Salary Increase Planning

General Increases

A general increase is typically administered as an across-the-board salary increase. In this instance, all employees receive a fixed amount or percentage as a pay increase. When a general increase is used, a percentage is typically preferable over a fixed amount to ensure the compensation relationship is the same before and after the general increase in pay.

A general increase may also be valuable for organizations having a very small salary increase budget such as 1%. Other companies may elect to deliver both merit pay as well as a general increase. For a United States based manufacturing organization where hourly paid employees are eligible for a general increase, it may be appropriate to administer the increase in cents per hour. A general increase can recognize knowledge-based pay and may also be used by companies managed under a union contract. General increases are used in only a small number of companies.

Cost of Living Increases

A general increase may be delivered as a cost of living increase where the increase may be tied to an increase in the Consumer Price Index. When used, it is commonly administered as an across-the-board salary increase. The Consumer Price Index (CPI) measures the prices paid by urban consumers for a market basket of consumer goods and services over a period of time.

This type of increase is typically administered as a percent change - consistent with the percent change in the cost of living. This type of increase is currently used by only a minimal number of companies in North America. Globally, some countries, such as Belgium, have mandatory increases tied to changes in the cost of living.

Length of Service Increases

Length of service increases are occasionally used by companies desiring to recognize length of service for staff members. It is used by only a minimal number of companies.

Caution should be exercised when using this type of increase to ensure it does not favor certain categories of employees.