Expect a Lengthy Period of Wage "Dis-inflation"

Until this past year, most workers have enjoyed a several-year period of modest "real" (adjusted for inflation) wage growth, as the increase in wage levels have generally outpaced inflation (albeit, by a fairly small margin). That period is now over, and is unlikely to return anytime soon.

With consumer confidence plummeting, business conditions weakening and economic projections declining, we at AHRS expect merit budgets to decrease for 2009, even while inflation continues to increase, creating a "double-whammy" impact on economic value of wage rates.

A few labor force participants in the "hot" skills areas may be able to keep their heads above the inflation water-level, but that's a fairly tiny part of the overall labor force. Experienced technology professionals are the only group that seem capable of staying ahead of inflation right now, with 10% year-over-year job growth and a 2.2% unemployment rate according to recent data (see other post on this topic).

According to its mid-July report, the U.S. Labor Department said the national consumer price index (CPI) surged 1.1% in June, its largest monthly rise since June 1982. On a year-over-year basis, consumer prices grew 5%, the highest rate since May 1991. Many would argue that the 5% official inflation figure greatly understates the impact of inflation on most families, with food, fuel and utility costs rising at a much faster pace than that. Families can forgo the purchase of discretionary items, but no one can escape the soaring costs of basic necessities such as food and gasoline (even if you don't drive, the rising cost of oil is filtering its way into the cost of virtually everything else).

Generally speaking, there is a correlation between inflation rates and pay increase rates, but it's far from a perfect correlation. With many businesses in declining sales and/or profits mode and the labor market weak in nearly all but a few sectors (i.e. tech, health care), there seems no impetus to increase "merit pay" or other pay increase budgets, despite the clearly rising inflation waters.

Typically, inflation occurs because of strong strong economic growth, with more money chasing goods and services than are available at the time, forcing prices to rise. Not this time though, as inflation is being driven by soaring oil and commodity prices, which ultimately extend their reach through nearly all sectors of the economy (except real estate!). Today's inflation, instead of being demand-driven, is more like the "Stagflation" of the early 1980s, when we had high inflation, and slow economic growth.

Expect wage rates to trail inflation for some time.

Another Comp Professional's View on Glassdoor.com

I just received this quote from a compensation analyst colleague and client of ours. I thought it was worth passing along (with permission):

"I already have looked at glass door and found how easy it was to put in false data (I started filling out a false report myself and stopped just short of saying “submit”). There apparently is nothing stopping me from saying that I work anywhere I want at whatever job title and job salary I care to enter. I can enter past or “current” information."

"I feel the same way you do and other comp professionals. Unfortunately, most employees look at this stuff like it is the gospel which makes it as difficult as heck to get them to believe the real survey information."

Keeping an Open (but skeptical) Mind...

A Seattle-area executive recruiter friend of mine brought to my attention that there are opposing views of the new employment and pay "intelligence" website, Glassdoor.com.

So, in the spirit of keeping and open mind, as well as welcoming alternative points of view, I am providing a link to an article/posting from the employee perspective (well, at least of one's particular perspective). You can visit this link at www.stalkingvenus.com.

Interestingly, even the opposing viewpoint addresses some of this writer's concerns:

• Potential confidentiality issues
• Potential (or purposeful) inaccuracies, or outright falsely provided information
• Cheer-leading or "slashing" company reviews for those with an agenda, or a score to settle
• The lack of data validation and data "vetting"

Actually, after reading the article on StalkingVenus and re-reviewing glassdoor.com myself again, I must say, the site does offer some interesting and cool approaches to reporting employer "intelligence" such as pay data, employee viewpoints about their employer, and company leadership. Kudos for creativity and a truly fresh approach. But this site is geared towards employees (or potential ones) seeking "data" and/or "ammunition" for their own self-serving purposes, not for empirical truth-seeking.

I must confess, I see the appeal of the concept and the website itself, but as a compensation consultant, my job is to provide clients and colleagues with valid and objective data, as well as dispassionate but incisive analysis, not the opinions of employees and data supplied by incumbents with no understanding (or care) about key compensation concepts. Concepts such as proper job matching (for true "apples-to-apples" pay benchmarking), a consideration of factors that impact pay, such as geography, industry, company size, etc.; the impact that a company's compensation philosophy has on the choices it makes with regard to pay and other elements of total rewards (base pay, benefits, short and long-term incentives, work-life issues, etc.). These are critical considerations in assessing a company's pay program, and this aspect is seriously lacking, at least as far as I can tell so far.

I could go on and on, but if you are an HR, recruiting or compensation professional, or company executive, and really want to know what's going on in the "real world,: review glassdoor.com and similar sites for anecdotal employee relations, attraction/retention data points, but rely on much more rigorous data sources and HR/compensation professionals that understand them for "real" compensation data and analysis.

I'm getting off that soapbox again...