As the economy recovers, pay increases will take on increasing importance. A good motivated employee will help you recoup that pay increase in enhanced productivity – enabling you to capture new opportunities as customers open up pocket books again.  But an unhappy employee who feels underpaid, may jump ship as soon as the job market loosens up. 

Are you planning to give pay increases to employees in 2010?  Make it a goal.

According to several salary surveys, pay increases for 2010 are expected to average roughly 2.6% to 3.3%. 

That 2.6% – 3.3% is a range you can use for forecasting payroll expense increases in your 2010 budget.  If you want to get more precise, you could prorate the projected increases based on a partial year, for budget purposes.  Don’t forget to take into account the effect on payroll taxes, 401(k) matching contributions, and other payroll-related expenses.

If you were in the unfortunate position of having to cut pay during this recession, pay increases should be at the top of your business goals as we come out of the recession.  At a minimum, you need to try to get back to pre-recession pay levels.  While employees may be understanding when the economy is in the tank, as it recovers they will expect their situations to recover, too.  If you made a commitment at the time of cutting pay to restore pay on a certain timetable, then make sure you live up to that commitment.  As this BNet article notes:  “How you restore salaries to their prerecession levels matters almost as much as how you announced the cuts.”

Also, as the Wall Street Journal points out, pay cuts lead to low morale which can lead to lower productivity which ultimately leads to higher costs anyway: 

“Many companies oppose pay cuts as much as the rank-and-file do. Pay cuts are often demoralizing, and low morale can cut into productivity, which is a backdoor way of raising costs.”

In the end you may find it cheaper to give raises than not -- and better for your business.  Find the money somehow.  Raise prices or cut other expenses if you must.  The difference in employee attitude post-raise will make it worthwhile.