Today’s guest blogger is Liz Hocker, a Senior HR Consultant at Vhr – Human Resource Solutions from vcfo. Liz and her team of experienced HR professionals work with companies of all sizes to implement human resource strategies and solutions. She has over 13 years experience in Human Resource Management and Business Operations working with organizations of all sizes and industries, nationally and internationally. Liz can be reached at lhocker@vcfo.com or 512-450-6564. Learn more at www.vcfo.com.

As we roll into Q4 of this calendar year many employees have expectations of year end reviews and raises.  After all, they have taken on increased job responsibilities, are working longer days, and have seen their teams and resources shrink over the past year.  Meanwhile, executives are scratching their heads and trying to determine how to manage employee expectations while feeling the stress of compressed profit margins and the prospect of elevating their ongoing fixed costs through salary increases.

We are all hopeful that we have seen the worst of this down economy, and many key economic indicators are pointing toward a gradual recovery.  Nevertheless, employers are finding it necessary to take a closer look at their current operational state and identify opportunities to motivate employees while managing their fixed costs and profit margin.

What’s Everyone Else Doing?

Last month Culpepper (a popular compensation and benefits survey company) released their 2009-2010 Culpepper Salary Increase Budgets Survey. While the study found that most employers embraced a pay philosophy of trying to pay employees at or above market levels, of the 835 organizations surveyed, 37% of companies incorporated salary freezes in 2009.  The number of companies projecting salary freezes for 2010 drops dramatically to only 13%.  Meanwhile, the companies who did not previously freeze salaries plan to raise salaries slightly from a rate of 3.05% in 2009 to 3.08% in 2010.

These results are consistent with what many employers are doing in Austin right now.  However, many are taking steps to limit the ongoing fixed costs associated with base pay increases by creating incentive bonus plans for employees.

Performance & Money

While companies are conducting compensation benchmarking reviews to make sure they are providing competitive pay, they are also looking at ways to entice employees to focus on the kinds of work which will help drive the company to success.  Leaders are recognizing the strong tie between communicating corporate objectives and individual performance.  Thus, the compensation trend is moving away from traditional annual base pay increases to an incentive compensation bonus plan focused on company performance and individual performance.

While the process of setting up an incentive based bonus program can be complex, and can come in many different forms, a basic program will generally consist of these key components:

1. The company clearly communicates the goals.
2. The goals are broken into department level objectives.
3. The department level objectives are translated into specific, measureable, time bound goals for each employee.
4. The achievement of these metric-based goals ties directly to the company’s success AND the employee’s incentive bonus.

Other Considerations

Employees are aware of the tough economic times companies are facing.  It is critical to manage an employee’s compensation expectations through proactive communication and performance feedback.  It is equally crucial to attract and retain highly talented people who can push an organization toward success regardless of the state of our economy.  Therefore, a successful organization will strive to create a program which is flexible enough to be carried out year after year regardless of economic conditions.

Lastly, company leaders must remember that financial compensation is only part of the equation.   Employee morale and productivity are also affected by benefits, work conditions, work/life balance, manager training, company culture, policies, and employee relations.  All of these areas must be evaluated on a regular basis so that they can work in conjunction with an effective compensation policy to foster success, dedication, and loyalty among employees.