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Communicating Low or Non-Existent Salary Increases

Posted on January 18, 2009
Kathy AlbaradoWritten by Kathy Albarado | Email author

january-2009Average salary increases for 2009 are forecasted between 3.1% and 4.1% in separate studies conducted by HR consultancies Hewitt Associates, Mercer, and Buck Consultants. At the low end of the spectrum, the Hewitt study found that base salary increases at 411 large U.S. companies surveyed are projected to be 3.1% — the lowest base salary increase projection since just after September 11, 2001. How do organizations address lower-than-usual (or non-existent) salary increases and/or bonuses while maintaining a positive morale and an energized workforce? The answer is to COMMUNICATE.

The organizational compensation philosophy should be clear at all times, although this becomes increasingly important during challenging economic times. Is compensation performance based? Tenure based? Or dependent upon operational factors or some combination? Information should be communicated early and honestly to avoid surprises. Some organizations may hesitate to communicate compensation decisions that fall short of employee expectations for fear of attrition, but consistent, clear, and early communication will help to establish trust and prevent voluntary turnover.

Top management should first communicate any compensation-related decisions and the rationale for the approach being taken by the organization. This will lay the groundwork to make subsequent discussions between managers and their staff less challenging. If the organization has a bonus program directly tied to organizational performance, communication should be consistently provided regarding the status of progress toward financial targets.

During challenging economic times it is even more important than usual to communicate initiatives not directly related to compensation, such as opportunities for career development and professional growth. Most studies show that, on average, employees cite career development opportunities as more important than compensation as they rank what they value in an employer. If salary increases are negatively impacted, the employer should leverage the opportunity to ensure they highlight other attributes of value that contribute to the entire employment experience. Other initiatives under consideration may include work life balance and ensuring employees have interesting and challenging assignments with an increased focus on employee skills development through mentoring. Emphasizing these areas serves to remind employees of other important benefits offered by the organization.

Waiting until the last minute to give “bad” news, when employees are awarded a low (or non-existent) salary increase and/or bonus, can lead to mistrust and attrition. Actually, most employees will not be surprised to learn that their compensation has been affected by current economic conditions. The news has to come sooner or later so why not communicate early and honestly to avoid misconceptions, set realistic expectations and help to preserve a positive work environment?

Author: Robert Krajewski, Associate HR Business Partner, Helios HR

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