High Wire Act: Salary Increase Budgeting for 2013

Salary planning season is upon us -- or will be shortly.  And while the early data (see here and here) suggests little to no change on the horizon, this does not mean that you get a free ride.  On the contrary, salary spending has never been more critical.  Indeed, balancing the needs of your different and demanding constituents -- from the salary-increase-starved employees to the bottom-line-watching Finance department to the talent demands of your senior leadership team -- may mean that you'll have to pull off the budgeting equivalent of a high wire act to accomplish half of what you need to with that meager 3%.

How to do it?

No magic answers currently available (sorry), but here are some questions for all of us to consider as we prepare to navigate this year's salary planning landscape.

Have we done the homework necessary to know where salaries stand?  I don't mean to suggest that you must benchmark every job every year.  Many organizations simply don't have the resources.  Nor do I mean to imply that your salary planning process is solely about pricing and matching the competition.  Those days are gone.  You do, however, need to go into this process with sound and reasonably up-to-date information on where your salaries stand competitively.  If you've used the downturn as an excuse to drop your benchmarking practice for several years, it's time to step up to the plate again.

Will a market level salary budget deliver the talent results our business demands?  If you've done your homework and have been diligent about watching and assessing your workforce, you should know the answer to this question.  Will a 3% increase budget, even spent in an informed and thoughtful way, leave you with any critical talent risks?  If you are at risk, but no additional salary dollars can be made available, should you explore using a combination of salary increases and one-time lump sum awards as a way to plug the hole?

Where do we need to make up front investments?  What roles, skills or capabilities will be critical to business growth and viability in the next year and beyond?  What salary challenges do you anticipate?  To the extent possible, it is important to be proactive with salary investments.  Proactive salary adjustments -- even small ones -- say that you recognize and value the contributions of key employees.  Reactive salary adjustments -- delivered in response to repeated complaints or threats or in a counter-offer situation -- say that you are responding to employee complaints or threats, not their contributions.  Get ahead of the game in order to maximize the positive impact of those precious salary dollars.  To paraphrase hockey great Wayne Gretzky, we need to "skate" those salary investments "to where the puck is going to be, not where it has been."

Can our current salary increase tools/process support our investment needs?  The traditional salary increase matrix can broadly adjust salary increase decisions for employee performance and for some level of midpoint/market control.  The traditional matrix, however, is not a sensitive enough tool on its own to pull off the kind of careful salary investments demanded today.  For this reason, many organizations are turning to carve-outs, paring away a portion of their salary increase budget to address particular talent investment needs.  What tools and process will ensure that you do the best possible job of allocating available salary dollars?

What are your salary planning and increase administration process saying to employees?  If everything we do in compensation is communication, then it is important to remember that your actions and decisions throughout this process (culminating in, but not limited to, the salary decisions themselves) speak loudly to employees.  Be mindful of the messages you are sending.

How is your 2013 salary increase budgeting process going?  What advice and experience can you share with us here?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

Creative Commons image "High Wire 2" by _gee_

Comments

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[John A Bushfield]

Ann - Interesting article, and, of course, very timely. Salary planning is a critical exercise, but the boundaries are changing. This should not be a financial exercise, in the sense that it needs to conform to a traditional annual (12 month)budget. Instead, it needs to directly support the organizational mission, and the talent required to achieve that mission. More leverage needs to be employed, tied to specific goals. The new workforce will require a very different work environment, with increased independence and greater flexibility, and will need frequent feedback on projects they believe in. While you've touched upon some alternatives, comp professionals need to get real creative around how to use those budged dollars most effectively, and how to get the greatest return on the investment. Translating salary investment into better company returns will not only free up more salary dollars, it will help align employee effort with company goals.

[Ann Bares]

John:

Good points, especially regarding the need to move this from a financial (spreadsheet) exercise to a discussion about moving the organizational mission forward. That represents a big process change and focus for many of us -- and probably a new development step!

Thanks for sharing your thoughts and take on the topic!