Are Employers Being Short-Sighted?

Posted on August 2, 2011

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Three news items caught my attention today.

The first comes from economist Jared Bernstein’s blog where he notes that real compensation – i.e., wages and benefits, adjusted for inflation – continues to fall.

The second tidbit, from CNNMoney, discusses a recent Mercer compensation survey which found that the average increase in base pay in 2012 is expected to be 3%. But employers don’t plan on evenly distributing increases across the board. According to the article,

The top-performing employees — just 8% of the workforce — will see their salaries increase by an average of 4.8% next year, the survey said, compared to average workers who will see their salaries rise 3.1%. The weakest performers will be lucky to see anything at all. On average, they will receive a 0.3% pay increase in 2012, the survey found.

Considering the first two articles, maybe the third article shouldn’t be too much of a surprise. According to Bloomberg:

Frustrated employees are voluntarily quitting their jobs at the highest level in almost three years as confidence they will find another stabilizes, even with unemployment at about 9 percent for more than two years.

So, are employers being prudent, investing in their best performers, or are they missing the forest for the trees and damaging their longer term prospects? Only time will tell, of course, but when the economy does finally turn around in a decisive way it will be interesting to see whether those companies that are perceived as having stuck by their employees when times were tough will gain a competitive edge over those companies that are seen as having been more fickle.