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June 4, 2010

HR Fact Friday: Pay Incentives to Limit Post-Recession Flight

Many U.S. employers are planning to use compensation incentives to limit “post-recessionary employee flight,” according to a survey of HR decision-makers by Workscape, a provider of employee performance, compensation and benefits administration services, conducted at the end of March 2010. According to the survey report, Managing Employees and Total Rewards during the Economic Upswing, 65 percent of respondents are considering or strongly considering pay increases to drive retention as the economy recovers, while only 46 percent will consider benefits increases.

Looking back, only 10 percent of organizations cut employees’ pay as the recession entered its third year in 2009, but 39 percent froze compensation, respondents indicated. The vast majority of those that awarded increases held them to 3 percent or less, and only 2 percent of respondent organizations increased average compensation by 5 percent or more.

However, the smaller the organization (by number of employees), the more likely it was to have reduced or frozen compensation in 2009.

Employees who say they intend to provide incentives to retain and engage employees as the economy recovers are most likely to offer:

• Merit increases (cited by 66 percent)
• Performance-based bonuses (52 percent)
• Market/equity adjustments (24 percent)
• Lump sum payments (12 percent)

The most likely explanation for organizations’ interest in merit and performance-based bonuses is their desire to find retention tools that specifically reward top performers and avoid the fixed costs that come with salary increases” and expanded benefits. Survey respondents in all sectors except government said that merit increases and performance bonuses are the most likely compensation tools they will use in 2010.

Companies recognize the importance of retaining valued employees but are more likely to incentivize employees with more money rather than more benefits. And while salary increases were at the top of the retention strategies, offering flexible work schedules and implementing greater employee/management communications are also being considered.

Source: SHRM.org, Stephen Miller

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