Pay Raises May Be On the Horizon

It seems like everything these days comes down to money. People need more of it, companies aren’t making enough of it to give people more, and the cycle just spins round and round. Fortunately, their might be some good news on this front as it seems that companies are looking likely to start reinstating some pay raises in the upcoming year.

The Wall Street Journal has an interesting article on this return of the pay raise entitled “Better Paydays Ahead”. A key fact to remember though is that these raises their talking about our merit raises. If your lucky enough to have a job now you have an added incentive to work even harder. You might just get a raise. Worker productivity was already up in the 3rd quarter anyway, but I think that was due to the fact that people are working like crazy just to avoid being the one that gets the ax. The possibility of a pay raise? Worker productivity should really skyrocket now. Which isn’t neccessarily good for the unemployment rate. Why hire more people when you can just get the ones you already have to work harder?

Of 555 large U.S. employers polled in October, 83% said they will give out raises next year, while only about half did so in 2009, reports Lincolnshire, Ill.-based Hewitt Associates Inc. None anticipate pay reductions next year, after 10% cut salaries in 2009, according to data Hewitt collected.

Companies will raise salaries in 2010 by an average of 2.5%, the second-lowest level on record since this year, when salaries dipped to 1.8%, the survey shows. In 2002, companies raised salaries an average 3.6%, then the lowest level on record, which was down from 4.3% in 2001, Hewitt reports.

“We’re going to be living in the upper 2% and lower 3% neighborhood for a very long time,” says Ken Abosch, North American compensation practice leader for Hewitt. “Companies have fought very hard to bring their cost structure under control and they’re not going to easily allow costs to creep back.”

Sure companies have been hurt by the recession, and hurt badly, but there’s also been some benefits to it. They’ve gotten the cost structure under control. By streamlining their budgets and tightening their belts they may have actually made some improvements. So why should they lose out when the economy returns back to its normal levels. They want people to keep working like were in a recession even when we get out of the recession. That’s the part that every one’s trying to figure out how to maintain right now.

Mr. Abosch says he recommends that employers in fact allocate the majority of their budgets toward their top talent. “Companies should be doing everything they can to try to retain their high performers and their high potentials,” he says. “They could stand to take some chances to let their average and below-average performers leave because there’s a supply of talent waiting to be hired.”

I actually think that could be a very effective strategy. With so many people out of work your bad performers could be very easily replaced. If you take a chance and hire somebody new what’s the worst that could happen? Your just stuck with another low end performer. No big loss there as that is what you had before. This could really be a wake up call for employees across this country. No more just punching in and going through the motions. Wouldn’t it be nice to actually expect people to do their job well, or at the least up to the best of their ability.