It’s time for 2011 salary budgeting and surveys say that increases are being planned by many organizations for the upcoming year. So how much should you plan to provide? Should you pay top performers more than the average increase? How do you sell your budget plan to finance? We’ve compiled a short 4-step guide for creating a salary budget for 2011 and to address these common questions from our members.
1. Plan to provide increases of at least 2.7%
Survey results suggest that your organization should consider providing increases of at least 2.7% next year, as the majority of reports are showing average projected adjustments between 2.7% and 3.0%.
According to surveys conducted by Mercer, Towers Watson, WorldatWork, Hay Group, and ERC, employers are projecting higher pay increases for 2011 compared to those increases provided in 2009 and 2010. We’d recommend using any of these credible sources as benchmark information help you devise your salary budgeting.
Pay adjustments can and do vary depending on industry, size, region, and other variables including whether your organization plans to provide formal range adjustments or individual increases. It’s important to look at all of these variables when setting your plans.
2. Differentiate increases based on performance
Many organizations differentiate increases based on level of performance (i.e. top performers, average performers, and bottom performers) versus providing a flat average increase to employees.
We typically see organizations differentiating increases by at least 1-2% for each performance level. Using 2.7% as a benchmark average rate, it may be common for top performers to earn increases close to or over 4%.
Mercer and Towers Perrin’s surveys indicate that employers plan to provide average pay increases of 4.3% to top performers, 2.6% to average performers, and less than 1% to bottom performers (Mercer & Towers Watson). WorldatWork’s survey showed slightly lower projections for performance levels with 3.7% for top performers, 2.4% for average performers, and less than 1% for bottom performers.
The merit matrix is a common way in which organizations set guidelines for merit pay adjustments or increases, particularly when they wish to differentiate increases based on performance to reward their top performers, with many organizations setting average increases for average performers.
3. Sell your budget plan to finance
Selling your budget plan to finance or accounting will be crucial, especially during a time when cutting expenses (versus adding them) is the preferred strategy. Payroll expenses make up a large percentage of the operating budget of your organization. When selling budget plans to finance, it’s important to speak their language which means presenting plenty of data and evidence to back up your plans.
- Make sure that accurate, valid, and detailed data is compiled and used in your budgeting plan. Salary budgeting surveys are helpful tools. Just be sure there is enough data to justify or support the budget you propose. Employee feedback can also be used as data to justify your budget. For example, if pay satisfaction is low or exit interview data suggests that individuals are leaving due to pay concerns, this data could support your plan.
- Make sure that you’ve estimated increases accurately and that the added expenses are justified. Work to understand your finance or accounting department’s dilemma in continuing to look out for the organization’s profitability.
- Aligning your budget plan with organizational goals or objectives also typically resonates with finance. It’s likely that pay for performance plans or increases tied to the achievement of objectives will help reinforce these goals and objectives.
- Compensation philosophies or policies can also be helpful in supporting your pay plans. For example, if your organization has a philosophy to pay at market, adjustments will likely need to be made based on this year’s data. Similarly, if your organization has a philosophy to pay above market, adjustments above the average will likely need to be made.
4. Continue to stay alert to market changes
Keep abreast of changes in the market during 2011. Even though organizations plan to provide a certain percentage increase, the market sometimes leads them to adjust this projection in the first or second quarter of the year. Plan to confirm your budgets at least once next year to make sure the market is showing what was projected.
- Surveys – To benchmark projected wage and salary adjustments for 2011, please click here to download the 2010-2011 ERC’s Wage & Salary Adjustment Survey. Or, to benchmark market trends in pay for specific positions, consider using ERC’s various compensation surveys. Not a member of ERC? Visit www.ercnet.org/survey to learn more about accessing our 2010 compensation surveys for no cost.
- HR Help Desk – For questions or guidance related to salary budgeting or to obtain additional data to support your organization’s budgeting plans, please contact firstname.lastname@example.org.
- Compensation or Performance Management Project Assistance – For project assistance related to compensation or performance management, please contact email@example.com.
- Mercer (2010). U.S. Compensation Planning Survey
- WorldatWork (2010). Annual Salary Budget Survey
- Towers Watson (2010). Global Talent Management and Rewards Survey
- Hay Group (2010).
- ERC (2010). 2010-2011 ERC Wage & Salary Adjustment Survey