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Sou Choi


Senior Global Human Resources Director

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Pay freeze: managing conversations about salary during an economic downturn

How can HR manage conversations about pay in the midst of an economic downturn?

The beginning of the year is often a time when organisations award pay rises to their employees in line with annual percentage increases or as a reward for their hard work during the previous 12 months. As we know, however, 2020 was a year unlike any other in recent memory, and many companies would have found the operating environment so tough that they will be relieved simply to have made it into 2021 in one piece.

The easiest way to drive engagement is by recognising the human desire for bonding and teamwork. 

Relieved that they are still trading after grappling with the widespread restrictions introduced in the wake of the Covid-19 pandemic, most organisations won’t be giving too much thought to pay increases, let alone in a position to offer them.

A recent article in the Financial Times revealed that most economists expect the UK economy to recover more slowly than other countries’ this year, due to a range of factors, including the impact of Brexit. Most of the nearly 100 economists surveyed don’t predict that the economy will return to pre-pandemic levels until the third quarter of 2022.

Without the ability to offer their workforce a timely boost in the form of a pay rise or bonus, and in the face of a slow economic recovery that could threaten job security, how can businesses prove to their employees that they are appreciated, and inspire loyalty and improve productivity in the long-term?

Money isn’t the main motivator

Think that your employees come to work each day just for the salary? Think again. Humans are motivated by far more than cash. Although most people would agree that adequate compensation is needed to encourage employee engagement and job satisfaction, it’s only a starting point.

Studies published in Harvard Business Review show that the overlap between pay levels and job satisfaction is actually less than 2%. It goes without saying that salaries should be competitive in order to attract and retain the best talent, but once people can cover their basic living costs, their morale and engagement are decided by other, non-financial factors.

Having noted a direct correlation between corporate performance and employee motivation, the Harvard researchers carried out a large-scale study to discover exactly how managers can nurture a strong culture of motivation within their teams. In the survey of 300 Fortune 500 companies, the researchers looked at four specific indicators of motivation: employee engagement, satisfaction, commitment and intention to leave.

‘Engagement’ in this context was defined as the “energy, effort and initiative that employees bring to the job”. The research discovered that salary had no influence on any of these four indicators of motivation. It also uncovered two important human requirements that determined the level of employee engagement.

The first is the need to be included within larger teams or groups; employees who feel proud to be part of an organisation are strongly motivated to perform as highly as possible on behalf of the collective. The second need that companies can satisfy is employees’ wish to be challenged, and to contribute to their organisation in a personal and significant way.

The lesson for HR and business leaders is that recognition and rewards shouldn’t be solely focused on salaries and bonuses. The easiest way to drive engagement is by recognising the human desire for bonding and teamwork. Receiving positive social recognition from managers and peers motivates employees to tackle problems and help their team to be successful. Employees who feel appreciated by their co-workers are more likely to adopt and retain the behaviour that earned the recognition.

As this factor of interpersonal bonding and appreciation is so important for inspiring job satisfaction, your organisation needs to make it a part of its DNA. Don’t think that recognition will take care of itself. Devise a strategy for how recognition and rewards will be embedded throughout your organisation, giving every employee the chance to take part. Investing in employee alignment, recognition and rewards, as well as organising regular team-bonding activities, will produce much higher returns than simply handing out large pay rises.

Gartner offers similar advice: “effective recognition not only motivate the recipient but can serve as a strong signal to other employees of behaviours they should emulate. Recognition can take many forms other than monetary rewards —public acknowledgment, tokens of appreciation, development opportunities, and low-cost perks”.

Managing the issue closely

As a company, Achievers, like some others, is fortunate that the pandemic has not yet impacted annual pay reviews. We like to look at total compensation together with employee experience, which includes benefits, training and mentoring, development experiences and stretch assignments. We also continue to use our engagement platform and pulse surveys to ensure we recognise employees, as well as listen to and act on their feedback.

In addition, moving traditional company events online, for example reward and recognition quarterly awards, holiday events, social events (charades, bingo and cocktail creation) and wellness activities (CrossFit, yoga and meditation) are also reflective of closely managing employee concerns.

Organisations that adopt similar practices, and really invest in employee recognition and engagement, will find that they’ll reap the rewards during periods of economic downturn. Employees may be disappointed at the lack of an annual pay increase, but employers could soon discover that money isn’t the prime motivator for the majority of their workforce.

Interested in this topic? Read How to nurture employee wellbeing through rewards and recognition.

Author Profile Picture
Sou Choi

Senior Global Human Resources Director

Read more from Sou Choi
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