“What’s going on out there with compensation?!” “When it comes to raises, where should I start?!” These are common questions we at FlashPoint hear from our clients lately, and if these thoughts are familiar to you, we hope it helps you to know that you are not alone. We also want to ease your mind by sharing our expert perspective on how you can prioritize your compensation decisions as you settle into 2010 and prepare for 2011.

In this, the first of two articles we’ll publish on the subject, we attempt to answer some of your immediate questions regarding trends with merit increases, incentives, and other rewards. In part two, we’ll share six steps you can take to regain control of your organization’s compensation programs.

Based on our research and our own experience with clients, here is what we’re seeing in regard to compensation developments:

• Merit increase budgets. According to Hewitt Associates’ Salary Increase Survey for 2009/2010, projected salary increases for 2010 are 2.7 percent of base pay. In our local market, we predict closer to 2.5 percent. If you are not sure you can allocate the funds necessary to support this level of salary adjustments, you may want to delay your commitment to actually spending the dollars until the very last minute of your salary review process to allow for as much time as possible to collect information about your organization’s financial strength.

• Salary structure movement. In light of such a low-increase budget, we do not expect that 2010 salary structures will require significant adjustment to keep pace with the market, if any at all. If you haven’t updated your salary structure in the past few years, you will likely need to make small adjustments to narrow the gap; if you have been vigilant about adjusting the structure since your last market analysis, you probably don’t need to adjust your structure in 2010.

• Annual incentives. Hay Group’s March 2009 Reward in a Downturn survey reported that more than 70 percent of participants “indicated that they were considering some form of change to their variable pay programs.” As organizations reevaluate their incentive pay programs, we expect the actual payouts to be less than the years preceding the economic downturn, with a focus on getting more money into the hands of top performers. We anticipate a closer link between individual performance and organizational outcomes and results, with less discretion and more metrics. 

• Other recognition programs. Don’t forget to be creative in finding noncash ways to reward and recognize employees. From big recognition events to jeans day and kickball tournaments, work hard to capitalize on the allure of your culture and the overall employment experience as a way to keep employees engaged during these tough times.

If your organization has struggled in the recent economy, your primary focus right now should be to stabilize your business. Once you are convinced that you are no longer simply in survival mode but instead are ready to entertain the concepts of measured and intentional growth and profitability, it is time to go back to the drawing board and reevaluate your compensation programs.

If your organization was fortunate and was not dramatically affected by recent market conditions, perhaps you still did little to manage your compensation programs. (After all, weren’t your employees just happy to have a job?) If this is the case, it is time to invest in resources to evaluate your programs and get ahead of the curve; eventually those same employees will start to see that they have other job opportunities available to them again.

Regardless of where your organization falls on the spectrum, you are now presented with an outstanding opportunity to make a significant impact on the bottom line and directly support your organization’s strategy.

This is probably the last thing you want to think about right now. It may never seem like a good time for you, but now is the right time.

In part two of this article, we present guidelines on where you should focus your time for the rest of the year. If you have questions about applying to your own situation the research and concepts above, contact FlashPoint.   You can also find more information by visiting our compensation page and reading a case study.