December 31, 2009

Compensation Decisions: What PayScale Observed in 2009 and What’s Predicted for 2010

As part of our look back at 2009 and look ahead to 2010, we asked PayScale’s director of customer service and education, Stacey Carroll, MBA, SPHR, to describe how the year, and it’s tough economic turn, seemed to affect the HR leaders, small business owners, recruiters and other PayScale clients she works with everyday.

Ms. Carroll points out three major events that she thinks were unique to 2009 and gives her prediction for what will be happening in 2010 for people who perform compensation planning.

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From an interview with Stacey Carroll:

I think when it comes to our customers in 2009, as the beginning of the year hit and we were about three, four or five months into the down economy, we saw more and more of our customers utilizing our products differently. Where they had previously wanted to know, “Am I paying enough? Am I competitive enough?” now they were actually using our tools and resources to make sure they weren’t overspending on talent.

There was a kind of increased interest in policies to freeze pay and making smarter decisions about negotiating jobs offers. If an employer was actually hiring they were doing so in a way that was very cost conscious. There was a lot of attention on folks using PayScale’s tools to make sure that they were managing the company’s resources in the best way possible.

And, as a result of that, we saw a quite a bit of increased activity around the idea of formalizing pay ranges. Again, in an economy where things just seem to be going up and up and up and you’re constantly competing for talent, compensation becomes that sort of one-up to the company down the street. But, when jobs are few and far between, the balance of power begins to shift back to the employer. It’s okay to give an offer that will fit in with what others in the organization are currently paid. As a result, we saw more people looking at that important step of formalizing some ranges and putting some controls around spending when it comes to talent and bringing new people in. Once again, it was a constant focus on keeping costs down.

In other themes, we literally saw our folks using the tool for recruitment drop off the map. We have a small portion of our business that comes from people who use our tool simply to negotiate good job offers for applicants, so recruiters and such. Many of these folks actually reported to us that hiring was pretty much completely stalled. We know that a lot of organizations stopped hiring, although not all necessarily. We certainly heard about hiring from a lot of our healthcare organizations and organizations who work in energy and other types of businesses that are still continuing to do some hiring. Overall, most businesses were in a hiring freeze mode.

The final thing that I think is sort of noteworthy about 2009 is that it was the first time in a really long time that nearly all organizations reported that they were handing out little or no increase to their employees. This is obviously an effort to reduce spending and control costs, but it actually has a pretty damaging effect on talent. What our customers have reported to us is that they are continuing to perform compensation benchmarking and we know, in being able to look at large amounts of data, that the market is still moving. So, to be in a position as an organization where you freeze salaries you’re actually falling a little bit behind the market.

The bad part about this, although it does create a short term cost savings, it that it creates a pent up demand with employees because they assume an agreement between employer and an employee that says, “I work hard and I do my job and every year you give me a little more money.” So, as employers have said, “The economy is bad and we’re not going to do increases” then employees are feeling like there is something that is owed to them that is on the back burner, so to speak. Therefore, a lot of employers are really struggling with the idea that now, as things are seeming to head towards a recovery, how do they catch up with where they were and make sure that they’re allocating dollars in a responsible way.

At the same time, there is sort of this pent-up demand with employees who are saying, “You took my money away when the economy was slow and now that the economy is recovering, now you owe me some money.” And so you have, again, a great time for folks to be utilizing the tools like PayScale’s to make sure that, when they’re making decisions about increases, they’re doing it in a way that makes sense. In other words, they’re spending their dollars where they need to, with top performers or on positions that are behind the market or spending money on skill sets or talents or job skills that are really hot, and, therefore, retaining top performers who have those unique skill sets.

In summary, I have three main points from 2009. First, a real focus on cost containment and, therefore, energy around establishing some structures and some formality for compensation-related decisions. Second, recruitment kind of fell off the map. People stayed where they were at and there was not as much moving around. Third, the impact of little or no increase for employees and some of the issues that may create in 2010.

So, as a segue into what we can expect from 2010, if the economy continues its recovery, I think that more and more employees will go back into that mode of looking for opportunities and pay may be an important consideration for them. As the employees felt like “You owe me” there’s some negative energy around how employees were treated as times got tough. I think in 2010, HR professionals should be thinking about and making efforts to find ways and opportunities to keep and retain their top performers. And, continued efforts towards controlling costs in compensation, but also doing it in a way that makes sure that you’re able to retain and engage your top talent. And that has to do with being really smart about what the market is, what skill sets are hot and how the market is moving for various industries or positions.

Do you have any salary range topics you would like to see covered here on Compensation Today? Write us a comptoday@payscale.com.

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