Sharing the pain

According to a recent Watson Wyatt survey, wage and hiring freezes are starting to thaw at U.S. companies that implemented them during the recession.

The Washington based human resources consulting firm says 54 percent of employers that froze salaries plan to unfreeze them within the next six months, up sharply from 33 percent in August and just 17 percent in June. At companies that implemented hiring freezes, 49 percent expect to at least partially reverse them in the next six months.

“The general economic picture right now is definitely brighter than it was just a few months ago,” said Laura Sejen, Watson Wyatt’s global director of strategic rewards consulting. “However, the recovery is uneven and most employers aren’t fully convinced that improvements they’ve seen are here to stay. They remain concerned about their ability to attract and retain the right people.”

So what does this mean when it comes to annual performance appraisals?

Under normal economic conditions, supervisors find it a challenge to conduct a performance appraisal. With all the layoffs and reduction in salaries, it is not unusual that the employee would feel threatened when invited to participate in a performance appraisal session. So how do you overcome this perceived threat? I posed a number of questions to members of the Metropolitan Milwaukee Association of Commerce/Council of Small Business Executives regarding their upcoming appraisals. Here are some suggestions from the business community that might reduce the perceived threat and the stress connected with the appraisal process.

Are you conducting performance appraisals this year?

A majority of the respondents have or will conduct performance appraisals this year. One owner responded that they were awaiting their fourth quarter results and would perform their appraisals as normal on the anniversary date of hire. There will not be bonuses for fiscal year 2009 because of an anticipated accumulative loss. However, raises may be given for performance. Another respondent stated that they are switching from anniversary to annual appraisals.

How will you handle the fact that there will be little or no raises even though job duties have increased because of layoffs?

One respondent stated performance appraisals are not tied to raises/increases. They have addressed this issue with their employees from the viewpoint that they are a viable company and wish to stay that way. They felt they all need to tighten their belts in this economy and appreciated their cooperation and understanding.

Another response was if the fourth quarter is not positive with a continuing trend, there may not be raises but a promise to review salary conditions at the end of the second quarter, should overall company financial conditions improve.

One owner responded they have been fortunate to give 1- to 3-percent raises, and an occasional merit bonus and retain incentive bonuses for their managers. This owner took a temporary personal pay cut to maintain debt payments and raises until their sales reach the next level. The same owner also stated his plan B would be to freeze wages and/or temporarily cut salaries/wages, but has not implemented this plan or discussed it with his staff. He felt that being open about their financial “scoreboard” helps so that employees are not kept in the dark. They had record sales in 2009. If he must go to plan B, then he will try to be open about why and what they must do so that they understand the reasons and the plan to handle the temporary situation, if it occurs. They are a values-based company and people generally understand the ups and downs of the real world.

Another owner responded, “We have changed compensation plans to include incentive pay for things that positively impact the business. We are offering perks like additional unpaid vacation or days off for your birthday. We have kept the employees on top of the current market in our industry and they are aware that we are being more than fair and doing everything we can to save jobs.” This owner also feels that many of their employees are overpaid based on today’s market conditions.

One respondent replied the overall increase will be down but their high performers will still receive raises. There exists an understanding of how economic conditions have dampened the total raise pool, but there is also an understanding that they have cut as much discretionary expenditure as possible to take care of our associates as best we can.

Another owner is trying to give more support to their employees and find ways for them to earn extra income. They have added new products and added financial incentives to motivate the employees to sell them. They have also added contests to build competition among the employees and build sales.

One has maintained a “gain sharing” program and increase the quarterly payout as business improves. This has compensated for the increase in job duties due to rightsizing.

How will you handle the stress on the employee and supervisor involved in this process?

Publishing the appraisal schedule eliminates the perception that they are being conducted in secret. In addition, you could provide each employee with a copy of the appraisal form and ask them to complete it prior to the appraisal conference. This will also reduce some of the stress connected with the appraisal. Self-appraisals are a good way of starting a two way conversation. It also provides an opportunity to address differences in perception with regard to job performance and skill sets.

One respondent stated that appraisals are done by an owner and someone in senior management. They have started their reviews and have not received any pushback from their employees.

Another responded, should they be unable to give pay raises, the rationale will be conveyed along with open financial disclosures of company performance. They have experienced recent positive results, and have restored salaries that had been at a 5 percent reduction since July. They have promised to revisit the situation in June of 2010 to relieve stress in the event they are unable to give increases.

One owner personally handles 90 percent of wage reviews within two weeks of the performance review, based on the write-up and the supervisor’s recommendation. He reminds the employees that they are lucky to be receiving raises during a time when people are taking freezes, cuts, and being laid off. He said the employees all seem to appreciate the raise and the fact that they have a job.

One respondent said, “It’s a stressful process every year, so we try to provide a consistent message and as much support/info/data as we can for the reviewer and a compelling future for all of our associates.”

Finally, one owner stated they share financial data with the employees and include them in the planning process as well as the forecasts. They have a “no surprise” culture that builds trust with the employees at every level.

In summary, we see that each of the respondents have or will face the challenge of conducting their appraisals with a tone of optimism in this time of economic uncertainty. We see that a number of different approaches are being used during this appraisal process. Some are offering various incentives as part of their compensation package. Others are reinstating previous cuts, while committing to review compensation as business improves. The common denominator is that all are sharing the pain, including the owners and key executives, to perpetuate the entity during these troubling times.

Performance appraisals are a chance to communicate the “state of your union” to all of your employees and ask for their support in the coming months as the economy begins to turn the corner. It is your chance to strengthen the morale and gain the support of your employees in meeting the next set of challenges, while growing market share and your business.

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