Don’t know how I should treat reviews and raises for 2011. Is the cost of living going up, down or staying even? What are other companies doing?
The cost of living is only one factor to consider when thinking through raises for 2011. Other items to look at include competition for labor, rates of change in employment, employee satisfaction compared to the workforce pool for the same job, ease of replacement for different employees and positions.
When considering the CPI, it’s important to note that different industries had widely varying experiences. The overall CPI increase was 1.5% for 2010. Many companies will carefully watch the Bureau of Labor Statistic’s releases to monitor the economy’s progress. January 2011 CPI data will be released on February 17, 2011.
In 2011, private sector downsizings, layoffs and job cuts fell 60% – 90% from their peak in 2009. Non-profits improved more slowly – around 17% reduction in job cuts. The government (federal, state and local) may see an increase in layoffs in 2011. Private sector full time employment increases will come slowly in 2011, as companies stretch things out as long as they can.
Companies will delay spending on their current workforce by keeping a lid on overtime, pay increases and promotions. Most will expand as long as they can by adding temporary and part time workers. At the same time, according to Challenger and Gray, an estimated 84% of currently employed workers say they plan to look for new employment as the economy improves, up from 60% a year ago – a high indication of dissatisfaction with the status quo.
What does all of that data mean to you? First, figure out where your industry is going. Then figure out where your workforce stands. Finally know what your company needs, to get through the next 3 – 5 years. Then decide who gets paid what in the future.
Here are some questions you can ask, to assess your industry.
- What are the industry’s growth expectations: up, down or flat?
- What’s the workforce depth: available capacity & transfers in or out?
- What kind of special expertise is needed, and what kinds of educational opportunities exist for workforce potential entrants and those climbing up?
Next, assess your workforce:
- Who needs to pick up their game?
- Who needs to be recognized for extraordinary contributions to the company’s bottom line?
- Which employees / skills are highly desirable to other companies?
- Who is paid above / below market scale?
- What is the growth potential of each employee?
- What would it cost to train a replacement for each position?
Finally, the company’s 3 year outlook:
- Which positions are critical to the company’s success going forward?
- Which positions will no longer be needed?
- What additional positions / skills need to be added?
- How sharp will the competition be for employee resources?
Now, put it all together. Don’t kid yourself that key employees, in critical positions, with marketable skills, are likely to stay. Across the board raises are out the window, as companies assess their employees one review, one position at a time.
Raises and reviews will become more targeted. Key players, doing their jobs well, with additional growth potential are your top priority. Next come workhorses who will be the glue of the company, doing their work reliably, in areas that continue to be crucial to the company’s success. Least important are individuals filling roles that will no longer be needed, or individuals that can be easily replaced at the same or lower cost.
So how much of a raise do you give? Employees contributing to increased profits, in growing companies, in growing industries will likely get the biggest raises. Consider golden handcuffs to incent specifically valuable individuals to stick around. Employees underperforming in dead end jobs, in industries and companies with declining revenue and profit are unlikely to get ahead financially.
Looking for a good book? The Granularity of Growth: How to Identify the Sources of Growth and Drive Enduring Company Performance, by Patrick Viguerie, Sven Smit, Mehrda Baghai.
______________________________________
Andi Gray is president of Strategy Leaders Inc., www.StrategyLeaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Please send it to her, via e-mail at AskAndi@StrategyLeaders.com or by mail to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514.
