Compensation strategies changed significantly during the economic downturn, as many as 40 percent of employers are actually freezing their pay levels. Although pay structures are thawing as the economy recovers, cash-strapped employers remain cautious about committing too large a share of scarce resources to compensation programs, while simultaneously recognizing that their ability to fully participate in the recovering economy depends in large part on their ability to retain key personnel.

To ensure they get the most for each dollar spent in still difficult times, employers are continuing to allocate a greater portion of their compensation budgets to variable pay programsfor example, spot or retention bonusesthat reward high-performing workers based on their actual performance and encourage them to remain with the employer. To make these retention programs work, however, employers need to ensure that the incentives they offer are actually what the employees want, which can vary by employee group and even by individual employee. Employers must also ensure that as they reward top performers, they dont demoralize average employees on whose contributions the company also depends.

This issue of Workforce Strategies provides practical advice for employers trying to navigate the tricky process of developing an effective compensation strategy in a still uncertain economy. It highlights current trends in compensation, options for rewarding key employees, and how compensation programs fit into total rewards schemes and into an employers overall business strategy.