Employee Compensation: Re-examined for the Post Recession

Friday, February 18, 2011

Although painfully slow, there are increasing signs that the US economy is on its way to a modest recovery. In February, the U.S. Bureau of Labor Statistics reported a net gain in jobs for civilian non-farm employers of 36,000. While this is disappointing and discouraging, it continues to point to a very slow and long recovery.

As employers add jobs, what, if any considerations should be made in the cash and non-cash rewards of current workers? Should special allowances be made for those workers who “stuck it out” while their employers struggled to stay in business? Is there value to be had in recognizing worker loyalty and dedication? As fewer workers produced more and more goods, what can be gained by sharing some of those gains with those same workers? Organizations should look back to their “compensation philosophy” as the guiding principle and foundation for determining current cash and non-cash compensation practices as well as changes in those practices. A sound compensation philosophy will provide the basis for an organization to adapt its compensation practices in up as well as down cycles.

At the macro level, labor is not unlike many other commodities and follows a supply-demand curve as the economy wanes and waxes. The demand for skilled labor also follows a supply-demand curve likewise. An organization which has built up and retained a skilled workforce over time will not want to lose those workers as the economy recovers. Since the recovery, at least at this time, is in a slow recovery phase; organizations may have time to prepare for an increased demand on their workforce. A New York Times article titled, “Despite Recession, High Demand for Skilled Labor”, is a clear indication that even in a down economy; some jobs will continue to demand high wages.

While compensation surveys are helpful in understanding the general trend in cash and non-cash rewards, by their very nature they lag the active wage market by several months to over a year. An organization’s compensation philosophy should include directions on how and to what extent the organization’s compensation practices will lead or lag the market for some or all of its jobs. It may be financially impossible to be a leader for all jobs, so an organization may be required to focus on those few key jobs within their organization and structure reward systems them above current market. Although cash wages are only one of many reasons that contribute to an employee’s willingness to stay with an employer, pay can account for a significant portion of their reasons to remain.

In Mercer’s “2010 Attraction and Retention Survey”, released in June 2010, it was found that despite the difficult economic times, many organizations continue to maintain their pre-recession levels of cash and non-cash reward systems. In addition, some employers actually expanded their non-cash reward offerings including; career path planning, work-life programs, special project opportunities, and total rewards communications efforts.