Most companies are looking at around 3 percent for their merit budgets, says consultant Terry Pasteris, but they’re wishing they had 5 percent. In today’s Advisor, how she makes that (appear) to happen, plus an introduction to the all-comp-in-one-place website, Compensation.BLR.com.
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.)
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Actual 2010 |
Mean |
Median |
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2.5% |
2.7% |
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Actual 2011 |
Mean |
Median |
|
|
2.8% |
3.0% |
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|
|
|
Actual 2012 |
Mean |
Median |
|
|
2.8% |
3.0% |
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|
|
|
|
Projected 2013 |
Mean |
Median |
|
|
3.0% |
3.0% |
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|
|
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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 (some employees must be zeroed out):
- Top performers
- Employees in critical jobs (your core, critical competencies)
- 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.
3% may be the average increase, but that does not mean that it is “normal” by any means. One must look at the lurking variables such as industry, location and skill to find out what the true average is. My brother works in engineering and got an average 15% increase, full benefits and a six figure salary in every job he has had. I know because he was kind enough to show me his paycheck. It helps to actually view a real paycheck every once in a while!
Great tips for stretching the budget. It’s easy to give up, but more useful in the long run to get creative and think outside the budget box.