Salary increase budgets were the lowest seen since 1976 as of the 2009 survey. Only 48% of the 1144 companies that participated in the 2009/2010 Hewitt survey reported having any salary increase budget. The percentage of payroll for merit increase projected for 2010 is 2.7, which is up from 2009’s 1.8; in 1990 however the percentage was 5.5 leading the surveyors to remark that 2009 could be called the year when merit budgets finally revealed themselves to have very little to do with merit.
Most companies use a pay-for-performance model. Performance reviews are conducted and a pay action is considered (salary increase or variable pay award). If there is little merit budget, this exercise is limited in its effectiveness. Pay-for-performance breaks down when pay is no longer tangibly linked to performance, and disengagement can be a very real consequence.
The authors describe a dissection of specific performance measures each with a reward, traditional or alternative. Rewards may include variable pay, special recognition awards, additional PTO, flexible work arrangements, and professional development opportunities. In the “new economy” many employees desire long-term career growth as much as cash awards; and employers are seeing greater engagement and productivity as a result.
There is not a one-size-fits-all solution. The authors argue for better defining performance metrics and offering a broader series of reward options, and tying this approach to the individual employee as a new way to encourage performance.
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