Market Pay, Deflation and Total Rewards

As a follow-up to last week’s discussion of the new variability of base pay several interesting points have been raised by the media and colleagues.

• As noted in the media, several states provide a unique program of offsets through unemployment insurance for across-the-board wage reductions. This approach is helpful to employers facing with the challenge of maintaining critical talent needed for an improving market and reduces state expenditures on unemployment. The long-term economic risk associated with base pay reductions lies in the creation of a deflationary spiral that could drag on the consumer side for the long-term. The HR implications are nothing short of the demise of the salaried employment model.


• Colleagues have also suggested and I believe rightly so that the “standard 3% on a contribution of 6%” 401k match will henceforth be consistently tied to organizational ability to pay in the form of adequate profitability. The goal of introducing the match initially was to encourage participation and insure an orderly growth in retirement assets that would be a floor for workforce planning. The profitability limitation reinforces the concept of all compensation as variable based on ability to pay and reintroduces a notion of profit sharing that has been fading from the lexicon of compensation design.


• Finally on health care benefits the issue has irrevocably moved to transferring costs and accountability to employees. Employers are increasingly willing to differentiate between employees based on health risk and explicitly limit participation in subsidized health benefits to employees willing to invest in wellness.