Raises and bonuses- sharing a recovery

Your business is starting to recover. You are again profitable. If you were smart and agile, you remained profitable or perhaps even increased margins during the downturn by being “lean and mean.”

One advantage of a financial recession is that employment trails the recovery. So while businesses rebuild their earnings, jobs remain scarce. Most small business owner don’t see their employees as part of a statistical anomaly, though. If you froze increases in 2009, they haven’t had raises in what seems like a long time. They also have a better view of your company’s increased revenues or improved financial health than employees in larger organizations.

When is it appropriate to reinstate raises? There are a few considerations. The first is your confidence level regarding the sustainability of your business’ recovery. Most of us are still concerned about whether another dip will cause our customers to slam their wallets shut again.

If you think that your increasing business is sustainable, then you have a few additional factors to take into account.

Are your employees in demand? In a competitive environment, you can’t afford to be the last one to offer increased compensation. This recession has hit lower wage, less educated employees the hardest. Unemployment among those with a high school diploma or less is over 12%. For those with a college degree, it is 4.5%. For professionals, the unemployment rate is less that 2%. If you are thinking that high unemployment is a factor in keeping engineers or programmers in their current jobs, you are mistaken.

Another factor, and one far more difficult to handle, is recovering your past losses, or rebuilding reserves. One of my clients is emerging from a tough couple of years. While his company remained profitable, it wasn’t anything to write home about. Two months ago they had a great month, posting their highest profits in three years. His accounting manager immediately informed him that it was time for him to get a raise.

Ironically, the profit turned out to be a bookkeeping error. The point remains, however. The employees see today’s results. They easily discount or disregard all the months you barely had enough to make their payroll, or even had to use savings to keep the doors open. It isn’t easy to explain to hem, but you can and should. They have to understand that if you ran the company based on monthly results, the next time there was a hiccup they might not have a job.

None the less, if you are growing the business your staff feels it on a day-to-day basis. They are busier, and you aren’t hiring more help. With today’s free-agent employee mentality, more work is supposed to mean more compensation. How do you deal with those expectations?

If you had to cut wages or staff to get through the downturn, you probably realized an unforseen benefit. You began talking to your employees on a different level. You had to share at least some of the bad news, and explain what your plans were for survival. As things get better, it isn’t time to go back to your old ways. Keep sharing information.

Explain not only that business is improving, but by how much. Put it in context of how much was lost during the rough times. Place a number on how much more revenue would have been done if sales had stayed at 2007 levels. Let them know that a business doesn’t just pop out of a hole and move on, the hole has to be filled in first.

Now may be a great time to announce an incentive system. When our businesses were growing year after year, many of us got sloppy with out fixed costs. We hired and gave out raises, creating structural expense that couldn’t be sustained in leaner times. We’ve fixed that, and it isn’t smart to head back down the same road.

Putting in an incentive program that shares success sends a powerful message. It tells your employees that you are willing to pay them more as business improves, but if it isn’t maintained, the benefits attached to the improvement will disappear just as quickly.

 

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