A big change could be coming in payroll merit increases as an intense period of corporate belt-tightening begins to relax.
The possibility doesn't represent any change of heart by those who control payrolls, but instead is simply the hardnosed recognition of an economic reality - that there may not be much to be gained through further tightening.It is nothing new in American life. It has happened before and will happen again because it is a self-correcting cyclical phenomenon, as a bit of recent history illustrates.
At the tail end of the 1970s, for example, major companies sought to improve their net income by cutting staffs, limiting pay raises and otherwise becoming leaner, meaner and more efficient.
It wasn't a choice easily arrived at, and in fact, it was long delayed. For nearly two decades American companies had been developing an enormous midriff of white-collar workers - and becoming less competitive because of it.
The problem was exacerbated by inflation, which rose to double-digit levels and effectively priced many American products out of the growing global marketplace. Change was imperative. Costs had to be cut.
One company after another adopted the same policy: Pare staffs and restrain pay raises; get more net for the payroll dollar. Some companies went further and closed plants, but most just watched the payroll.
Then, as the economy recovered from the big recession of the early 1980s, the pressure came off again. Growth was in again. In 1982, according to a compensation survey released this week, merit raises rose 9.1 percent.
And then, once again, the lid came down. American companies, though more efficient now, continued to receive stiff competition from abroad. Payroll-watching was in again. Work forces shrank; salary increases dwindled.
Since 1982, according to Sibson & Co., a management consulting firm, salary increases have declined steadily. By 1988, merit increases averaged just 5.3 percent. And next year, says Sibson, the average will be 5.2 percent.
But now, it states, the cutting may have reached its limit. The jobless rate is down to the mid-5 percent range, meaning most of those laid-off workers have found new jobs. Companies now are looking for workers.
It could mean a big shift of emphasis by those who watch the bottom line. Instead of improving profits by squeezing payrolls, some companies now might have to seek results by rewarding good workers with bigger pay raises.
The result, says Sibson, could be the end next year of seven years of steadily declining salary increases and downsizing of staffs.
"It appears companies may have achieved all they can in those areas," says James Mitchell, a Sibson principal who managed the survey, the results of which are based on responses from 653 companies.
Many companies are much leaner today than four years ago, said Michell, adding that the key issue now facing companies is how to retrain and motivate those employees who have remained with their organizations.
He concludes that "incentive programs that allow companies to share the risks and rewards with their employees will take on a greater role as organizations address this issue."
Mitchell said three-quarters of survey participants now have incentive compensation programs, and that many are planning to extend them.
The reason, he says, is corporations recognize they need to pay more attention to motivating workers, to rewarding performance and to increasing productivity.
And, as it was in the earlier part of the cycle, when downsizing and pay restraints were in vogue, the goal is the same: The bottom line.