A bumpy job market is the ‘new normal.’ Find out how to offer affordable but fair pay rates in today’s economic climate.
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It’s like déjà vu all over again. The year 2010 dawned with an official announcement that the recession was over and recovery had begun — until the clouds rolled back by summer. In 2011, we began the year again with a brightening sky. Yet that forecast, too, may fall prey to economic climate change.
Nationwide, small businesses are holding their own and even inching forward. Fifty-one percent of owners with staff hired new workers in 2010, according to the Wells Fargo/Gallup Small Business Index survey. However, of that group, 42 percent hired fewer new employees than they needed. And since 48 percent of small businesses with more than one employee did not make any new hires in 2010, they may well start recruiting as business picks up.
In response, perhaps you’d like to add staff while talent on the street remains plentiful and hungry.
If so, here’s a question: With big businesses still making do, benefits remaining stingy and consumers riding a roller coaster, can you offer less compensation for bigger jobs than you used to?
The answer: Yes, but be prepared for some consequences.
Based on advice from human resources pros, compensation consultants and owners themselves, here are some things to keep in mind if you’re considering trimming offers of salaries and benefits in the current climate.
First, analyze your market
Pay is all about supply and demand — and the recession’s effects vary by region and industry. “Therefore, there’s no hard-and-fast percentage by which employers should reduce salary offerings,” says Marilyn Conyer, VP of Accord Human Resources, a professional employer organization in Oklahoma City.
Before you set a salary, whether low or high, you need up-to-date data about median compensation in your specific job market, industry or field, and for your available positions.
To learn what competitors or similarly sized companies are offering for such jobs, review employment ads on online job boards, newspapers, trade journals and professional association sites. Ask your vendors and professional contacts about their outlook.
For a national overview, check Current Employment Statistics from the Bureau of Labor Statistics. Like most government data, this info tends to lag behind current realities, but it’s deep and extensive. You can likely supplement it with the annual salary surveys that run in trade journals.
Once you’re knowledgeable, you can decide if you want to drop your salary offer 5 percent, 20 percent or whatever from the going rate.
Armed with knowledge, choose your tradeoffs
“Lots of small-business owners are hiring employees ‘on sale,’ paying significantly less than what they’re worth,” says Roberta Chinsky Matuson, who runs Human Resource Solutions in Northampton, Massachusetts, and just published a management guide, “Suddenly in Charge.”
Clearly, that kind of immediate savings goes straight to your bottom line, easing cash flow. If you’re swimming hard and looking for ways to stay afloat, hiring cheaper talent is a practical option.
Just be aware that you’re applying a short-term fix, warns Matuson and other experts. It may solve immediate difficulties, but don’t expect qualified employees to be happy about it. “In some markets, they simply may not have a choice these days,” says Matuson.
Your tradeoff for paying less is that as soon as the economy or your industry picks up, such folks are out the door. As sales trainer Barry Maher puts it: “You don't build loyalty by taking advantage of people. Human nature being what it is, while employees might forget employers who have been good to them, they seldom forget employers who they feel have mistreated them.”
If cutting pay is your route to staying in business or biding your time until the economy expands, don’t hesitate.
Otherwise, consider how lower pay can erode staff morale and lead to challenges in finding qualified help as business starts building again, at which point your company may have acquired a reputation for being cheap.
Cut costs with employee buy-ins
Given all the layoffs, pay cuts, “furloughs” and outsourcing, many more workers have been forced to fend for themselves.
As a result, many highly skilled professionals have joined the free-agent nation, cobbling together workdays of contract employers, telecommuting assignments, consulting or part-time projects. Many also have secured a safety net of benefits from professional associations or similar groups.
That gives you negotiating wiggle room. Instead of lowering salaries, which can put off top-level help and instill resentment, try offering contemporary perks.
In Cincinnati, Crystal Kendrick — who runs the marketing agency The Voice of Your Customer — finds that potential employees with the experience she wants are demanding the same salaries as they did before the recession. “However,” she says, “they’re less demanding of traditional benefits, such as health care, profit-sharing, paid time off or educational reimbursement.”
Instead, workers want perks that support their free-agent status, such as laptops, flex time, Internet access cards, mobile phones and the ability to participate in philanthropic initiatives. In other words, says Kendrick, “perks that in the past have been reserved for company executives.”
Also consider redefining the job. “Many senior workers know that securing a position at that same level and pay may be impossible in this economy,” says HR consultant Conyer. Therefore, they’re willing to work a partial week or alternative schedule, perhaps from home, for a substantially lower salary.
Overall, you’ll be much better positioned if you retain competitive salaries and economize on benefits and perks. These can then be rolled back in (to sighs of relief from your staff) if and when the economy improves.