New Compensation Practices

As the economic tumble rocked businesses large and small, most businesses had to cut costs—including payroll. Most of us went into survival mode, and the rules of merit increases in salaries, bonuses, and promotions changed. We froze salaries, we eliminated bonuses, and we gave people more work or even greater responsibility while cutting their pay. So, now, as the fog looks like it may clearing ever so slightly, and we emerge from the downturn, a lot of questions remain about how to move forward.

Do I go back to the same pre-recession compensation plan? The short answer is: not necessarily. Instead of doling out pay increases across the board, a strategy that employs bonus payouts as a first step carries great merit. The bonus approach is a one-time payroll event for each employee paid, whereas an increase in salary hits your payroll each time for the foreseeable future.

Even a small bonus as a gesture just to start things off can have a big positive return in the form of morale. It’s tantamount to dipping your toe in the water. As time passes, and your situation feels more stable, you can better gauge when another bonus, or even regular pay increases, can make their way back into your plan.

COMMUNICATION IS KEY

Along with the bonus strategy comes the need to communicate with your employees on several levels. A broad-based, companywide communication, be it live (which is ideal), or by email or memo, that spells out the state of your business and your subsequent plans to address compensation is paramount. Your employees should hear from the top why they are getting a bonus as opposed to a raise, when the raises are going to happen, and overall what the plan is going forward.

It’s okay not to have answers to all these questions. Simply saying that you don’t know when things will totally be back as they were is, in itself, a better answer than not addressing it at all. Don’t leave your employees speculating. In fact, a strong case can be made for the concept that “normal” will never return, and that compensation practices may change in this direction for the foreseeable future. Whenever a compensation policy change is made, avoiding employee back-lash takes some effort.

A common pitfall in making any such announcement is the risk of sending a mixed message. Case in point would be to plead poverty to your employees as a way to justify a continued salary freeze and low bonus payout, only to hire an expensive executive or consultant. If you return to previous spending levels in other areas, while keeping the belt tight in payroll, you will get a fair share of understandable backlash.

To this end, you need to look at your plan for, say, the 120 days after you announce your compensation plans, and even the 120 days prior. Employees will also look at what you spent or did leading up to the announcement, as much as they will focus on what you do thereafter.
While one could argue that the depth of today’s talent pool leaves you with many qualified candidates from which to choose, making it an ideal environment for recruiting, the fact remains that you want to keep those you hire, and minimize the expense and resources spent on turnover. Keeping your workplace environment positive and focused is key.

WHEN YOU DO GIVE RAISES

When your business can once again afford raises, the best approach is not to dwell on the missed reviews or time that has passed since the last one, and instead take a very practical approach. First, look at your available budget. Next, try to provide an across-the-board flat increase for everyone at some fixed percentage. Of course, like any review period, you should consider some higher increases for those who have performed exceptionally well and have been promoted without an increase, while also considering lesser or no increases for your poorest performers.

The rules have changed and you need to change, too. Your business needs to adapt. Your employees should be told of your plans, what you know, what you think, and what is still a mystery. The change has been good in many ways, creating a multitude of opportunities for the business owner. Better talent at lower prices, paired with current talent at decreasing levels of payroll growth, all spell opportunity.

If you can find the balance between perceived fairness, improving your core, communication, and managing expectations, you can turn what has been a stressful and difficult economic time into a foundation-altering and strengthening event.