Will Recovery Herald a Wave of Market Salary Adjustments?

Among other things, the recession has brought us an unswerving focus on restraining fixed costs and record low salary increase levels.  Many believe that slow base salary growth will be a reality for the foreseeable future.

Past recoveries have produced a flurry of salary adjustment activity - a frantic pattern of "catch up" as the labor market turned, recruiting activity and market pay levels picked up steam, and organizations scrambled to keep their salaries competitive.

What can we expect this time as the economy turns?  Will employers continue to keep a tight fist around their salary dollars?  Will they surrender to the kind of market adjustment frenzy that has come with other recoveries?

Interesting clues are beginning to surface.

In its recent survey Recovery, Restoration & Retention: 2010 Compensation Trends, Buck Consultants report (among a number of interesting findings) that 30% of the 180 U.S. employers participating indicate that they plan to use market-based salary adjustments to retain their top performers.

This finding, coupled with conversations and activity among my own clients and colleagues, lead me to believe that there will be market salary adjustment activity as the economy rebounds, but that it will be more focused and selective than what we saw in past cycles.  Employers will invest salary dollars more cautiously than in the past, and they will continue to draw on other cash and non-cash elements to retain and reward their people.  Employers will also, however, respond to the reality of the rebounding value of those employees whose performance and/or skill set makes them critical to retain ... and this means (almost inevitably, I think) adjustments to their base pay.

A flurry of catch-up?  Perhaps... but in a limited and more targeted way than past recoveries.  That's my prediction at this stage. 

What's yours?

Ann Bares is the Founder/Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Comments

[Shawn]

I think you're correct, Ann. I'm seeing the same thing - actual base pay increases for individuals the organization cannot afford to lose (intellectual capital, hot skills) while taking a 'wait and see' approach before committing to an annual merit increase.

[nampacooffee]

I believe employers will continue with the current 40-50% underpayment to employee's and continue to blame the enconomy in an effort to pad the bottom line for fat profits. GREED. Plain and simple. No one care's if the employee's can feed the family if they can place blame else where.
Abusive profit taking at the employee's expense is at epidemic levels.Winds of change are coming.. and those employeer's will pay dearly.

[robert]

I think that worker morale has suffered tremendously in firms where salary freezes or reductions have taken place. When these employees have more opportunities to jump ship, they aren't as likely as before to remain loyal to their current employer.
I also expect inflation to go through the roof as a result of rapid expansion of the amount of currency in circulation.
These two issues combined will make salaries for skilled and professional workers soar in a few years time.