Managing Compensation — and Employee Morale — in a Recession 

How do you manage compensation — and employee morale — in a recession? This is probably one of the questions that are keeping both CEOs and global mobility professionals awake at night. The writing does seem to be on the wall, and it appears that no business and their workforce can avoid some of the dire consequences. According to one of the most recent reports from CNBC, the downturn should happen at the later part of this year –and economic recovery is forecasted to happen after two years.

Two years does sound like a long time, especially in comparison to the fortunately all-too-brief pandemic recession that lasted only for two months. However, we must bear in mind that the last hardest-hitting recession which led to the lay-off of 1.5 million people lasted for 18 months. The silver lining here is that while nobody welcomes a recession, we can certainly learn from the lessons of the past.

Tough decisions to be made

There are going to be tough decisions to be made. Some employees will have to be laid off. Ideally, they are not the productive performers that the companies want to keep for the long term. As for these star players, they do have to be wooed and won over, especially if expected promotions and other perks are not forthcoming because of the budget cuts.

At the same time, the company leaders do have to maintain high morale, or at least prevent it from going down. Employees who think that their present employers are bleeding revenue money will not want to go down with the sinking ship. They need reasons to believe that the company can endure the recession– and will come out stronger after it. Those reasons will make them stay for the long haul.

Stability in crisis

One factor that can play into the HR managers’ advantage is that employees want stability during a time of crisis. Given a choice, many of them would stay with a company that they are happy with, instead of jumping to a new one where they would have to do a lot of adjustments. In these cases, they need to see not just the endurance and resilience of their current companies, but their commitment to their welfare as well.

HR managers interviewed by the HR Zone said that they got themselves and their best employees through the toughest crises by showing them that these were temporary. The reduction of pay increases and other increments were also going to happen for just a definite period of time, e.g. until the company bounces back, and not forever. They communicated to their staff that they were just going through a rough patch that they will soon recover from.

The second thing they did was to offer the employees non-financial compensation for their hard work and loyalty. This is where customization and personalization can come in. Working mothers, for example, might overlook the temporary bonus reduction if they are allowed to work at home instead. Others might prefer that the company enroll them in professional advancement courses; some of these programs can be obtained through corporate partnerships and do not cost the company a cent.

Restructure the base pay

The SHRM blog spoke of a “hidden paycheck” that can continue to motivate employees to stay and perform. A more visible professional career ladder can show them what to aim for, if they stay throughout the turbulent times. Another added benefit, on top of the usual medical ones, would be consultancies and services for mental health conditions. 

Payscale advocates a more revolutionary solution, and one that can bring in even more qualified star performers once the recession eases. At a time when merit increases are suspended temporarily, it might be advisable to restructure the base pay. This would take a lot of research and granular study of all employees. But doing so can widen the gap between those who are being paid the most compared to the least paid. It can also reveal which employees are being rewarded for loyalty, or for performance, or both.  

Developing a more solid and equitable structure of base pay addresses the unspoken concerns of the employees, and puts to rest any hidden resentment or negativity brewing underneath.

Recessions are never easy nor convenient. However, they are never permanent. Weather the storm by fixing what needs to be repaired in your structure, and ensuring that your best or preferred employees will remain at their posts unti things settle down.