- Some companies are foregoing cash raises. Amazon is one of the latest companies to announce that some employees will not receive cash pay raises this year.
- Attraction and retention can hinge on communication. Particularly when delivering difficult compensation news, clear and empathetic communication can be a key to retain and lure talent.
- Explore alternative rewards. During a year without raises or bonuses, companies should examine other ways to recognize and reward employees.
When economic challenges or other factors compel a business to forego pay increases for a year, an intentional and empathetic communication strategy — and finding other ways to reward workers — can be essential.
Webinar: Is More Always More? Everything We Know About Compensation and Where It Matters Most
Amazon employees recently learned many of the company’s senior employees will not receive cash pay raises this year. Some of those employees may receive additional company stock instead, but Amazon also referenced the benefit those employees have received from their already-existing stock awards due to the company’s equity growth over the past year. Amazon’s compensation packages for some corporate employees are more heavily stock-based compared to other tech companies.
In recent years, other large companies have similarly waived raises or equity awards, including Google and Tesla. On a macro scale, a ResumeBuilder report found as many as a quarter of companies may not be giving raises in 2024.
In recent years, a null salary increase budget has been uncommon in some corners, with only 1% of companies that responded to WorldatWork’s 2023-2024 Salary Budget Survey providing no raises for most employees in 2022 and 2023.
But for companies that do find themselves in that position, pausing merit and cost-of-living increases has an impact not only on current workers but new talent a company is working to recruit. During those circumstances, messaging may well be key, said Sue Holloway, a compensation content director at WorldatWork.
“Companies still need to attract candidates for jobs,” Holloway said. “Knowing that a company didn’t pay a merit increase is difficult messaging. It requires empathy and transparency.”
Consider Alternatives to Raises
During a pay freeze, companies can — and should — explore other forms of compensation and methods to recognize and reward employees, which may help with recruitment and retention and boost morale, Holloway said.
“Sometimes when companies must skip merit increases, they’ll set aside a special pool of money to use as needed in very select cases to reward and retain critical talent,” she said.
Other options may include creative methods of employee recognition and offering workers more flexibility, additional paid or unpaid time off, and career development opportunities, Holloway said.
In lieu of raises, companies can also try offering half-days, transportation stipends, employee discounts, relaxed dress codes, or additional benefits such as student loan reimbursement or parental leave, according to CareerBuilder.
In some cases, such as the Amazon example, stock incentives or equity-based rewards can sweeten the pot.
“For example, a startup organization may have limited cash but can deliver compensation value in the form of equity-based compensation such as stock options,” Holloway said.
Stock awards can pay significant dividends in rounding out employee compensation, as was the case for tech company Nvidia, whose employees saw significant increases in stock value even during a year when bonuses weren’t paid.
While stock is never a guarantee of financial growth, recent market performance has displayed its merits.
“Stock-based compensation can be a big draw in attracting talent and retaining employees due to its [propensity] to increase in value over time, sometimes significantly,” Holloway said. “There are stories of employees becoming millionaires from awards of company stock.”
Communicate with Employees and Candidates
During any type of compensation change, including a pay freeze, companies should examine not only their method of communicating the changes with employees but also how they measure the success of their compensation program.
Personalized communication about pay continues to be key, with 78% of companies electing to communicate with employees about their pay program through individual discussions with their supervisors and via announcements through a website, memo or email, according to WorldatWork’s Compensation Programs and Practices survey. However, 4% of responding companies said they do not communicate about pay at all.
The large majority of companies in the Compensation Programs and Practices survey (77%) measured the effectiveness of their pay programs by analyzing employee turnover or retention. That method eclipsed others such as employee satisfaction survey metrics (56%), business or operating results (38%), positive feedback from senior leadership (28%) or positive feedback from employees (24%).
While turnover and retention are a clear measure of pay program success, effectively communicating a company’s compensation philosophy — and ensuring employees understand it — play an important role as well. In WorldatWork’s survey, 45% of participating companies said most of their employees do not understand the company’s compensation philosophy, while only 18% said most employees understand it.
When delivering adverse news about pay, ensuring employees are aligned with the company’s goals, pay philosophy and reasoning can tip the scales between losing and retaining workers.
“Skipping annual merit increases or implementing pay freezes is difficult,” Holloway said. “Communication is important. Be empathetic and transparent. Acknowledge it is disappointing news, explain why and how long a pay freeze is expected to last, and look at other rewards you can leverage, promote and even enhance.”
Editor’s Note: Additional Content
For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:
