• October 2011

What Is the Impact of a Sluggish Economy on Employee Morale?

By Barbara Mitchell
HR Expert and Co-Author
The Essential HR Handbook

One of the many struggles facing American business leaders today is the fact that the economic downturn has strongly impacted workplace morale.

According to a recent survey by Accenture, 61 percent of managers surveyed said employee morale was low in their organization, and more than 25 percent of those who responded said they are taking steps to see what can be done to increase how employees feel about their jobs.

Unfortunately, many organizations have not increased salaries in the past few years, or if they did give an increase, it was not a whole lot of money.

Further, the Society for Human Resources Management (SHRM) reports that the average salary increase is less than 3 percent and that is projected to hold true for 2012.

The good news?

The only good news in all of this is that the number of companies freezing salaries was down for the second consecutive year in 2011—and fortunately, this trend is expected to continue into 2012.

As organizations struggle with balancing limited budgets and the need to hang on to critical talent, many are focusing their rewards on their “star” performers and those who would be most difficult to replace.

This practice is focusing more attention on pay for performance since top-performers are an employers’ secret weapon.

While pay for performance is an excellent way for an organization to maximize its salary increase pool, it can create serious employee-relations issues and have a negative impact on employee morale and engagement.

Even average performers need some encouragement that what they do on a daily basis matters to the organization.

The economy is putting a spotlight on what HR people have known for a long time. If organizations can’t continue to increase salaries like they did in the 1990s, the concept of total rewards takes on new meaning.

Thinking about pay, benefits, flexibility, rewards, and recognition programs as all part of an employee engagement strategy begins to make sense.

Will a top performer (or anyone for that matter) ever be satisfied with a 3 percent salary increase?

Probably not, but it appears that for the next few years, we are stuck with limited budgets for increases. This creates challenges for managers who need to balance out smaller increases with other types of rewards and incentives.

Some organizations are using flexible work arrangements such as telecommuting, compressed work weeks, and flextime as ways to boost sagging morale.

Others are subsidizing public transportation or providing free parking on site. No or low-cost incentive programs can work in the short term to keep morale up, but it is going to take more than an ice-cream social in the parking lot to get the attention of workers who haven’t had a salary increase in a couple of years.

Keeping morale high and increasing employee engagement should be a focus for all of us who manage people.

Focus on keeping employees aware of where they fit in your organization and rewarding them in any way you possibly can will make a difference—even if you can’t give the kind of salary increases you’d like to give, or get yourself, for that matter!

As Ken Abosch, Aon Hewitt’s compensation group leader said, “3 percent is the new 4 percent, meaning we are not likely to be back to the 4 percent level of the late 1990s any time soon.”


About Barbara Mitchell

Mitchell is a human resources and organization development consultant who is widely known in the areas of recruitment and retention. She has experience in both for-profit and not-for-profit sectors and has consulted for a variety of organizations around the world.

She served in senior human-resources leadership positions with Marriott International and several technology firms in the Washington, DC, area before co-founding the Millennium Group International, which she sold in 2008.

Mitchell is a graduate of North Park University in Chicago, with a degree in History and Political Science. Contact Mitchell by email.

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