Employee Compensation in 2012: Pent-up Demand

Friday, January 06, 2012

During the recent recession, numerous organizations froze wages, reduced benefits and hours, and eliminated staff in an effort to remain competitive. By all official counts, the recession reportedly ended over two years ago, yet corporate compensation budgets are still very much stalled in a slump. With unemployment above 8%, many employers feel little or no pressure to increase wages or benefits. However those employees who have foregone raises or even suffered reductions are becoming restless. Yes, they were grateful to have jobs, while at the same they are beginning to question what their loyalty really bought them. Even in the best of times, a rubber band will only stretch so far before it snaps. So what options are available to an organization which needs to retain its talent in the face of little or no desire to increase costs?

First, start with being as open and as transparent as possible about why increases are not available or why they are significantly smaller than normal. If left to their own devices, employees will gravitate towards a few well worm reasons of their own: “management is just cheap”; “the bosses are paying themselves first”, … etc. Many employers have found that they are still very uncomfortable with the progress on both political and economic recovery here in the U. S. and in Europe. As political and economic issues such as debt and spending wax and wane, organizations do not want to be caught at a cost disadvantage if the U. S. or Europe fails to recover in the short run. By keeping cost in check, employers increase the likelihood that they will remain in business, even if that means fewer jobs or no compensation increases.

Second, many organizations completed their annual employee benefits open enrollment in the Fall of last year. Many organizations share in the costs of health care with their employees. Employees need to understand that most employers did not shift 100% of cost increases to their employees. The Kaiser Family Foundation reported on September 27, 2011 that for 2012 “annual premiums for employer-sponsored family health coverage increased to $15,073”. It is often overlooked that while the employee’s premium cost increased $4,129 between 2001 and 2011, however, the employer’s portion increased $10,944 over the same period. Thus, on average, employers are continuing to pay over 70% of the annual premiums for family health care. Something, of which most employees are unaware.

Finally, most organizations present their employees with numinous opportunities to develop new skills, acquire expanded knowledge of new processes or procedures, and interact with customers, clients, and vendors at all levels. While these “opportunities” do not immediately materialize as increased compensation, they do lay the groundwork for potential advancement in the future. However, at same time, employers who are developing internal talent in this manner do have to be alert not to train employees for their competitors.

Employers must recognize that at some point labor market forces will dictate that employee compensation will need to rise for some workers. When that time occurs, organizations must focus on the top performers, least they face the prospect of losing that talent to a competitor.