In yesterday’s Advisor, advice on planning your 2015 compensation budget from consultant J. Timothy O’Rourke; today, O’Rourke presents a strategy for when money is tight, and what to do if your company can’t afford increases at all this year.
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O’Rourke, the current chairman, president, and CEO of Matthews, Young—Management Consulting, shared his expertise in a recent webinar presented by BLR® and HR Hero®.
How to Reward Employees When Money’s Tight
If money is a bit tight going into 2015, consider a bonus or lump sum payment, says O’Rourke. For example, if an employee deserves a 5 percent total merit increase, calculate the cash amount and immediately give it to the employee, but without actually adding it to the base salary. It’s a way to reward high performers without compounding future costs.
However, O’Rourke warns, beware of pitfalls—watch out for contractual roll up of benefit costs based on bonus amounts that might increase fixed costs, and understand that any morale boost from a lump sum is temporary.
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No Raises This Year … 5 Steps for Breaking the News
O’Rourke acknowledges that some companies may not be in the position to offer salary increases, bonuses, or incentives for 2015. Here are his 5 steps to handling such a situation:
- Understand management’s reasons. Get at the strategy behind freezing salaries. Perhaps the company is a brand new start-up; perhaps you’re still reeling from the downturn; maybe company growth was a bit fast last year and it sucked up a lot of the cash.
- Be honest with employees. There’s nothing like transparency, says O’Rourke. Tell them exactly why the freeze is happening, and empathize with their needs while you’re doing so.
- Tell them the options were to let people go or freeze pay. Only tell them this if it’s true, though! O’Rourke put forward the example of a company that directly asked employees: Do you want to freeze pay (perhaps even endure a slight pay cut), or shall we have layoffs? Almost unanimously, employees chose to avoid layoffs, and it paid off in the long run.
- Ensure they know that management is sharing in the freeze. If this isn’t clear, it can have a negative impact on morale.
- Give them hope for the future. If possible, offer other forms of compensation besides cash (such as stock), and show them how the austerity this year will pay off in future prosperity.
From determining merit increases to designing affordable incentive plans for the coming year, compensation and benefits are never easy. “Maintain internal equity and external competitiveness, with benefits and compensation, and control turnover, but still meet management’s demands for lowered costs.” Sound familiar?
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And there’s great news! The site has just been revamped in two important ways. First, compliance focus information has been updated to include the latest on the Consolidated Omnibus Budget Reconciliation Act (COBRA), Lilly Ledbetter, and the Family and Medical Leave Act (FMLA). Second, user features are enhanced to make the site even quicker to respond to your particular needs, such as:
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Try BLR’s all-in-one compensation website, Compensation.BLR.com®, and get a complimentary special report, Top 100 FLSA Overtime Q&As, no matter what you decide. Find out more.
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