planning raises in 2009?

As I was working with a client this week on their 2009 operating plans, one of the executives casually included a standard of living increase of 4.5% for staff.  I have to say I really struggled with this.

Is it appropriate for small companies to be planning for raises in 2009 during a global recession?

In a down economy small businesses are going to really feel the pinch.  Companies should be running as lean as possible for the next 12 - 18 months.  I realize that not offering a raise may not be good for employee morale but having a job for them at all should also be considered.  Instead of a raise, why not consider perks and benefits that may not cost a lot of money but are worth more to the individual?

what kind of items would you offer to keep morale up and staff motivated?

Assuming your staff are being compensated fairly (given that small companies can’t afford ‘market rates’), in my experience the following items go a long way with staff:

• giving positive feedback and praise when due!  Better still, recognize an individual in front of their peers once a month - one whose behaviour or work style supports your corporate core values.  Maybe even give them a $20 coffee card at time of recognition or tell them to take a few days with pay.
• flexible work schedules: This lends to the work/life balance that so many people are looking for.  What are some flexible work options?  telecommute one day a week, work an extra hour M->TH so that they can leave early Friday, you get the idea.
• think about increasing their allowed vacation from two weeks to three weeks.
• grant more stock options if you can in lieu of a raise or bonus.
• set a little money aside for quarterly team events (e.g. take everyone to see a movie matinee!)

When the average inflation in North America has been running around 2.4% in the last couple of years I think foregoing raises in 2009 and introducing (or reinforcing) the above items will go along way.  Get the team together.  Explain that it is tough times and together you have to hunker down.  Everyone is feeling the pinch.

And what about my client?  I’m going to strongly suggest no raises (they already have a bonus plan) and instead to increase the number of days of vacation along with continuing to support positive feedback in the office.

What are your thoughts?