Six Ways to Handle a Pay Freeze

Last Updated Apr 7, 2009 7:57 AM EDT

For talented employees, annual performance reviews are supposed consist of an hour of congratulatory back-slapping, followed by a large bonus cheque and a thumping great pay-rise.

But this year, the most anyone can look forward to is a carefully worded treatise on the current climate, the opportunity to keep their job, and a pay freeze.

It's never going to be the most upbeat of pay-rounds, but there are five steps you can take to limit the damage.

  1. It shouldn't be a shock. Part of ongoing communications needs to be to keep staff in the loop of how the business is doing, so they are under no illusions going into the process.
  2. Get the message right, explaining why the move is necessary and what exactly is going to happen. When BT implemented a freeze in March, its all-employee email put it in the context of the economic environment, the problems the business was facing, and the fact that inflation had hit zero.
  3. Be honest. Don't try to soften the blow with promises about the pay round next year or compensatory bonuses. This makes the business a hostage to fortune and extends the agony for everyone.
  4. Be visible. Make managers available to answer questions and offer support. Senior managers should be visible at difficult times. Train line managers to counsel employees who may be disappointed or in financial trouble.
  5. Prioritise employee engagement. Look at alternative rewards -- Charles Cotton, an adviser on reward for the Chartered Institute of Personnel and Development, suggests granting share options or giving free shares to key employees as a lower-cost alternative to a pay rise. You'll need to foster teamwork in different ways -- say, through philanthropy. And be sensitive: there's no point coming round the day after a pay freeze and offering stress massages.
  6. Be ready with rewards for the upturn. Think about ways of rewarding people if things pick up -- the CIPD's Cotton suggests a bonus at the end of the year to recognise contributions. But don't build up false hope -- only communicate that kind of reward scheme when it is certain you'll be able to deliver on it.
There is an argument that employees, however talented, are less inclined to move at the moment -- so why worry?

Employers shouldn't take this for granted, and they shouldn't seize the opportunity to freeze pay as a cheap way of stockpiling cash.

If you're posting profits, employees deserve their share of this reward. Showing consideration and sensitivity is the best way to avoid a queue for an exit as soon as business picks up again.

(Photo: artemuestra, CC2.0)