November 4, 2010, 7:00 amBy JAY GOLTZ
It has now been almost three years since the economy entered the Great Recession and two years since it took the nosedive in the fall of 2008. Though the economists say the recession was over months ago, the small-business owners I talk to have not seen sales rebound to where they were. Some businesses haven’t rebounded at all. I have been in business for more than 30 years, and I have never seen anything like this. It’s like a normal recession but with an extra year or two thrown in. Yes, things have stabilized, and in some cases they have gotten better. On the human side, things are precarious.
Think about this: if your company normally gives out raises in January, as mine does, but you stopped after the economy turned, it may now be almost three years since your employees last got a raise. Ouch. On top of that, they have seen their 401(k) balances drop along with the value of their homes. As if that weren’t enough, credit card limits have been lowered, and getting new credit has become much more difficult. But the recession is over! Many people think that they have paid their dues as loyal employees and have shared the pain long enough. Though inflation has been near 1 percent, they have still lost ground, and it is hard to break the rhythm of getting raises every year as most employees have for most of their careers. Fair enough. But this has nothing to do with fair. Actually, it has more to do with fear.
During that first year or so of recession, the rally cry for many employees was “I’m lucky to have a job!” — and most people agreed. With the unemployment rate near 10 percent and with everyone knowing people who were out of work, most employees were very happy to have a job — even with pay freezes, furloughs, reduced hours, and even pay cuts. Now that those same people hear that the recession is over, and it has been three years since they have had a raise, fear is being replaced by frustration. It is easy to understand why they are anxious, why they’re hoping to get raises. They need the money. They have been working harder than ever. It has been three years! What is not easy is the situation.
Some companies are still treading water. In fact, many are happy to be treading water — as opposed to drowning. In many cases cutting back on wages has enabled them to fight another day or another year. No doubt these companies appreciate their employees and would love to bring their salaries back to previous levels and start giving raises again. But there is one nasty thing that is stopping them: reality. The reality is that if they start increasing payroll expenses without increasing profits, they are going to start losing money again (if they ever stopped).
In my case, our sales remain soft, and I have invested thousands of (borrowed) dollars in a building and equipment to put us in a more competitive position in the long run. I am confident that it will work eventually, but it is going to take some time to get the return on investment. Since we started preparing a budget for next year, I have had several conversations with managers about pay raises. Out of 103 employees, about 10 have asked for one. Are these just the bold ones? I’m sure that is part of it. Are these just the ones who have taken on more responsibility and feel they deserve it? Yes, in some cases, and they are right. Are some of them just in worse financial situations than others? Probably not. I am sure that everyone could use a raise and would love to have one. I don’t believe in negotiating salaries. I believe in paying the market wage and not penalizing or rewarding people based upon their negotiating skills.
Paying a “market wage” means that if employees are unhappy because they are paid less than the market wage, they can and in some cases should go find a job that will pay them more. Needless to say, there are other considerations like stability, work conditions, benefits, opportunity and other intangibles, but it’s ultimately about supply and demand, which is one aspect of economics that still works. It also means that if an employer decides to give out raises and ends up paying everyone more than market wages, the employer will have costs that are above market and that will put the company in peril because its competitors will have a cost advantage.
Still, I think having an across-the-board wage freeze at this point probably is a bad idea. Some employees have taken on new responsibilities, increased their skill levels, or increased their productivity, and they deserve a raise. The job market has gotten somewhat better and they may find better options.
But if employees expect to get a raise just because they haven’t gotten one in a while, that is “old economy” thinking — especially if your company is still hurting. If you ask for a raise, you probably should bring evidence that you are being paid an under-market wage. This is easier said than done. It doesn’t mean going to salary.com and using it as Exhibit A. The job titles leave room for interpretation, and the site includes salaries from large companies that pay on a different scale. More importantly, you have to be able to get that job at the higher rate.
If you don’t have an offer, this might not be the best time to talk salary with your boss, who probably has taken a cut, too, and may even have stopped taking a check. The door swings both ways. Your boss just might suggest that you go find a job at that higher salary, which is not what you want to hear. Keep in mind, with unemployment near 10 percent, your boss may be thinking that your replacement could be hired for 10 or even 20 percent less than you’re making. The message here is that nobody’s happy. Welcome to the club that no one wants to join!
But to the bosses out there, I suggest that you make sure your best people, who have options, are not caught in a salary freeze that leaves them cold — and leaves you out in the cold if they leave. A little fear is not necessarily a bad thing. But 2011 will be better. And 2012 will be better yet. These are trying times. Try to be patient. It’s a virtue. I don’t think I’ve ever said that before. The new economy.
Jay Goltz owns five small businesses in Chicago.