two stacks of coins According toGallagher’s 2019/2020 Salary Planning Survey Report, 39 percent ofemployers are now relying on variable pay for at least one employeegroup. (Photo: Shutterstock)

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The economy is good right now, but there are rumblings of arecession, and employers are preparing for the possibility bytaking a close look at their payroll expenses right now. Ratherthan increase the salaries of their employees, bosses are switchingtactics to better keep yearly increases in check.

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According to a report from Arthur J. Gallagher & Co., in aneffort to combat rising health insurance costs and keep salaryincreases from rising above 3 percent, employers are relying onsuch perks as spot bonuses, variable compensation and incentives cominginto play.

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Related: What employees really think about theircompensation

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In fact, says the 2019/2020 Salary Planning Survey Report, 39percent of employers are now relying on variable pay for at leastone employee group; 20 percent report using lump sum awards for atleast one employee group; 32 to 35 percent are usingvariable pay for executive and manager-level employees; and22 to 25 percent also offer variable pay to lower-levelemployees, including those who already qualify for overtime payunder the Fair Labor Standards Act.

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

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

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“Through our in-depth analysis of the data, as well as countlessconversations with employers, decision makers appear reluctant toraise salaries across the board because this significantlyincreases operating costs both in the near and long-term,” saysWilliam F. Ziebell, CEO of Gallagher Employee Benefits Consultingand Brokerage.

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But all is not lost if salaries aren’t raised, according toZiebell, who adds, “It’s important to understand that pay increasesare not the only solution for attracting and retainingemployees—particularly millennials. By leveraging tailor-madebenefits and compensation strategies, organizations can create adeeper connection with their workforce and, at the same time, keepexpenses in check. A few examples include flex-time orremote-working options, as well as health and wellnessprograms.”

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Marlene Satter

Marlene Y. Satter has worked in and written about the financial industry for decades.