Is 3% Merit the ‘New Normal’?

Salary Increase Budget Surveys

Most employers are working with 3 percent for merit, as shown by this chart taken from a recent WorldatWork survey, says Pasteris. (Pasteris, president of TLMP Consulting Group, offered her suggestions during a recent webinar sponsored by HRHero/BLR.)

How Do You Stretch Your Budget?

First of all, says Pasteris, look at how your budget is structured. There may be more money available than you think. For example:

• How are promotions or other equity increases handled? Are they over and above the budget? If the promoted person is lower in the range (likely), there may be some savings.
• Can turnover help? Retirements, resignations, and terminations generally mean a job is open for some period of time and, thus, not draining the merit budget. And, again, replacements may be lower in the range than those they replace.
• Can appraisals help? Not everyone will get an increase, and that means more available for the others who do get one.
• How about leaves and terminations? Unpaid leaves of absence and periods during which jobs are open may also mean more available in your merit pool.

Bottom line, you actually might have more money available than you thought. Even so, with a small budget, rewarding merit is not the easiest thing to do. The basic rule is, everyone can’t get that average increase—some have to get less so some can get more.

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Keeping Your Best Employees

Here are suggestions from Pasteris on retention:

• Conduct a competitive market analysis. You have to know where you stand.
• Introduce or review your compensation management tools.
• Check salary grades and ranges. Make sure salary range midpoints compete.
• Establish ranges that are wide enough to give you some flexibility.
• Pay employees at the appropriate position in their range.
• Give salary increases to certain employees only:

• Top performers;
• Employees in critical jobs (your core, critical competencies); and
• Employees whose compensation is below market.

• Carve out a separate budget for highest‐performing employees.

Top‐performing pay‐for‐performance companies give their best performers merit increases that are 3 percent or more higher than average employees, Pasteris says. Differentiation is difficult but possible, she adds.

Making the most out of a slim merit budget—comp manager’s daily bread—but just one of the daily challenges. “Maintain internal equity and external competitiveness and control turnover, but still meet management’s demands for lowered costs.” Heard that one before?  

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