Economically challenging times are causing employers – both large and small – to rethink their positions on automatic annual increases for their employees. A decade ago the average annual increase was 5% to 10%. Today, many employers are delaying or will be offering smaller pay increases; others are “freezing” salaries and hourly wages altogether.
The recognition of and reward for individual achievement is fundamental to good wage and salary administration. For many employers, a history of annual increases has led to the assumption by employees that they are entitled to a yearly increase no matter what the quality of their work. Some employers have given annual increases to all workers regardless of performance in the belief that a below average increase (or none at all) will de-motivate a worker. That practice leaves the poor performers thinking their work is adequate, and leaves those who perform well with no motivation to continue a high performance standard.
It is critical in today’s economy to communicate to your employees the link between their day-to-day performance and their pay; to break the entitlement expectation (a pay raise is not a guarantee); and to establish the relationship between their work and performance.
A compensation structure should be equitable and externally competitive and you should be able to explain the rationale of the structure to your employees. Employees can represent the largest single investment of an organization and payroll costs have a significant impact on the annual budget.
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