Last year at about this time, Human Markets wrote about the question that is typically asked of Compensation Departments within organizations. Namely, ” so what’s the number?” If you want a bit more background on our thinking about setting merit increase budgets look there first. Today we are really just updating since then.
The sad fact is that the economy is dramatically weaker than it was even a year ago. Unemployment is very bad and, just like last year, is much worse than the main stream media seem to appreciate. This fine post at the Freakonomics blogs sponsored by the New York Times, lays out the case well for how, under employment combined with outright unemployment is weakening the average American household.
The truth is that just about every organization in the country should be thinking about conserving resources - preserving assets. Great employees are an asset. Preservation of those employees, this year, may mean more about keeping expenses and capital low to make the whole operation more robustly sustainable. If you ever thought that your job in HR or Compensation was to negotiate for the highest number that Finance would acquess to when they ask, “so what’s the number?”, that has never been more wrong than this year.
The right analysis balances what your customers are able and willing to pay (relative to any increase in your operating expenses) and, what is happening in the relevant labor markets for your organization. Unions are blind advocates for more; my job is to be the best market player available. Great HR can provide the analysis of where the organization sits relative to multiple markets. They can argure the impact of EFCA but do so relative to the income statement of their employer.
This year, think 0%. Build from there based on the full picture. Remember however, that many people, people who are your customers, are losing some, if not all, of their income. They will be spending less. Your health care costs may well be going up. Energy prices are increasing - again. Credit is expensive. All of these must be understood relative to what your customers are willing to pay. Be a fact-based competitor when you get asked the big compensation question this year. It may be what makes it possible for you to be there to answer it again next year.
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