent reductions in the amount of product being sold, and usually – but not always, at the same price you paid for the previously larger amount.

Simple economics are the drivers for this practice. Increasing commodity prices, a limit to identifying further cost reductions through process improvements, and an uncompromising sensivity of consumers to any attempts to increase retail prices.

But Consumers Will Notice . . . Won’t They?

Apparently, only some will notice. Research has demonstrated that despite what we might think or believe, human beings are notorious for their lack of time perspective. They see actions as a series of single, one-time events. Research also shows that people are more sensitive to price than they are to product quantity. Turns out that consumer pricing is as much behaviorally-driven, as it is economically-driven – maybe more so.

Interesting insights into food-buying price sensitivity of consumers in central Maryland, but no total rewards tie-in with any of this, right?

Reflecting on the low or perhaps even bi-annual (yes, every other year) pay increases of the 1960’s is illustrative of people’s lack of historical memory or more accurately – historical perspective. As a first grader at the time, I have a legitimate excuse for only having a faint (Faint = None) recollection of what people were being paid

Sometimes Less is More

However, I can remember those heady days of youth when I began to get my own equivalent of an annual pay increase, in the form of weekly allowance – which I seem to recall amounted to less than 25¢ per week. And when you consider the 5.25% passbook savings rate on $10 per year – that turned my money into more than $11, you know why my dad used to say, we were definitely “in the tall cotton” back in those days.

Whether it’s interest rates or a consumer product – then, as now, no matter how little product eventually gets into that bag of corn chips, at least it’ll be something. Same goes for ever-shrinking interest rates, right? Maybe not.

Everyone has gotten used to the fact that in the post-recession period, central banks have kept interest rates low, to spur consumer spending – resulting in very low interest rates for savers. And if you’re accepting of “low interest rates”, you’ll be okay with “no interest rates” also, right? What? Yes, negative interest rates are already a reality in places like Japan and Europe, where depositors must pay banks to hold their money.

Angel Kisses and Unicorn Dreams – All Good (Until They’re Not)

Since the official end of the Great Recession (June 2009), the economy has recovered – although as the graph (and trend line) indicates, wages have not responded similarly.

And in that same period through 2015 and into 2016, consumer prices have continued to fall.

The unfortunate reality for total rewards professionals is that workers’ memory about what’s big and what’s small, seems to be a little bit more durable, when it comes to wage and salary increases – in contrast to the ability of a manufacturer to right-size product quantity. So, how do you recalibrate workforce awareness (and acceptance), to what is maybe the reality of the “new normal”?

Fool Me Once . . . Or Maybe Not At All

We see some of both the real and perceived differences that influence the behavior of human beings – whether those are in the area of total rewards or consumer marketing. Not surprising then that more and more, the areas of cognitive psychology, social neuroscience and behavioral economics are viewed as the next high frontier for human resources and total rewards professionals to master.

All that aside, I can no more convince myself that a 1½% annual pay increase is “good”, any more than I believe that the new 6-ounce can of cola, is “just the right size” – at least not for me.

Or, maybe I’m just not remembering correctly?

Everyone probably has a different perspective. What’s yours?

Chris Dobyns, CCP, CBP, is Manager of the Office of Human Resource Strategies for one of the largest U.S. intelligence agencies. The Office of Human Resource Strategies is responsible for compensation and incentives, occupational structure, recognition and rewards, HR policy, and human capital program evaluation and assessment for his Agency. Chris has worked in the area of compensation for more than 30 years, and has been employed in various compensation-related positions by a number of large, private sector companies including, Sears, Roebuck, Arizona Public Service and Westinghouse Savannah River Company.

"Hand Holding Dollar Banknote" image, courtesy of satit srihin and freedigitalphotos

Comments

[E. James (Jim) Brennan]

Everything depends on your perspective, Chris. Remembering gasoline at 11 cents, a $1.15 minimum wage, new cars at $2K, new houses costing $15K and inflation see-sawing from 13% to 3%, it is hard not to get confused ... or to feel numb. "Numbly confused" maybe?

Think about the contrasts you have seen, then picture what your grandparents remembered from their experiences when THEY were your age. Wow! When my relatively fresh "only yesterday" memories are ancient history to kids reaching voting/draft age today, how can we find a common "reality" for compensation motivation?

[Chris Dobyns]

Exactly.

[Skylar]

WorldatWork recommends that we use larger fonts and bold print to make pay increases appear larger than they are when we communicate them to employees.

[E. James (Jim) Brennan]

FUNNY! What does SHRM suggest? Using skywriters to announce increases? Rejoice at the employee-friendly work environment: "The beatings will continue until morale improves."

[Tony Bergmann-Porter]

Only marginally on-topic, but my recollection from back then was that the soft drinks came in MUCH smaller bottles than they do today, and a standard hamburger was about the size of the smallest and cheapest offering at present-day Mickey D's.

[E. James (Jim) Brennan]

Right, Tony, but the prices then were unbelievable by today's standards. Ten-cent cokes and fifteen-cent burgers. People were not as "super-sized", either, although I remember returning home after some years overseas being negatively impressed at the body fat levels of Americans. Things do change, including context.