No Raises. How About Another Day Off?

The boss had looked at his budget for raises. If he wanted to keep everyone aboard, 1.5% was as high as he could go. He worried that such a small increase would alienate staffers, particularly his longtime employees, who were accustomed to annual raises of 4% to 5%. He wasn’t sure what to do.

He’s far from alone. Just 80% of companies plan to give raises this year, down from 92% last year, according to data from Payscale. And just 11% said they would offer more than 5%—meaning most raises will not keep up with inflation. This risks offending employees, especially high performers. “An annual raise of a few hundred dollars is demotivating,” says compensation expert Ben Frost, senior client partner in the Products practice at Korn Ferry.

Many firms have offered perks in place of raises, but these can carry their own risks. Leaders might assume, for example, that offering paid time off would be an acceptable substitute. But a new survey by ADP found this would satisfy only about 35% of the workforce. The same percentage would be content with onetime payments if raises aren’t possible, and about a third would be happy to receive grocery and shopping vouchers. A quarter said that increasing pay frequency would likely help.

Firms can’t hand over PTO or onetime cash payouts without potentially breaching employment contracts. Experts say that the solution is twofold: to provide the cash or PTO in a way that does not contravene contracts, while also making the perk memorable—declaring a month of early Fridays, for instance—so that employees feel seen and appreciated. “That’s relatively easy to do, and it’s low cost,” Frost says. Another option is to announce that the office is closed on the Friday before Memorial Day, as Staff Appreciation Day, or to offer a choice of spa, meal, or shopping vouchers.

Corporate messaging around the perk is also crucial. Organizational-strategy expert Sharon Egilinsky, a senior leader of the ESG and Sustainability Solutions practice at Korn Ferry, suggests straight talk that acknowledges the impossibility of being all things to everyone: “You can say, ‘We surveyed and are implementing what we think will hit the spot for the most people.’”

Before shelling out perks, experts say, it’s critical to determine which ones employees value. Firms waste enormous amounts of money on perks that employees don’t actually care about, says organizational strategy expert Maria Amato, senior client partner at Korn Ferry. “Companies are keeping up with the Joneses or copying other companies—and making the same mistakes.” She says that companies can typically save 5% on their employee costs.

Executives can use conjoint analysis—a tool used by marketers to identify which products will appeal to consumers—to determine what employees value. “It’s making sure that you can identify your differentiating talent, and that rewards align to them,” says global technology expert Michelle Seidel, senior client partner at Korn Ferry.

But where possible, experts say, raises are still the way to go, simply because the majority of organizations dependably provide annual base-salary increases in non-recession years. A firm that doesn’t provide raises amid solid business performance will call the wrong kind of attention to itself. “Cash is still king,” says Tom McMullen, senior client partner in the Inclusive Rewards practice at Korn Ferry. 

For more information, please contact Korn Ferry’s Total Rewards practice.

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