Freeze Salaries: Give up everything but that which contributes (economically) to getting the sale and paying your top performers. I don't care whether it is a for profit or not-for-profit organization, you need to think a little differently in order to keep up morale and productivity and retain your key people. Identify the folks that are working hard and staying committed and give them a salary increase. Top performers tend to be the smallest group in any organization. Identify them and pay them. Here's the formula, [2% of payroll = 0% to 4% in pay adjustments] as long as you identify the poor or marginal employees and give them nothing. Average performers get 2% and people exceeding expectations get 4%.
Give "Across the Board" pay adjustments: Give everyone the same increase. This will only serve to make your top performers question their sanity. Why are they working hard when they get the same amount as the slackers? And they know who they are. Too much of this will drop your productivity across the organization or key people will go where they will be recognized.
Assume other organizations pay the same: Pay is more than an hourly rate. It's important to know all the factors in your competitors pay plans and practices. You need to know so that you can feel confident people will not get a lot more money for changing jobs. Turnover costs a lot of money (2 to 3 times the leaving persons' salary). If an administrative assistant feels he/she has not been treated fairly and leaves that can equal between 40 and 60K, and that is just one person. The cost in time and dollars to participate in a survey and know? Relatively speaking, priceless.
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By Gay Miller
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http://EzineArticles.com/?Pay-For-Performance-in-This-Economy?&id=3103546
It seems most companies are ignoring this advice. They are using "the economy" as an excuse to lower pay and not pay for performance. I am wondering what is going to happen when the economy improves. I believe there is going to be a lot of shuffling of employees that felt like the were mis treated. Which as you point out will cost companies a lot more money.
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