Fondly remembering the days of 3% raises

Quick shot for a busy Tuesday - check out this piece that ran on USA Today online over the weekend - Is the annual pay raise dead?, a look at some recent studies and trends in the world of employee compensation.

For what seems like ages, once per year the big total rewards consultancies like Towers Watson or Aon Hewitt would diligently report back that for the average employee annual salary increases would be about 3% (again). The news that annual salary increases would be about 3% became somewhat of a running joke, since it was so consistent and predictable. The phrase of employees being '3-percented until retirement' was fairly common.

Well, if the latest news on annual salary increases is accurate, we may all look back on the 3% raises of the past and wonder what happened to them. Check out some of the comments in the above-mentioned USA Today piece:

"Base salary increases are flat. We don't see the prospect of that changing much at all in the next several years," said Ken Abosch, who studies compensation issues for Aon Hewitt.

In other words, the annual raise is dead. It was already on life support last decade, but the Great Recession has finished off the raise. It's been replaced by "variable compensation" — the bonus.

"The quiet revolution has been the change in compensation mix," Abosch said. "Through a series of recessions, organizations have pulled back dramatically on fixed costs. And base salaries are often a company's most significant fixed cost ... [They] have a compounding effect, and create a drag on an organization's ability to change."

Awesome isn't it when your salary, (and by extension, you), are described and probably considered as 'a drag on an organization's ability to change', instead of, I don't know, a strategic investment of organizational resources in order to hire and retain great people.

One of the effects of a relatively higher percentage of one's overall compensation being shifted towards bonuses or other kinds of variable pay is that it makes 'regular' employment look and feel more like contingent labor. One of the reasons people like 'regular' jobs is the 'regular' nature of their weekly, monthly, and annual earnings. Drive more of these earnings into more company-friendly (and easier to reduce and/or eliminate), irregular compensation, then, well, earnings stability becomes much more tenuous.

Companies need to be more agile and flexible these days, no doubt. But at least in the US they have had the benefit of pretty much universal employment-at-will arrangements to ensure labor and labor cost flexibility. Now it seems like that might not be flexible enough for many organizations.

They want your 3% as well.