Rate this article:
Average rating:
Total votes: 27
What kind of pay hikes can American professionals expect in 2008? The increases will be nearly uniform and often only nominally linked to the individual’s job performance, say a number of compensation experts. And employers may look to new ways to reward employees.
Large US employers expect to increase base pay by 3.7 percent in 2008, according to the Global Compensation Planning Report (PDF) from Mercer Human Resource Consulting. This falls within the narrow 3.5 percent to 4 percent range of pay raises American workers have experienced through most of the 2000s. And taking into account that the Federal Reserve projects inflation will run between 1.8 percent and 2.1 percent in 2008, workers should expect an average real increase in base pay of 1.5 percent to 2 percent.
Yes, executives at most sizable US companies insist they are pushing hard to correlate workers’ pay increases to job performance. But in 2008, with small and stagnant pay raises and a labor market shot through with talent shortages in various occupations and sectors, the strains on the pay-for-performance model appear greater than ever.
Employers Struggle to Pay According to Performance
Pay-for-performance is relatively easy to achieve in occupations where individual performance directly connects to the bottom line. Sales is the classic example. But in many other skilled occupations -- nurse, help-desk representative, journalist, traffic manager and a thousand others -- the link is tenuous at best.
“Linking pay to performance is an inexact science,” says Bill Coleman, senior vice president of compensation at Salary.com, which powers Monster’s Salary Wizard. “It’s hard to ensure that pay-for-performance is measuring the right performance.”
In 2008, some will almost see meaningfully variable pay as a thing of the past. “Variable or performance-based pay was tossed out the window by most managers a long time ago,” says human resources consultant Roberta Chinsky Matuson, president of Human Resource Solutions and a former Monster contributor. “The breaking point was when pay raises went from double digits to a single digit.”
Adds Julie Davis, vice president of compensation consulting at FBD Consulting, “with merit budgets still around 4 percent, it’s just not that much to start with. It’s much easier to give everyone about the same.”
Technology Is No Solution to the Human Relations Challenge
Matuson faces this challenge in her own consulting practice: “My clients struggle with how to compensate based on performance, because their managers are conflict-avoidant.” In other words, with experienced systems architects, intellectual-property attorneys and audit professionals in ever greater demand, managers are even more likely to avoid conflicts that might spur talent to jump ship.
In part to skirt these sticky human relations issues, in 2008, many more HR departments may turn to performance-evaluation technology as an objective basis for allocating meager merit pools. “It’s certainly easier to implement technology than teach managers meaningful performance discussions,” Ravin Jesuthasan, managing principal and practice leader at HR consultant Towers Perrin, said in a statement.
But no technology will stop savvy managers from gaming the system if they believe it will help retain key people. “You have tension between what you want to do as a manager and how the plan is set up,” says Coleman. “It doesn’t take a rocket scientist to reverse-engineer the process. Many managers work back from the desired raise to what the performance review must say.”
‘Total Rewards Strategy’ May Not Cut It with Everyone
Often egged on by HR consultants, a growing number of companies are marketing so-called total rewards strategies to their workers.
“Employers continue to adopt a broader definition of ‘rewards’ to include careers and other intrinsic work factors, in addition to pay and benefits,” says a 2007 Mercer survey. To many professional employees, this may sound like a roundabout way of saying that taking on additional responsibilities had better be its own reward, because it’s not likely to get them a substantial raise.
The continuing surge of the Millennial Generation into the workforce will only increase the challenge for employers with low budgets to give out merit increases. “Millennials who are told that their performance is outstanding, then receive a 4.5 percent raise, aren’t going to put up with it,” says Matuson. “They want to be told all the time that they’re exceptional.”
Additional Articles in This Feature
