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Thaw in the salary freeze: Too little too late?

The Great Salary Freeze may finally be about to thaw.

According to the consulting firm Mercer, more than 98% of the 1100 mid and large-size companies that responded to a newly released survey plan to award base pay increases in 2011. Just 2% of companies are planning across-the-board salary freezes next year, down from 13% in 2010 and a whopping 31% in 2009.

That may sound like good news. But I'd argue it's a case of too little too late.

Right now, even those employees whose pay has been cut, or who haven't seen a raise for three years, are happy to have a job. But when the job market does improve, even if raises and bonuses are reinstated, my bet is that leaders who haven't been investing in their people during the recession will find them running for the exits.

For one, the 2011 forecasts show that any increases are expected to be minimal. The Mercer study reports that 2011 pay increases are expected to be 2.9%, lower than 2009 levels, when most would agree the economy was in worse shape than it is today. Top performers are expected to fare a little better, with companies handing out bonuses of 4.3%--don't go spending it all in one place!--to high achievers.

There's also little certainty the raises will actually happen. If the economy dips again, salaries are likely to refreeze faster than a glass of water left in the Siberian countryside. For many, the pay picture still looks quite bleak. A new report shows that pay levels, despite increases in productivity, actually dipped in June, with state and local governments in particular increasingly cutting pay. A 2010 National League of Cities survey, that story reports, found that 51 percent of local governments had either cut or frozen salaries of city employees. Even Obama is freezing bonuses to federal appointees, extending the halt on bonuses through 2011.

Employees are smart. They see the waste in the system. They've watched profits rise and CEO pay go up while their employers squeeze more out of the people they actually have around. And they know companies are now sitting on massive piles of cash.

Typically, the argument goes that companies should spend those cash piles on research and development or acquisitions. Companies that invest their extra cash during tough times--when assets are cheap or when no one else is worrying about innovation are likely to reap the rewards when the economy returns.

I'd argue the same goes for investing in people. And a few companies have actually been doing it. Despite a terrible crisis in the housing industry and low consumer spending, Home Depot tried to boost morale by offering stock bonuses to lower level store managers and improving the chances hourly workers could meet targets that award bonuses. Meanwhile, as other firms cut 401(k) matches during the recession, Cisco Systems raised theirs.

Leaders who keep their employees satisfied during the downturn are just as well-positioned, if not more so, to benefit when the economy rebounds. A happy workforce is more likely to waste less, create more and of course, stay longer, all of which saves much more in the end than a few years of not making 2% salary increases.

By Jena McGregor

 |  August 4, 2010; 11:41 AM ET |  Category:  Corporate leadership , Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Please email us to report offensive comments.

Companies have brought back dividends but not 401k matching. That shows you their priorities and its not their workers that are breaking their backs to make the record profits.

Posted by: lauther266 | August 5, 2010 2:46 PM

Insignificant in terms of the 3 Trillion debt created by Obama and the Dems. TERM LIMITS.

Posted by: joanz3 | August 5, 2010 10:22 AM

What no loyalty ?


Posted by: gannon_dick | August 4, 2010 8:32 PM

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