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Has the economy hurt your business?  Perhaps it is time to rethink your salary actions for next year.  What follows is some solid guidance from an experienced HR professional...

Six months ago, companies were poised to grow salaries aggressively, based on: a) rising demand for talent b) tightened supply of experienced and proven performers c) increasing revenues and profitability. Some industries and markets were under even more pressure to pay more than others.
What should companies do now that the tide has turned, and: a) we're in a recession b) cash is king c) unemployment is rising?

The current reality is what it is. Companies are having to re-think their Opex and Capital spending budgets in the face of declining revenues and projections (near-term) for further reductions in demand for products and services. All items are on the table, which means that salary budgets, set out when conditions were different, six to twelve months ago, depending on your fiscal year and budget planning timeframes, should also be reviewed.

But, this does not mean that these should automatically be cut. By way of illustration, following are a few myths and facts: Myth: With lay-offs in the news these days on a regular basis (e.g. Citi; Canwest; CTV; Chrysler), companies are not going to be giving salary increases to remaining employees in these and other firms.

Fact: companies go through restructuring on a regular basis, as significant business events (end of product lifecycle; loss of key client; government legislation; need to re-direct capital and resources) impact revenues and profitability. During these times, most companies continue to provide salary increases to remaining performing employees. Though there are more companies now going through restructuring; this does not change this fact.

Myth: companies are only going to provide token salary increases during these recessionary times.

Fact: companies set their own salary guidelines, based on a number of criteria, such as: Performance; Position in Salary Range (for that job); Time in Job; and alignment with the Company's core values. There can be a significant variation between the low end of a salary increase (0%) and the high end, which even now could be, depending on the Company's guidelines, anywhere from 10-15%. Employees who are fully meeting the expectations of the job, who have been in the job for 2 or more years, and who are being paid at the upper end of their salary range should expect a lower percentage increase. Employees who are fully meeting the expectations of the job, are newer in the role, and who are being paid at the lower end of the job's salary range, can expect a higher percentage increase.

Myth: companies can only afford to give salary increases to a small subset of employees during tough times.

Fact: companies set out salary budgets (e.g. 3% of total base pay). This provides a large enough pool of capital for companies to provide increases to most performing employees. Companies then provide leaders with the ability to determine, based on the Company's salary guidelines, how much to recommend on an individual employees. In most cases, a salary budget of 3% for example, is sufficient to allow for salary increases for greater than 90% of performing employees.

Myth: companies believe they can "get away" with not paying any increases since, during tough economic times, employees are not likely to change employers.

Fact: Great companies (which is almost the entire universe of employers), understand that talented and performing employees are a scarce and valuable resource, who are constantly working hard on behalf of the Company to contribute to success. These companies want to ensure that contributions continue to be recognized, and that employees are fairly compensated. These companies know too that employees do leave during good and tough economic times, if they feel that their contributions are not being recognized; the Company is no longer a good fit in terms of culture or career; and there is a better opportunity elsewhere.

So...what should employers be looking to budget for in terms of Salary increase budgets for 2009? Poll your peers and potential competitors for talent from outside your industry and get a sense of what all are planning. This will help you to get a reality check on how your plans stack up. Note: This does not automatically mean that you will need to change your plans, since that should be driven by your compensation philosophy (e.g. Are you a market leader; a market follower; or do you intentionally pay below market).

By David Wixler

Source: ConnectIT.com