As companies rebound from the great recession, they are cautiously going into 2010 with the hope of a slow recovery on the horizon. Budgeting has been difficult at best for many organizations and specifically budgeting staff increases has been even trickier.
There has always been a challenging balance between being competitive in the market and controlling costs when it comes to salary increases. Successful organizations have figured out how to offer other motivators to employees to offset salary limits. This is particularly challenging when top performers are not able to keep up with cost-of-living increases.
The US Bureau of Labor Statistics employment cost index recently released in 2009 states that total compensation grew by 1.5 percent while consumer prices rose by 2.7 percent. This means that total compensation fell by 1.3 percent which translates into a cut in pay for the average worker.
So how do organizations know how much to budget for salary increases in any given year?
Assuming there are dollars to allocate to salary increases, an easy way to get a pulse on salary increases is to use the cost-of-living adjustments provided by the Social Security Administration http://www.socialsecurity.gov/OACT/COLA/colaseries.html. COLA is based on the social security administration’s annual adjustments to social security benefits. The adjustments are based on CPI-W index. It is the intent of Social Security COLA increases to keep benefits in line with inflation. COLA for 2010 is 0% – a significant drop from 5.8% in 2009.
Another gauge is The Conference Board’s most recent report on salary budget increases. The report states that it is projected that budgeted increases for 2010 will be below 3%, around 2.8%. Linda Barrington of The Conference Board says, “US workers will continue to face downward pressure on their salaries and wages. Employers will have to rely on other ways of engaging employees, especially top performers, in order to keep their companies competitive”.
The Conference Board Employment Trends Index (ETI) suggests that job growth is at a turning point, however, employee compensation is lagging behind. Gad Levanon of The Conference Board states, “in the previous three recessions, compensation began accelerating only several years after employment bottomed. High levels of unemployment allow businesses to limit raise demands from existing workers and hire workers from unemployment at lower compensation levels.”
So what is an organization to do?
- Make sure your budget has the dollars to invest in salary increases.
- Take a look at your revenue projections (are there dollars to invest in salary increases), employee population demands (do you employ difficult to recruit employees) and possibly other ways to cut costs to accommodate salary adjustments.
- Communication is always important during difficult times so employers should be honest with their employees. They should explain the “why” behind low percentage raises or salary freezes. They should also give some positive projections for the recovery so employees have hope for a brighter future.
- Get creative with other motivators for employees. Talk to employees and find out other things that could help them on a personal level. For example, a flexible work schedule, etc.
- Reassess your annual business goals and make sure you are on target. Hopefully completed goals will generate greater revenues.
- Use employees to help identify areas of waste in the organization to help off-set rising costs.
- Continue to negotiate with your vendors to ensure you are getting the best value from them.
- Keep in contact with your customers so they don’t have a misperception of the strength of the organization. Rumors fly when poor communication happens and often without explanation. No raises are often interpreted as the organization struggling financially.
Lastly, make sure your employees understand how much you value and appreciate them supporting the organization through tough times.
So what, if anything, has your organization budgeted for salary increases in 2010?