Salary Increase Planning

INTRODUCTION

Increasing employee compensation not only provides an opportunity to reward and recognize employees, but it also supports the effective management of an organization's internal equity and external market competitiveness. This allows a company to attract, retain, reward, and recognize a quality workforce.

Salary increase planning is an integral part of any organization's financial budgetary process and includes ongoing challenges due to conflicting needs for an organizations' available salary increase budget. No other action associated with employees' salaries undergoes more scrutiny. Also, no other action has such a significant year-after-year effect on an organization's cash flow and financial well-being since compensation is the highest expense in most organizations.

There are consequences for the unwary manager who does not carefully consider the amount and type of compensation increases to use. Uncontrolled expenses, approval and oversight processes being bypassed, changing market conditions, and disgruntled employees could result, any of which could have negative consequences for the organization. The effective design and management of the salary increase budgeting and planning process will result in a fair and equitable compensation program throughout a business.

Increases that have been managed for the right reasons and in the right way can contribute to a highly engaged workforce while attaining desired turnover rates. A well-thought-out compensation plan is internally equitable, market competitive, legal, and will complement an organization's financial plan and bottom-line results.

Course Overview

First we'll look at the methodology for developing a competitive strategy and at sources of market information.

Then we’ll look at the different forms a compensation increase can take: base pay raise, lump sum increase, short-term incentive (annual incentive or bonus), long-term incentive such as equity compensation, or additional benefits.

Next, we'll walk you through the process of choosing a salary-increase method.

We'll look at three ways organizations commonly grant base pay increases:

1. Merit pay increases based upon employee, team, or company performance
2. General increases or cost-of-living increases which can be used to recognize inflation
3. Other increases which may include internal equity, market adjustments, salary range adjustments, salary progression, lump sum increases, or skill-based pay increases

We'll also show you how to determine increase levels in each circumstance.

Then we will look at the overall process of budgeting salary increases and discuss how to:

• Calculate the cost of your salary increase budget
• Decide who should be eligible for salary increases
• Select the timing for these increases

Finally, we'll look at steps you can take to make sure your organization maintains control of its salary expenditures into the future.