What Is Behind 3 Percent Merit Budgets?

Monday, July 07, 2010

Indications are that 2010 and may be even 2011 will be another couple of years with 3% +/- merit budgets. Why 3%, isn’t the economy is turning around, well yes on some days and on others, well no one is sure where it is going. What is keeping budgets so depressed?

Many organizations are still concerned about upping pay since there is a possible that new lay-offs may be forth coming. Holding back on anything other than a minimal increase is the conservative nature of businesses, large and small. With many organizations seeing only modest increases in orders for goods and services it makes more sense to park any extra cash to hedge against any possible future double-dip or unforeseen events.

Consider that with national unemployment at 9.5%, many employees see little need to up wages while there is still a significant supply of unemployed labor available. Some employers may be tempted to us the continuing high unemployment levels to “motivate” their current workers to work just a little harder. Some workers may even be reluctant to ask for increases for fear as “getting’ on the bosses radar”. A number of organizations in an effort to side step lay-offs reduced their workers’ hours, so before wages are increased, workers’ hours will have to return to “normal”.

Since the “Great Recession” also cut back on the availability of loans for many small companies, there just may not be the cash flow to support any wage increases or at most 2%-3% for a few. As organizations struggle with low levels or sales and orders, many banks continue to be unwilling to lead to even their better customers. Companies with significant credit worthiness issues are often just flat lack the credit ability to consider borrowing to meet anything other than their daily operations. In such situations, owners have to keep the decision to keep the lights on of give Bob a $25 a week pay raise.

It is hard for most business owners of small companies to ignore the financial plight of their employees. Many of their employees may have worked for them for a number of years, helped to start the business or be a key person in the business operations. In an economy it would not be unssal for the employee’s spouse to be laid off or have their hours reduced. Many owners have themselves made sacrifices to keep workers on and employed in the face of the loss of sales and orders.

The best that can be said of those employees who stick these times out for their employers is that when times do get better; use that as the opportunity to address pay issues. In the meantime, business managers need to do what they can to recognize and reward with what little they may have at their disposal.