Industry Market Trends

The Pay's O.K. but the Perks are Great

Sep 02, 2008

In lieu of giving raises, some companies faced with tighter budgets are busy figuring out alternative ways to compensate hard-working employees — from shortened workweeks and additional paid time off to more nontraditional benefits.

Despite relatively steady growth over the preceding five years, the average budget for payroll increases in 2008-2009 is expected to remain static among most U.S. companies. A recent survey conducted by Compdata shows that the 3.60 percent budget increase for 2008 matches the figure for the previous year, and that the forecast for 2009 remains at 3.62 percent, a relatively minute change.

"There has been a prevalent trend towards stagnant increases for several years," says Amy Kaminski, marketing programs manager for Compdata. Although the technology industry showed the highest pay increases, averaging 5.52 percent, according to the Compdata report, distribution and warehouse companies had a payroll growth of 3.43 percent, the lowest in the survey.

While a tough job market and labor shortages in certain sectors have made worker retention an important concern, lack of fiscal growth may mean raises aren't forthcoming in 2008.

This presents many employers with a thorny problem: how to keep good employees satisfied without breaking budget restrictions?

"Employers are facing workforce shortages in many industries and should work to create a balanced compensation plan for their company to aid in retention of current employees," Kaminski recommends.

The solution may lie in raise alternatives, such as extra vacation days, flexible schedules or a range of other creative substitutions.

"With predictions of a recession looming, companies should carefully consider how competitive their total compensation packages are," Kaminski warns.

Offering creative benefits allows a manager to compromise with valued employees while still showing they are appreciated in the workplace.

The Value of Free Time

"With many employers delaying or deferring raises because of tough economic challenges, hiring managers are more open to discussions about alternatives," says These alternatives can often mean the difference between a successful negotiation and employee dissatisfaction.

A common practice involves increasing vacation time and paid time off. Many companies use days off as an incentive to bring new hires on board, as well as to keep current employees from leaving. According to CareerBuilder, "For many of us, time off is as important (if not more important) as monetary compensation."

In lieu of a raise, many employers are also willing to make schedule adjustments to accommodate worker preferences. Flex time permits workers to come in later or leave earlier in order to spend more time with their families. Likewise, compressed schedules give employees the chance to fulfill their required hours in fewer days, effectively shrinking the workweek.

Such schedule changes are becoming increasingly popular. The New York Times reports that 4,000 municipal workers for the city of Birmingham, Ala., recently switched to the shortened workweek, and that New York's Suffolk County and Oakland County in Michigan are adopting similar changes. These compressed employee schedules are usually staggered to ensure that offices remain open for the full week.

(For more on flexible work schedules, see The State of the Summer Schedule.)

Lowering Travel Costs

While some compensation alternatives can be as simple as changing a job title, others may require a more long-term commitment, such as paying for additional job training or employee education. In the current economic climate, however, lowering the cost of an employee's commute may be a more timely incentive.

Elevated gas prices have rendered some commutes prohibitively expensive. As a form of indirect compensation, many companies offer their employees free gas cards, subsidized mass transit passes or fuel reimbursement plans. Many of these options are tax deductible. In addition, allowing workers to telecommute (i.e., work from home) can also help them save on expenses.

At the current state of gas prices, lowering commute costs can be equivalent to providing employees with more money. In a rather extreme example, according to the New York Times, Microsoft recently leased three new offices several miles from its headquarters in order to cut down the commute for thousands of employees.

(More at How Are High Gas Prices Affecting You?)

Consistency is Key

When providing perks as compensation alternatives or to maintain retention rates, it is important to approach the issue in a consistent manner. Ideally, the benefits a company provides should not be dependent upon economic fluctuations. If a business first offers a set of benefits and then radically alters or withdraws them entirely, employees can become discontent.

According to another New York Times article, "parents wept openly" when Google raised the price of its employee daycare program. Similar incidents of scaling back employee perks can be equally damaging, largely because some compensation alternatives influence the way workers organize their professional and personal lives. While relatively inexpensive bonuses like casual-dress days or free meals do not greatly affect workforce morale, a company car or cell phone can become a significant source of reliance.

Rather than investing in an employee perks package that may become impractical during an economic downswing, it may be more beneficial to provide smaller, long-term incentives that will maintain employee satisfaction for years to come.

As's Human Resources Blog states, when initiating raise alternatives, "the idea is to invest in things that make your workplace so attractive that you win employees' hearts, so they see working in your business as more than just a way to earn more money."


Pay Increase Budgets Remain Steady in 2008

Compdata Surveys, June 2008

Small Talk: When Workers Need a Raise but You Can't Afford It

by Joyce M. Rosenberg

The Associated Press, July 15, 2008

Things You Can Negotiate For at Work (And Didn't Know It)

by Patrick Erwin, December 15, 2008

The New Workplace Perk: Gas

by Lisa Belkin

The New York Times, August 7, 2008

On Day Care, Google Makes a Rare Fumble

by Joe Nocera

The New York Times, July 5, 2008

Earning Employee Love

by Michael Alter Human Resources Blog, May 21, 2008