Crash Course in ... rewarding people in a downturn

As 2008 draws to a close, your people's excitement about their end-of-year bonuses is tempered by low expectations and apprehension that this might be the last bonus they see in a while. With 2009 looking bleak, how are you going to work out what to pay everyone?

by Alexander Garrett

Cut your cloth. 'The first consideration for companies will be to set their overall pay budget on the basis of what they can afford, not on what the market is doing,' says Chantal Free, a senior consultant with remuneration specialist Watson Wyatt. Companies in dire straits should consider a pay freeze or even a pay cut.

Pay for real performance. 'It's time to be more focused on performance that really has a quantifiable impact on results,' says Julie Naismith, head of UK reward practice at consultants Towers Perrin. 'To do that, you must be sure that you have the right processes in place.' Getting incentives right will ensure you hold on to the best people and that your business is performance-driven, she says. Mark Hoble, a principal at HR consultants Mercer, adds: 'You should focus your spend on people in critical roles and talented people coming up through the organisation. It's time to maximise your return on investment in human capital.'

Revisit targets. There's no point in keeping targets that can't possibly be met; that's the path to disenchantment. 'If your targets are already a stretch, you may have to review them, with reduced incentives,' says Free. 'If they were easily achievable, you may decide to let them become stretch targets.'

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