Published on August 30th, 2016 by Alan L. Sklover
When was the last time you heard of someone not getting a yearly raise of one size or another: At least SOMETHING? Well, chances are you may soon start to hear of that from many of your friends and family.
A recent article in The Wall Street Journal highlighted the new-but-growing trend among employers to forego the practice of handing out automatic annual raises to all employees. The article suggests that the trend is here to stay, and will likely continue to grow.
The growing practice is based on four thoughts: First, not everyone deserves a yearly increase in compensation. Second, rewarding employees for actual performance is more effective in encouraging productivity than is rewarding employees for merely staying in their jobs. Third, annual raises to all employees significantly increases overhead for no real discernible reason. Fourth, if “laggards” get a 2% raise, and “superstars” get a 4% raise, the small difference may actually serve to de-motivate to the “superstars.” These four thoughts are subjects of hot debate among compensation consultants.
This trend in employee compensation may also be reflective of the larger economic reality: inflation is so low, and corporate profits are so low, that any increase in overhead in excess of the current 1% or 2% inflation we are experiencing is a negative blow to the bottom line. That will be doubly so if and when we enter into a period of deflation – a shrinking of demand, prices and production – a circumstance many economists see on the horizon.
In place of automatic annual raises, employers are giving out more performance-based “spot” bonuses as rewards for outsize achievements and extraordinary accomplishments. By untying compensation from “entitlements,” and tying compensation to “achievements,” it is espoused that employers will gain greater flexibility to adjust their budgets slower to slower times.
With more compensation becoming “discretionary,” will employers use that discretion wisely, or abuse it? Might the end of automatic pay increases initiate a wave of defections from employers who join the trend? Might outsize bonuses to star performers actually create resentment among the multitude of “non-superstars?” Only time will tell, and the verdict is still out, but two things you can count on: (1) employers will do what they believe is in their interests, and (2) nothing is sacred anymore in the workplace or in workplace compensation.
You must learn to keep your eyes wide open and your ears to the ground. When the times require it, you must also learn to be your own best advocate, because if you do not, no one else will.
But, hey . . . we’re here, and that’s what SkloverWorkingWisdom™ is all about.
© 2016 Alan L. Sklover. All Rights Reserved. Commercial Use Prohibited