According to Gallagher’s 2019/2020 Salary Planning Survey Report, 39 percent of employers are now relying on variable pay for at least one employee group. (Photo: Shutterstock)

The economy is good right now, but there are rumblings of a recession, and employers are preparing for the possibility by taking a close look at their payroll expenses right now. Rather than increase the salaries of their employees, bosses are switching tactics to better keep yearly increases in check.

According to a report from Arthur J. Gallagher & Co., in an effort to combat rising health insurance costs and keep salary increases from rising above 3 percent, employers are relying on such perks as spot bonuses, variable compensation and incentives coming into play.

Related: What employees really think about their compensation

In fact, says the 2019/2020 Salary Planning Survey Report, 39 percent of employers are now relying on variable pay for at least one employee group; 20 percent report using lump sum awards for at least one employee group; 32 to 35 percent are using variable pay for executive and manager-level employees; and 22 to 25 percent also offer variable pay to lower-level employees, including those who already qualify for overtime pay under the Fair Labor Standards Act.

There’s considerable variation in the levels of compensation based on performance, too, ranging from 5 percent for low-level workers to 25 percent for executives.

But bosses have to tread warily in their quest to rein in health care costs. Too much cost sharing with employees, coupled with lower salary increases, can send workers seeking employment elsewhere as they too get squeezed financially.

“Through our in-depth analysis of the data, as well as countless conversations with employers, decision makers appear reluctant to raise salaries across the board because this significantly increases operating costs both in the near and long-term,” says William F. Ziebell, CEO of Gallagher Employee Benefits Consulting and Brokerage.

But all is not lost if salaries aren’t raised, according to Ziebell, who adds, “It’s important to understand that pay increases are not the only solution for attracting and retaining employees—particularly millennials. By leveraging tailor-made benefits and compensation strategies, organizations can create a deeper connection with their workforce and, at the same time, keep expenses in check. A few examples include flex-time or remote-working options, as well as health and wellness programs.”

Read more:

• What is monopsony, and how does it affect wages?
• Slightly larger pay boosts, bonuses in employers’ 2019 budgets
• Employers increasingly using alternative bonuses