Over the past three years a litany of bad economic news has been the daily fodder of economists, corporate managers, the politicians and of course the media pundits.  Collectively we have slogged our painful way through reductions-in-force (RIFs), wage freezes, hiring freezes, benefit cutbacks and in general having to do more with less while we looked over our shoulder for the next axe to fall.

And of course we’ve all experienced the painful shrink of our 401k down to a 201k.

So there hasn’t been a lot to smile about.  But perhaps this is finally the year when the freeze starts to thaw, just a bit.  Salary increases are slowly trending upward toward pre-recession levels, according to first results coming out of the latest WorldatWork Salary Budget survey.

• Salary budgets increased by 2.8% in 2011 and are projected to rise by 2.9% in 2012.  Not much, but in the right direction.

• Base salary increases were awarded to 88% of employees in 2011, vs. 86% in 2010 and only 80% in 2009.

• Only 3% of employers are planning across-the-board salary freezes in 2011, vs. 10% in 2010 and 43% in 2009.

So much for the good news

Given all that employees have suffered through is it any wonder that those still employed (and especially those under-employed) are cynical, agitated and teeming with unresolved anger over their treatment?  How many have heard the attitude voiced by “where are you going to go?” or “you’re lucky to have a job.”  Attitudes like that stay with a person, and they burn deep; those phrases are remembered, to be acted upon when the time is right.  Because the worm will eventually turn.

The clock is ticking for organizations who have mistreated or taken advantage of employees on the back of the bad economy.

What are we seeing now?  While the economy continues to sputter along this year amid mixed labor reports and market volatility, US employee confidence related to pay raises, job security and the labor market fell to levels last seen during the height of the 2008-09 recession, according to the Glassdoor Employment Confidence Survey.

According to their report, 48% of employees reported that they did not expect to receive a pay raise in the next 12 months – the highest level of negativism seen in almost two years.  On the other hand 36% do expect a raise in the next year, but that figure is down 4% since the same time last year.

They don’t like their jobs either

Mercer reports (What’s Working Survey) that 32% of US employees are seriously considering leaving their organizations, up sharply since the 23% from the good times of 2005.  Meanwhile, a further 21% were not looking to leave but viewed their employers unfavorably and had rock-bottom scores on key measures of engagement, reflecting diminished loyalty, commitment and motivation.  So you have 44% of employees actively dissatisfied with their job and their employer.

How many of those do you think are silent about their discontent?  How many are your better performers?  How many can you afford to lose?

Overall scores were consistently down across critical engagement measures, while intention to leave was up across all employee segments.  The youngest workers were most likely to be considering the exit: 40% of employees aged 25 to 34 and 44% of employees 24 and younger were thinking about leaving.

A lone light in the window?

One hopeful light in the gloomy picture I’ve just painted is an uptick of activity in market pricing studies commissioned by management.  Even with an uncertain future ahead more and more organizations are coming to the realization that you can’t hold down employee pay forever.  At some point you have to move forward, or risk seriously damaging morale and forcing a mass exodus of talent toward the first competitor who says “Come work for us.  We value you, and we’ll treat you right.”

Of course, studying the marketplace, understanding how competitive pay levels have changed over the last few years is not a solution in itself.  Companies can still decide not to take action.  They may still not be able to afford to take corrective action.  But at least more of them are asking the questions, which means more are growing worried that this leaner workforce of theirs needs to be valued and rewarded competitively for their efforts.  Just like companies did before the great recession.

But the clock is ticking; employees are growing less patient.  Those who have options to leave are already starting to do so.  Be careful that those left behind are not merely a combination of “average” performers and the unmotivated who only occupy a chair.

“Why doesn’t my Company consider inflation when determining my pay increase?”

Have you heard this question before?  What this employee is actually asking is: “Shouldn’t my annual pay increase percentage at least match increases in the cost of living?  And as management is always talking about the company’s ”pay-for-performance” philosophy, shouldn’t my increase be higher than that, given that I’m a good worker?”

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Have you ever been in a situation where an employee complains to you that their pay increase is no better than the inflation rate?  Or worse, that it’s lower?  As a further aggravation they might ask you how the company can say there’s a pay for performance policy when all they do is grant increases that no more than match the inflation rate?  Isn’t that like treading water, just staying in place without moving forward?  Is that fair?  Where is the reward for good performance?  Shouldn’t everybody receive at least the inflation rate?

The truth of the matter is that it’s common practice for companies to only give a side look at inflation (cost of living) when determining their annual pay increase budget.  They do make note of it as a reference point, and to compare against a final decision, but what they’re actually focused on are two prime considerations: 1) competitive market survey data that tells them what everyone else is paying for like jobs in their area; and 2) the expense (annual grant and fixed costs) to maintain competitiveness.

Competition and affordability

Companies routinely promise to pay competitively, and as such will analyze what they consider the marketplace to learn what other companies are paying for jobs (base salaries) and standards for increases.  Their so-called “promise” does not include the granting of inflation-proof increases, or even to reflect the cost of living in their analysis.  Their intent is to pay employees a competitive wage – including increases – and competitive means what others are doing, not necessarily what’s happening in the world of inflation.

If budget is an issue for any given year, it’s likely that maintaining competitiveness will have to suffer.  Consider the past two years of layoffs, wage freezes and reduced increases as recession gripped the country.

Is that fair?  Well, let’s imagine that your name is the one on the company door.  How would you plan to spend your money?  Likely you would seek to pay the least that you can, while still attracting, motivating and retaining qualified talent for your business.  That doesn’t mean you would lower pay levels, but as the owner you would want to allocate your substantial payroll expense as effectively and efficiently as possible to staff your business with qualified and engaged employees.  It wouldn’t make good business sense to spend more than you need to, for any overhead, be it facilities, raw materials or employee compensation.

Consider the market for talent as similar to making a purchase at a retail store.  How frequently would you pay more than the advertised price if your extra money purchased nothing more than the same item?  Chances are you wouldn’t often take that approach.

The view from the other side of the desk

Now let’s consider the employee perspective.  What factors weigh heavily on their minds when considering the potential for pay increases?

Most employees expect management considerations to reflect the inflation rate (cost of living), the average increase for their industry / geography (typically as pointed out by newspaper “factoids”), and – if the company had a good year – a share of the financial success.  You can be sure that the figure employees have in mind is the highest number calculated from the three possibilities just mentioned.  And, lest you forget, that figure is for the average performer; better employees should receive more.

Now this view is not necessarily wrong, from their perspective, and one certainly can’t blame employees for a viewpoint that puts their interests first.  However companies typically maintain a “this is a business first” strategy, that seeks to minimize controllable expenses without losing sight of their competitive pay target.  The goal of paying competitive wages, a concept hard to argue against, is not likely to be overturned by changes to the cost of living, newspaper snippets or a feel good moment following company success.

Another factor to consider is that employees are comfortable with changing their reasoning from year to year, while companies are stuck on the same track.  So when inflation goes up or down, or the company has had a good (or not so good) year, or the media is touting higher or lower industry averages, employee expectations may likely swing from one argument to another, rationalizing a consistently more aggressive pay increase strategy.

Now a little tongue-in-cheek: turnabout is not considered fair play.  Employees would not want the size of their increases to fall with their chosen economic indicator.  It should only rise.  They would object to smaller increases if the company hit a rough patch, or if inflation nosed downward.  You shouldn’t be surprised that they want their cake and want to eat it too.

However management strategies tend to be consistent over time, continually focusing on the marketplace and its affordability to maintain their posture of providing competitive pay and pay opportunities.

So how do you avoid a clash of employee expectations with management strategy?  If companies would communicate pay philosophy or strategies they would be able to allay the employee guesses and assumptions that always accompany the grapevine and rumor mill.  Employees would know in advance what to expect.  They might not like what they hear, but the employer / employee relationship would be improved by some straight talk about how the company determines pay increases.

Everyone out there, no matter what they are responsible for, has certain tasks or responsibilities as part of their job that they enjoy doing.  Likewise, there are certain other aspects to the job that they . . . would prefer not to have to do.

Often the emotional reaction is even stronger.

I work in Human Resources, and personally have never liked being responsible for job evaluation.   A thankless task if ever there was one, and one certain to impact the number of Christmas cards I received each year.   But that’s another story.

Line and staff managers have their own likes and dislikes as well, but it’s a hard-and-fast certainty that they don’t like to write job descriptions.  Why?  Because they hate them, and will look sideward at HR when they see us coming.   We’re the folks who insist on bothering them with this administrative hassle.

Yep, that’s what most of them think.  But why?  What are the friction points that cause so many Managers to start grinding their teeth when the subject even comes up?

• Many don’t see the point:  most view the writing (preparation) of a job description as a make-work effort, when “everyone knows” the job already.  So why do we need to do it, they grumble.  Why do we have to write it down?

Or, why don’t you do it?

They consider this onerous task as filling an HR need, not one of their own.  So it’s not a necessity, not a priority and certainly doesn’t help them.  To be fair though, not everyone feels as strongly, but you’ll see this reaction often enough to sense a common behavior.

• The formatting is not manager-friendly: so-called HR “specialists” are always tinkering with the form template, seeking a better way to describe a job.  But that better way usually results in a description preparation process that is overly long, tedious and a drudgery to follow.

After all, how many ways can there be to describe the tasks and responsibilities of a job?  Here is where HR consistently shoots itself in the foot, by making the simple more complex, the straightforward more convoluted and an easy job becomes a trying ordeal.  At least that’s the way it looks from the manager’s perspective.

• They take too long to complete: over time the forms get lengthier, the instructions more complex and the questions that need to be answered more numerous.  And the result?  When something you don’t like to do takes a long time, what naturally follows is a combination of delay and reduced quality.

Some Managers will also rush the process, will have the employees themselves do the work (a separate challenge), will ignore information sections, will fail to properly complete others, etc.  A real mess can be sent to HR.

• Rumor: better writers get better deals: managers don’t look at themselves as writers, and they can’t seem to shake the bias that better written job descriptions get higher job evaluation scores.  “If only I could word this right,” is a common self-criticism, as if the reader takes every turn of phrase as gospel.

So another reason for delay is because they know they’re not very good at writing descriptions, so they put off starting.  Just like a homework assignment.

• They have better things to do: this is the bottom-line criticism, the core reason from many a complaining manager; “I’m a manager; I have a department / business / empire to run.  I don’t have the time to waste writing job descriptions.” In other words, you do it – and they don’t much care who the you is.

Not a pretty picture, is it?  But it doesn’t have to remain that way.

In my next article we’ll flip the coin and look at what you can do about this hatred-thing.  There are ways to create a win-win scenario, and perhaps even get a smile (albeit a small one) from your management contacts.

Stay tuned.

How many success stories have you heard about or read about that started with the phrase, “We took the easy road?”

It doesn’t work that way, does it?

Yet again and again we see examples of companies trying to push that “Easy” button, often in the face of business logic.  That’s especially true when dealing with the diversity of an international workforce.

Most companies with global operations tend to pay their internationally-based top level executives in accordance with some form of global compensation structure.  They do this to level the playing field for those with multiple country responsibilities, or for those whose assignments take them from country to country.

However, for the rest of their international population it’s not as straightforward.

The Challenge

Companies with local national employees (hourly, professional, management) face a challenge and a risk when it comes to the decision as to how to reward performance  in each of their operating countries.  Do they “do as the Romans do” and follow local practice, or do they seek to create a standardized global framework in an effort to somehow equalize pay practices?

For those charged with developing strategies to effectively reward employees across the globe, the headache is in dealing with a diverse collection of economies, cultures and competitive pressures – some of which may be moving in different directions.   This strategic desire to recognize country-specific differences in pay methodology often comes up hard against the interests of corporate staff administrators, those who traditionally look for the easy way, the simple way, and the one-size-fits all way of dealing with far-flung employee groups.  For many companies and international compensation practitioners it is actually the administrators whose resistance you have to overcome.

The headquarters staff will ask, what difference does it make?  Unless otherwise required by legislative action or representation, why can’t we be fair to all our employees in the same way?  Here are a few metrics to illustrate what they wish to standardize:

• The value of jobs (price) irrespective of locale (same pay, just different currencies)

• The pay mix of base salary and incentives (80/20, 70/30, 60/40, etc.)

• Universal date pay increases (everyone’s performance is reviewed on the same date)

• Average pay increase percentages, regardless of local conditions

• Pay-for-performance vs. general adjustment increases (whose culture is it, anyway?)

Why Not?

That’s the easy way.  But why doesn’t one size fit all?  Why can’t you treat all employees in the same fashion – because they all belong to the same “XYZ Corporation,” right?  I would suggest that you consider the following before taking out that cookie cutter.

• Economy:  When you’re dealing with country-specific inflation rates that range from flat to 20%+, do you really want to offer the same percentage salary increases?  What if one country is suffering through a recession and sluggish recovery (US), while another remains relatively unscathed (Australia)?

• Culture: in some areas of the world job and income security needs command paramount interest over pay-at-risk, so in the pay mix the base salary dominates the variable portion.  For example, while China has a very aggressive sales compensation environment, in India there is more interest in base salary and their CTC (cost-to-company) package than variable pay-at-risk compensation.

• Competition: companies react to the cost of labor, not so much the cost of living.  If the local market rewards in a certain fashion (pay mix, commission vs. bonus, quarterly vs. annual rewards, etc.), companies who provide a non common practice approach risk lower employee engagement as well as a talent drain.

• Representation: National unions often dictate pay actions that could reverberate up the hierarchy as companies strive to maintain equitable treatment with their other employees.  Works Councils will have their impact as well.  It’s not unusual for management employees to receive increases based on what the national contract dictated for the rank-and-file.

On the other hand, varying your practices according to country-specific conditions could cause a degree of consternation with the back office staff and their computerized systems.  These are folks who like things neat and pretty.  In their defense though, senior management often asks for standardized metrics that may be difficult develop and compare:

• Tabulating global statistics when definitions or methods vary

• Identifying global trends based on diverse conditions

• Balancing the impact of cross border movement

If you force international operating units to convert their practices to an uncommon format and methodology, the result could be more than just confusion and local administrative difficulties.  It could also mean the greater likelihood of over payments in some quarters while paying less in others – all for the sake of sameness and common report generation. This would offer up a damaging combination of employee inequities and additional expenses – both of which are not helpful to the company’s bottom line.

So it would be worthwhile to remember:  ease of administration is rarely an effective rationale for making good business decisions.