A major component in the ongoing merciless slog that is our economy is employment. Unemployment remains uncomfortably high at or around 9.1%, and the problem is that it has been there for a long time, perhaps the longest extended stretch of joblessness in this country since the Great Depression.
That alone is enough to discourage anybody, but especially in the United States, where working isn’t just a means to gain wealth and provide for one’s family (though it is certainly that). It is also part of our identity. We are a working culture. When we cannot work, we lose a sense of purpose. It is a great strength of ours as a people, but it is also a liability during lean times, when it causes us all to get a little crazy.
And while it is far better to have a job than not, things are tight even for the gainfully employed, and according to Compensation Planning for 2012, a survey by Buck Consultants, a human resources and benefits management firm, things are not likely to get much better in 2012. The survey canvases some 280 firms across all industries, and was conducted in August.
The average merit pay rase for next year is expected to be 2.8%, which is at or just below estimates for the rate of inflation also expected for next year. The expected increases are more or less on par with averages for 2010 and 2009. What is interesting is that since last year, only 80% of respondents said they had a pay-for-performance philosophy. This is down from 87% the year before. When I followed up with buck, it was explained to me that increasingly, firms are using variable compensation, such as bonuses, to reward employees for excellent performance, rather than give them larger pay increases. While this does give companies more flexibility when doling out their limited resources to reward its staff for a job well done, cynical employees, especially younger ones looking to get their careers going, are quick to remark that a big one-year bump ultimately translates into a whole lot less than a compounding pay increase.
This is worth noting, since the Buck survey also mentioned that among the respondents, their top talent-related priorities were retaining talent and employee engagement. With low pay grade increases prevalent, what employers are also making great use of are non-compensation inceitives, such as new career opportunities and additional training, things employees can keep with them for their entire careers.
I get that companies want to take the slow and steady approach in what remains a hellacious grind of an economy. But the reality is this: corporate America is currently sitting on something like $2 trillion it is unwilling to invest anywhere, not even itself. Now, I have taken flak on this in the past, and have been called a socialist, so ley me make something clear: the corporate sector has no obligation to hire anybody. It hires to make its own profits the best they can be, period. While our society needs jobs to be at peak efficiency, businesses must only hire when it makes for them to do so, not out of any obligation that falls beyond their fiduciary responsibility to their stakeholders, both internal and external.
So why am I bugging out about flush corporate treasuries? Because according to the Buck survey, promotion increases for C-level executives are likely to come in at 5.7% – about twice that of the rank and file. Increases for VP-level positions are looking to average 7.3%. Now, Buck did confirm to me that these increases, while largely merit-based, also include any promotions within the position. Say, from vice president to senior vice president, or from one level of the C-Suite to another. Just the same, the facts are clear: the higher you go, the bigger the raise.
This is strikes me as bad management. While it makes sense, I suppose, to play it lean when giving merit raises to the folks in the trenches – after all, nobody is going to leave their job over a skimpy raise in this market, not when there is a legion of potential replacements out there – it doesn’t make a lot of sense in the long run. The reason Buck gives for all of the tight-fisted raises is that companies are being very cautious and conservative. That’s fine – I’ve worked for companied with extremely conservative accounting, and even though folks griped about its spending habits, during tough times, it was reassuring to know that the company had socked away enough reserves to ride out almost any hardship it was likely to face.
But to see such higher average raises for top-level managers at a time when companies are very much expecting folks to engage in shared sacrifice across the board, our corporate leaders should lead by example. They should either throttle their own merit increases to that of the ones they are doling out (a more egailitarian, but not very effective solution) or they should be a little more free with their resources when it comes to compensation.
After all, the reason why so many companies are hanging on to so much excess capital is because they are scared to invest it. Economic and political turmoil have given plenty of firms plenty of reasons to not want to risk anything. That is only natural. But just as Churchill noted that a country cannot tax its way to prosperity, neither can it get there by holding onto its cash. I was once told the difference between a recession and a depression is that in a recession, nobody wants to spend their money, whereas in a depression, nobody has money to spend. Corporate America could be the engineers of its own financial deliverance if it could just find the risk tolerance to invest in itself a bit more. It should not become some weird kind of private-sector jobs program – that is folly. But it should realize that even in a world still stinging from the market excesses of a few years ago, there is still plenty of business to be had for those with the nerve and skill to take it.
That means expanding operations. Taking chances. And building up fresh talent. That is the only way out of this doldrum we are all in. Federal programs will not do it. Taxes will not do it. And I seriously doubt a solid gold meteor the size of Rhode Island is going to land softly in our heartland, either. So the answer is within ourselves. We can provide the fuel for our own economic recovery. But the first step is investing in the rank and file first, and the top dogs after.
But what do you think? One of the things I enjoy most about our readers is that most of them are small businessowners, with an acute appreciation for what it means to invest and to reserve. Also, with so many readers who live off of commissions, your views on any kind of raise are especially worth hearing. Indeed, not every company is sitting on a pile of unspent treasure. But plenty enough are. At what point does it make sense to start spending money to make money? I’d love to hear what you have to say.
Until next time.