Briefing: can you justify your pay freeze?

One in four companies is freezing pay awards this year, while many more have deferred a decision they would normally have reached in January.

If yours is one of the companies making a 0% pay award, then how, as the person responsible for reward in the organisation, are you going to fill your time for the rest of 2009, and what exactly will you need salary survey data for?

The answer to the first of those questions will doubtless already be apparent to anyone in the front line of comp and bens. But reliable data providing solid evidence of what is happening in the wider reward arena is essential in order to support that work.

As CELRE managing editor Mark Crail points out: "Over recent years, pay awards have been remarkably stable. If you gave everyone 3% you would not have been far off the going rate. That certainty has now disappeared, and you cannot repeat what you did last year or follow the pack."

The IRS Pay Databank (part of XpertHR) holds details on around 1,400 pay settlements collected during the course of each year. The most recent monthly report found that 60 of the 230 settlements recorded since January 2009 have been pay freezes.

But most employers continue to award some cost-of-living increase, with a significant number of settlements at around 5%. One company had raised basic pay by 15% as part of a wider overhaul of working arrangements.

So if your company has deferred a decision on its 2009 pay settlement, or has not yet reached the point where it has to commit itself, it is vital to get pay data that can support the process.

A decision based on guesswork about what others are doing could be damaging both to the company and to the person who made it. Imagine in six months' time having to justify your company's inability to fill vacancies with the explanation that your recommendations had been based on something you read in the paper.

Even with a pay freeze, there are numerous reasons why employers need salary survey data. On a daily basis, for example, salary data is essential:

• To set pay at the appropriate market rate when recruiting;
• To decide an appropriate level of pay when promoting from within; and
• To work out how to reward people who are redeployed.

But there are two particularly compelling strategic reasons:

• To have the evidence you need to justify a decision to freeze pay when challenged by managers, staff or unions. The argument that "everyone is doing it" will appear weak and is difficult to sustain without hard data. Similarly, pay data will show how the company's overall reward package compares to others.
• To inform decisions about what to do in 2010 or towards the end of 2009 if that is when your next pay review falls due. This year's data provides the essential underpinning for any recommendation to freeze for a second year, award a modest cost-of-living increase, or aim to catch up on competitors who have continued to raise pay levels through the worst of the recession.

Finally, many employers that have frozen pay awards in 2009 are taking the opportunity to review their benefits package. Some are choosing to improve low-cost options (for example, adding an additional day to annual leave entitlements), while others are hoping to modernise their offering to make it cost effective for employer and employee alike.

Find out more about CELRE's Employee Benefits and Additional Payments Survey.

• Has your organisation completed its annual pay review for 2009? If so, please get in touch so that we can add your organisation's pay award to the IRS database.