A New Way to Think About Your Salary Budgets

Written by Scott Sargent, CCP

January 5, 2017

A New Way to Think About Your Salary Budgets Hero

If you haven’t yet held your 2017 planning meetings, they’re likely right around the corner. Instead of just taking giant spreadsheets into the meeting, try to be proactive and answer some of the difficult salary budget questions before you walk in the door. It’s important to have a good grip on how you’re going to allocate your salary budgets and a concrete plan to communicate this information to employees. After all, the 2016 Compensation Outlook Survey showed that 85% of organizations whose employees understand their compensation philosophy also report a high level of employee engagement.

When you’re preparing to allocate your future salary budgets, here are a few important questions to help you think differently:

If we are allocated the standard 3% market adjustment increase, how do you reward top performers?

First off, it’s important to not communicate a standard 3% raise as a merit increase. There are many other incentives (including stock and extra vacation time) that you can use to reward your top performers for a job well done. If you start using your “market adjustment increases” as your merit increases, many of your employees’ salaries will fall behind the market.

When choosing who will receive a base salary increase this year, should the deciding factor be last year’s performance?

Industries like tech are changing drastically each year. The skills and competencies that worked well for your company this year may not work well the next year. You may even need to emphasize different skills and different positions to stay current and ahead of your competition. While past performance is usually indicative of future performance, employees’ past performance shouldn’t necessarily be the end-all-be-all. You should look at which employees have the skills that will drive your quickly changing company strategy forward and compensate those people accordingly.

Should we be giving out salary increases more often?

Traditionally, salary increases are given to employees annually. But it could be time to challenge this classic way of thinking. What about giving increases to employees when they successfully execute key projects? A more flexible salary increase budget will allow you to compensate top performers at the times when they’re truly going above and beyond. The ability to receive increases throughout the year could incentivize employees to work harder all year long, instead of just turning it up in the last couple months of the year.

Should we create clear salary-performance guidelines for other departments besides sales?

Most companies have a commission based pay structure for their sales department. It’s easy to measure a salesperson’s success and determine whether they are below, meeting, or exceeding their goals. Other departments like engineering and marketing have less direct metrics to measure the success of these positions, and it may not always be clear how members of these departments can obtain a merit increase. Laying out clear expectations and compensation paths for each department makes it easy to communicate your compensation philosophy to employees.

The 2016 Compensation Outlook Survey also demonstrated that only 53% of organizations believe that their approach to performance evaluations is effective in supporting compensation and promotion decisions. With a number as low as this, it could be time to think about your salary increase budgets differently. To learn more about the link between compensation, communication, and employee engagement, download the Compensation Outlook Survey Executive Summary.

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about the author
Scott Sargent works with clients to build successful compensation programs. When he is not working, he is on a family hike, snowboarding in Vermont, or deep in the woods on a trail run.

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