Authors: Dominic Girard Marie-Josée Bisaillon
Economic situation
As the saying goes, "Prosperity shows those who are happy, but adversity shows those who are great". In the current economic context, some organizations will have to face increased challenges. According to the World Bank, economic growth projected for 2025 is below historical trends for most economies, impacting 80% of the world's population.1 The Bank of Canada expects a 2% economic growth in the first half of 2025 before rising slightly in the second half of the year.2
In addition, several organizations have recently made significant layoffs. Despite the high competitiveness of the labour market, we believe most organizations will keep their projected salary increase budget for 2025, but some may need to reduce it. Organizations need to think carefully about managing compensation, which will be more difficult in the coming months.
Compensation transparency and communication
It's much easier to be transparent when the news is good. Tighter budgets will put organizations that have recently opted for greater compensation transparency to the test. We're not suggesting taking a step back; on the contrary, adversity reinforces the importance of transparency.
In years past, managers have been able to communicate good news without training or coaching. Today, support from human resources professionals is even more important in helping them improve their capabilities. If the limited salary increases will also impact managers, then the first message should be sent to them as employees.
Compensation budget allocation
When salary increase budgets are more limited, It's equally important to differentiate the increases between incumbents. Executives and managers often make the mistake of assigning the same or very similar increases to all employees, which is far from optimal. It's best to differentiate increases as equality is often contrary to equity in compensation. Salary increases should be treated like all the organization's other investments — compensation budget allocation should be evaluated even more rigorously when funding is scarce.
What works in favour of organizations is that it may be perceived as riskier to change jobs when the economy is slow, which is no reason to forget good practices. Even though times may be tougher, employees will remember how they were treated much longer than the percentage increase they received.
Managers' role
Managers will have the delicate task of communicating this message to employees. They'll need additional support, as these discussions can be difficult to manage. Managing expectations and maintaining a climate of trust and motivation are critical.
Managers will win by:
- Carefully preparing to explain the criteria for increases, as well as budgetary constraints.
- Holding one-on-one meetings to transparently explain the rationale of the decisions.
- Listening and empathizing when employees are disappointed.
- Expressing their appreciation for the efforts, challenges, achievements and contribution with concrete examples.
- Exploring future outlooks by explaining what the organization is doing to improve performance and opportunities for employee growth.
- Providing support by showing their availability and support by offering follow-up meetings.
Conclusion
Despite the strong job market, the economic situation will impact salary increase budgets for some organizations. However, this situation shouldn't be an incentive for organizations to change their policies. The resource teams' support role is more important than ever in helping management and managers stay on track and make difficult decisions. Maintaining the desired level of transparency and preparing managers should be a focus to limit harm and leverage this situation to strengthen the organization's culture.
