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Pay smarter: 4 comp trends for an awful economy

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The global financial crisis has stuck a pin in those rosy salary predictions from last summer. The trend in pay raises is down—but not out.

About 75% of U.S. workers will see raises this year, but those raises will be the smallest in three decades, says a new WorldatWork survey.

The survey predicts average increases of 3.1%, down from last year’s average of 3.8%. But many employees will see far less. Nearly half of 1,169 organizations surveyed forecast raises will average just 2.3%.

Surveys from Hewitt Associates and Mercer show similar numbers. The Mercer survey revealed that one in four midsize-to-large employers had instituted salary freezes by January, and another 20% were considering it.

Still, notes Jason Kovac, compensation practice leader for WorldatWork, the numbers show that “there is still money out there and there are still increases for a large portion of the employee population. A number like 2.3% isn’t much, but it’s better than a pay freeze or a layoff.”

Some emerging strategies:

1. Pay for performance gains traction. Fewer organizations are granting automatic raises to all employees. Instead of giving average raises to everyone, more are rewarding their superstars with above-average bumps, which leaves less-valuable workers with small raises—or none at all.

2. Variable pay remains popular, even as levels fall for the first time since 2003. Organizations that are shying away from raising base salaries are using one-time bonuses to reward employees. The practice allows managers to reward and retain employees without continually pushing up their base pay.

3. Executive pay dips drastically.
More than 77% of organizations in the Hewitt survey said they will cut their executive salary budgets this year. One-third that planned to raise executive pay will freeze salaries instead. In fact, notes the Mercer study, executives are less likely than rank-and-file workers to get a raise in 2009.

4. Flexibility is the consolation prize. While most employees say they prefer a pay raise, some organizations are offering them opportunities to work compressed weeks, telecommute or otherwise flex their schedules in lieu of more money.

“It’s always going to be a difficult conversation for the organization to say, ‘We can’t do salary increases this year,’ so [the offer of flex] won’t be heard the same way as a salary increase would be,” says Kovac. “But it is a better option than not rewarding employees at all.”

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