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Pay raises to stay flat in ’08 while bonus plans take off

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in Career Management,Employee Benefits Program,HR Management,Human Resources,Workplace Communication

If you’re holding the line on pay raises, you’re in good company. Three new surveys agree that most employers will raise salaries between 3.8% and 3.9% for the second year in a row in 2008, halting a steady upward trend in pay raises that began in 2004.

At the same time, organizations will continue to use bonuses to reward employees for good performances, a tactic that has gained momentum the past six years. According to a survey by the HR association WorldatWork, 80% of businesses will offer bonuses in 2008, up 1% from this year.

The focus on variable pay—mostly performance-based bonuses—allows companies to pad the paychecks of its most valuable employees without increasing the fixed cost of compensation.

The importance of variable pay will continue to grow, even as salary increases remain flat, predicts Jim Stoeckmann, WorldatWork’s practice leader for professional development. “Bonuses represent performance,” says Stoeckmann.
Another study by benefits consulting firm Hewitt Associates estimates that organizations will devote 12% of payroll to bonuses next year. A third study, by Mercer Human Resource Consulting, reports that the average amount of bonuses has increased since 2006.

Still, Stoeckmann calls a 3.9% salary increase “a respectable raise,” although he notes that “beauty is in the eye of the beholder.”

Some of your employees may remember the double-digit pay raises of the early 1980s, a windfall that Stoeckmann recalls as “fun.” Still, he reminds employees that those 10%-plus pay raises came against a backdrop of ultra-high inflation, cost of living and mortgage rates.

In fact, an employee who receives a 3.9% raise this year will be ahead of the Consumer Price Index (CPI), a measure of inflation that stands at 2.7%.

Stoeckmann notes that the difference between average raises and the CPI represents an increase in purchasing power that’s greater than it has been for the previous few years.

Advice to employers: Combine pay raises with bonuses and noncash benefits, like work/life and wellness programs, career development opportunities and employee recognition.

“Employers are trying to think more creatively and much more strategically” about how to reward employees, Stoeckmann says. “They’re thinking holistically in terms of listening to what their employees’ needs are, and developing ‘total rewards’ strategies that align with the business. Match the two, and, in turn, the business will succeed based on the employees’ contributions back to the company.” 

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