Set Compensation for What’s to Come, Not What Was

Year’s-end is just around the corner, and many of us are trying to figure out how to budget for the year ahead while there is still so much uncertainty as to when business conditions might begin to stabilize. Part of that calculation includes whether or not to factor in a pay raise and/or bonuses, especially if you have employees who are working remotely or on reduced hours because of other obligations, such as caregiving and distanced schooling. Even though this has been an unusual year, the same basic principles of compensation apply—be fair and equitable, and motivate performance.

Despite not having achieved their revenue goals, many companies are planning to give out year-end bonuses this year to thank employees for sticking with them and to help make up for salary that may have been reduced earlier in the year. If at all possible, bonuses that were tied to performance objectives should be awarded if those objectives were met. If, because of extenuating factors, objectives were only partially met, then the bonus amount can be adjusted proportionately. Likewise, in the case of employees who were furloughed or temporarily unemployed for part of the year and thus contributed less than some others, consider what is a suitable year-end bonus amount to give them, as a gesture of goodwill, equity and inclusiveness.

When it comes to setting compensation for the coming year, look to how your business has performed in the latter half of this year. Next year will likely be very similar or even a bit better. If your business has rebounded, plan on a nominal pay raise. Human resource professionals say around 2.5 percent is the average most companies are planning for. On the other hand, if you’re still struggling, you may want to hold wages at current levels until business improves. Whether you raise salaries or not, the important thing is to treat all employees equitably and fairly to sustain morale and keep them motivated.