Rewarding staff in tough times
New Zealand businesses have been through a long period of ‘good times’, since the last recession there have been many years of economic growth and this has generally been reflected in the rates of reward that employees have received for their efforts. Late 2008 was the first time that remuneration surveys began to show a slowing of the rate of increase in salaries. Even then, there were still significant increases occurring, especially at the lower levels where the previous increases had not been as substantial. The expectation is that rates of salary increases will slow substantially in 2009.
In interpreting market benchmarking information, it is important to realise that surveys only take a snapshot in time and reflect what the participants were being paid at that time. Many individual staff members in the survey will have been paid the reported salaries for a considerable period before the survey but that fact will not necessarily be overtly evident. For example, the large number of employers who have a policy of increasing salaries on 1 July each year, based on a March survey, will not all participate in the September survey round because some will decide that they have no need for that information at that time. Therefore, it will be March in the following year before the increases that those employers approved are reflected in surveys. The numbers of employers who do participate will tend to even out the fluctuations somewhat, but the important point is that surveys are effectively telling you what happened in the preceding period, not necessarily what is happening right now.
As the economy goes into a recession this becomes very confusing for HR professionals who have the responsibility of recommending courses of action in relation to the firm’s salary setting processes. There is doom and gloom galore within the media, yet the market benchmarking information in the form of remuneration surveys is telling a less gloomy story. So what are you supposed to recommend to your Chief Executive about budgets and processes around salaries for the coming year?
There are seven key points to solve your dilemma in this regard. In tough economic times, your advice should:
1. Quote the surveys, and provide a strong caveat that this is recent historical information so may not be completely accurate in regard to what is happening right now
It is important that this is overt in your advice, your management will be used to seeing information from these sources and will expect it. Trends over time are also important, and you should include that information, most credible surveys provide this form of reporting as a part of the standard offering.
2. Reference the economic realities of the present
Management will understand the situation as much as anyone, and your advice needs to be contextualised within this framework.
3. Strongly advocate against any across-the-board increases
Across-the-board increases are never sensible, the market simply does not work like that. Any credible remuneration survey, in good or bad economic times, will show that markets value various categories of employees differently. In difficult times there can be a tendency to take an ‘easy way out’ by saying to workers that times are tough, everyone has to lower their expectations and so everyone is going to be treated the same by application of a small increase across the board. Whilst this may seem laudable and equitable, it is neither. The tough times that we currently face include continuing shortages of skilled (and some not so skilled) employees. Your high performing employees will feel betrayed (quite rightly) because they are being treated exactly the same as mediocre performers – guess which group will still be working for you when the recession ends, as it will, and you need good people to take full advantage of the improving economy?
4. Reinforce the need to pay for performance
This is the time to do more, not less, performance measurement. If some staff are likely to go elsewhere, either voluntarily or through redundancy, then it should be your poorer performers who you lose. It is axiomatic that high performing staff are valuable regardless of the economic times, these are the people who add more value to the organisation through their individual efforts. It is these staff who management will want to call upon to lead the recovery when it happens, so their retention should be a priority. That means having effective processes in place to measure performance and then solid performance-to-remuneration-links that ensure the small amount of money that is available to pay increases is all spent on the true high performers. Even in good times, it is reasonable to refuse pay increases to mediocre performers, in tough times it is essential that this occurs.
5. Advocate frugality at all levels
Everyone knows that the times are tough, it is impossible to avoid hearing about it in the media. So everyone will expect that they will need to tighten the belt somewhat. As long as good performers are seeing that their superior efforts are being rewarded better than those who do not perform as well, Equity Theory will apply and they will be reasonably satisfied with those outcomes. A basic consideration in remuneration management is that people should add more value to the organisation than they take from it - this is what causes great consternation about multi-million dollar packages for top executives, people instinctively know that the value added equation is out of balance there – so employees will not expect to take more than they give.
6. Maintain a retention budget from the money saved by being fugal
By being frugal, there should be a small surplus available to utilise should any of your high performers either look to leave for better pay or be poached by others. In tough times there is an essential need for a carefully controlled retention budget. Even in these times, it will not just be money that would cause a valued employee to be lost to a competitor, but having some money available will help.
7. Maintain a budget for personal development of high performers
Often the first thing to go in tough times is the training and development budget. T&D is a soft target for poor management. Many of your top performers will appreciate personal development even more than salary, and in times when they know things are tight they will accept lower increases in salary (with the caveats above) far more readily if they know that they are being developed to the point where they will be really valuable when the good times come again. This is another reason for the focus on the performance measurement system, the limited budget that will be available for this purpose must be focused only on good performers.
In summary, the philosophy that needs to be fostered in the tough times is that this is the period during which the firm needs to get ready to take advantage of the good times that will inevitably follow. Reward management is an HR process and, as Ulrich and Brockbank say in their book, HR the Value Proposition, “human resources work does not begin with HR – it begins with the business”. The business need when the good times return is to be on the starting line, waiting for the starter’s gun, with its very best people lined up ready to leave the opposition behind them. The only way to ensure that situation is to use the tough times positively, putting in place HR processes to assist the business to retain and develop the talent it will need to succeed. Future success awaits those businesses whose HR departments have assisted them to use this time to prepare for the good times.
During the tough times an organisation needs to get ready to take advantage of the good times that will inevitably follow.
This article was written for HRINZ publication by Geoff Summers FHRINZ is a Director of Strategic Pay Limited and a previous National President of HRINZ