How to Handle Compensation During a Recession, from New Hires to Pay Raises

With talk of a recession in the near future and layoffs at major companies driving headlines, it is easy for workers to feel nervous about their job stability and start asking questions. It’s imperative for HR leaders to keep abreast of labor market changes and appease those concerns by clearly communicating about salaries, raises and job stability.

An HR leader has a lot to navigate during these uncertain economic times including historically high merit increases, staffing levels, motivating performance and ensuring retention of key employees. Fears of a looming recession could have a positive or negative impact on compensation, so it is best to be prepared to handle any situation that may arise.


Will history repeat?

Looking back at the 2008 recession, around 1.5 million workers were laid off. However, the current labor market is the hottest it has been at any time during my 25-year career and a recession may tamper that slightly, but we won’t be anywhere near historic conditions. In fact, many are predicting that the labor market will remain extremely tight, even during an economic downturn. 


Navigating raises, promotions and new hires

The current market of attracting and retaining talent is very competitive for employers. The rapidly moving market paired with recession fears can make it difficult to prioritize the allocation of limited compensation funds. The conversations I am having daily surround the difficulty of balancing fiscal responsibility with ensuring companies are retaining top performers and key employees, while still filling roles where needed. Companies are feeling the most pressure competing for hourly employees due to labor shortages and a dramatic increase in hourly wages.


In the end, where you choose to allocate those dollars as a company comes down to prioritization. Hiring managers may not be able to meet every demand of prospective employees, so it is a matter of where you choose to invest those resources. It is critical that you regularly assess market competitive compensation levels so you can make data-driven decisions.


Emphasize the “hidden paycheck”

It is important for companies to communicate and highlight the “hidden paycheck” they offer beyond compensation. This could include benefits, culture, career opportunities and other attractive features offered to employees. For example, during the COVID-19 pandemic, more companies than ever rolled out mental health services for employees.


When it comes down to it, the market changes so rapidly that it is crucial to stay on top of current compensation trends, rather than assume historical trends from previous recessions. The top priority for most employers should be to retain their top talent. Understanding the compensation market, honest communication with employees and leaders, and amplifying or highlighting the additional benefits the company offers will guide you through any economic ebbs and flows we may experience in 2023 and beyond.

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