Greetings!

Strategy 2 is "Lift pay freezes and restore 401K matches incrementally"

Compensation and benefits are first to "go" when we are struggling and rightfully so, however, we need to begin to ease them back into the business plan.

Some businesses pay above market, some at par, some below.  There are different ways to address this issue. One being increase pay by merit, reward those strong performers, keep their salaries competitive!  You don't want to  lose those that you invested in and contribute well to your business.

Look at all benefits! How are your retirement contributions? If you have stopped them, consider continuing contributions, but go at it slowly.  Review all other benefits and see where you could "add" something without significant costs but significant value.  Such benefits may be additional time off, flexible schedules, employee assistance programs, parking perks as a few examples.  Sometimes the simplest things are most important to your workforce.  Keep in tune with their needs and desires in order to get the "biggest bang for your buck".

 Your competition is moving in this direction.  "According to a March 2010 survey of 293 Fidelity defined contribution plan sponsors that eliminated or reduced their contribution in 2009 found that 44% have restored the match or intend to do so by this year. And more than 3/4 of those organizations that froze pay during the previous 18 months had lifted such freezes or planned to do so by year end 2011, according to a survey released in October by Buck Consultants"  (shrm, HR magazine, January 2011)

So clearly the trends are to improve the compensation and benefits for your employees.  There is competition to do so if you plan to keep the best! 

Be practical. If you are already paying above market, consider other benefits to improve.  You can make small improvements without spending alot of money.  Be conservative so you won't  have to reduce the benefit in the near future.  Be sure you understand your industry and potential issues likely to arise before you move ahead.