Your boss approaches you and asks what you are planning for in terms of salary administration in 2011. You’re responsible for maintaining competitive pay rates, rewarding your best people, but also meeting your organization’s budget limits and managing your employees’ expectations. You’ll need to determine how you will approach base pay, pay increases/adjustments, and pay for performance or variable pay, and still maintain a competitive benefits package and pay for other employee programs like training and development in the upcoming year.
Here are answers to five common questions employers just like you are asking about compensation for the rest of 2010 and into 2011.
1. Should we be reviewing base pay?
According to a recent study conducted by Mercer, nearly 40% of employers have reviewed their base pay programs this year, indicating that organizations are looking at base pay more closely than perhaps they have the past few years. ERC typically recommends reviewing base pay programs at least bi-annually, but monitoring trends annually. As retention of top talent becomes a more pressing concern, reviewing base pay will be critical, if your organization does not want to fall behind in terms of competitive salaries and wages. In addition, if your organization has done any of the following – freeze pay, cut pay, not provide salary increases, or hire for new positions, or senses pay dissatisfaction among your staff, reviewing your base pay practices should be a priority.
2. Are employers providing pay increases?
According to a recent ERC survey, more employers (78%) are planning increases for 2011 – a sign that raises are once again becoming a standard practice. As a result, it’s recommended that salary increases be included in your 2011 compensation budget. Keep in mind that across-the-board and cost of living adjustments, however, are becoming less commonly offered by employers and instead, being replaced by increases tied to performance.
3. What is the status of pay for performance or variable pay?
Pay for performance and incentive options remain a crucial part of many employers’ compensation practices, and we have seen little change in the types of incentives being offered by local employers. Nearly 80% of employers continue to offer these options to employees, according to our most recent Pay Adjustment & Incentive Practices Survey. In fact, some employers have replaced annual pay increase programs with variable pay due to fluctuations in business performance impacting compensation budgets.
What may have changed with regard to pay for performance and variable pay are the performance measures and targets, in light of new business objectives and strategies, amount of payouts (larger or smaller depending on the financial state of the organization), and eligibility for payouts. Thus, employers should review these programs to make sure that they are producing the results intended and measuring performance accurately and effectively.
4. How should the costs of benefits and other employee programs factor into our compensation decisions?
There’s no question employers are stretched these days with increased benefits costs and also the need to manage talent by offering various employee programs and developmental opportunities – all of which have tremendous costs. Some employers are being faced with decisions to heighten pay, but decrease benefits or vice versa depending on their financial situation. Therefore, we strongly recommend that organizations consider employees’ total compensation when making decisions about pay. As with compensation, this involves continuing to benchmark the practices of other employers with regard to benefits, training, and more using data such as these ERC surveys.
5. What data should I use for my 2011 salary administration?
There are many sources of reputable and accurate data on base pay for positions, average pay increases (actual and projected), and pay for performance/variable pay trends. These sources include published salary surveys such as ERC compensation surveys as well as those conducted by ERI, Mercer, WorldatWork, Watson Wyatt, BLR, and other industry-specific resources. Not only are these sources credible, but they are highly regarded by many employers when conducting compensation administration. They provide competitive data, provided by actual employers to help you make good compensation decisions.
Here are some general guidelines on using data provided in these surveys:
- Use data relevant to your organization (similar size, industry, location, etc.).
- Use multiple sources of data. A good rule of thumb is 3 sources. While compensation data can be expensive, an ERC Membership (for example) provides you with access to numerous reputable sources of compensation information that makes the process far more cost-effective than purchasing survey data on your own.
- Observe trends in compensation data (notably base pay) over multiple years, as compensation survey data tends to be highly influenced by the organizations that have participated in the survey, which may differ somewhat from year to year. Make market adjustments based on those trends. Compensation data, similar to other market information, is susceptible to sample variability.
- Market price jobs based on your compensation philosophy. For instance, it you aim to pay all your jobs “at market,” then the median rate would be the metric you would want to use when pricing your organization’s jobs. Whereas, if you aim to pay some of your jobs “above market,” using a higher percentile (75th, 90th, maximum, etc.) for these jobs will be most beneficial.
It’s expected that 2011 will bring about even more issues and new trends impacting compensation administration. Make sure you are prepared with the data you need to make the best and most competitive decisions.
Not an ERC member? Visit www.ercnet.org/survey to find out how ERC can support your survey data needs in 2011 and as you budget this fall.