Good news, with a warning!

As the New Year begins, it appears that everyone is glad to have 2011 behind them, and they are looking forward to a much better 2012.  The numbers that are coming from Washington,^[1] as well as the economic forecasts from various economists, equity strategists, and analysts^[2] also report that employment numbers are up, and unemployment figures are dropping.  The statistics show that even though terminations and layoffs have continued (albeit to a lesser degree), employment is rising, 1.64 million employees were added in 2011, and the forecast for 2012 is that another 2.6 million employees will be hired.

A word of caution is appropriate, however.  All signs indicate that more employees will be retiring over the next few years, particularly as the financial market continues to improve, and their 401(k) and retirement investments increase in value.  It is also important to consider that pre-existing employee dissatisfaction may lead to turnover as the overall labor market recovers.  Our concern is that as the market changes, the “Law of Supply and Demand” is going to have a dramatic impact on compensation.

We have just come through a very unsettling economic period, during which time many companies reduced their staff through layoffs and attrition, froze pay increases, asked for give-backs, and generally seemed more concerned about survival then about their employees.  As the economy continues to improve, the need to hold on to existing staff and be able to recruit new employees will greatly increase.  Therefore, we suggest that all organizations, sooner rather than later, consider the following five (5) initiatives:

1. Identify your company’s most important and valuable employees.  If you must lose staff, make sure they are not the ones you can least afford to lose.

2. Conduct a comparative analysis to identify where your pay is in relationship to your competitors for talent.  These are the companies you could lose staff to as well as those that you will probably recruit from.

3. Evaluate your internal mechanism for setting expectations, evaluating employee performance, and tying their compensation to results.  Too many companies don’t make the link between pay and performance and, therefore, salary increases and bonuses become an entitlement, not warranted by results.

4. Examine your employee communications to ensure that the organization’s goals and strategic plan are understood by the staff, and that all employees are working towards the same overall objectives.  Employees don’t need access to confidential data, but they need to understand the overall business goals and what they need to accomplish to make those goals a reality.

5. Make sure the compensation arrangements recognize and reward those that deserve to be rewarded, and don’t give out any “mixed messages”.

In some cases, these initiatives may highlight specific areas that need to be addressed, such as the need to benchmark compensation, enhanced communications, goal-setting, etc.  Being proactive will help you to seek solutions before they become big problems.