Salary Increase Planning

Other Increases

Companies may also deliver other forms of salary increases such as:

Geographic Differentials

A geographic differential is pay that recognizes differences in the cost of labor and/or cost of living based on geographic location. When used, the majority of companies recognize geographic differences in the cost of labor by creating separate salary structures for locations. Typically, salary surveys are used to determine the cost of labor in the determination of geographic pay by location.

Occasionally, individual adjustments to base salaries or supplemental geographic differentials are implemented to recognize pay differences based on location. In these instances, cost of living differentials or even inflation data through the consumer price index may be used to determine the geographic differential.

More commonly, geographic differentials are calculated into a salary structure. For example, a company in the United States could have four different salary structures:

Salary Structure 1 – Very High Cost Labor Market (e.g., New York City)
Salary Structure 2 -- High Cost Labor Market (e.g. Los Angeles)
Salary Structure 3 – Other National Markets (e.g. Lower Cost Major Metro Markets)
Salary Structure 4 – Low Cost Labor Market (e.g., Low Cost Mid- to Small-Markets)

Market Adjustments

Market place adjustments are typically used to improve an organization's competitiveness in the marketplace. This can be done for the individual employee, job(s), team, department, salary structure, or companywide. Typically, this is administered at the time the market issue is identified, but it may be budgeted and implemented with the effective date of the salary plan or at the beginning of the business year. This practice is commonly used in business to manage specific compensation issues.

Adjustments to Minimum Wage/Salary Range Minimums

Adjustments to minimum wage will be mentioned separately due to the attention that it is currently receiving in the news.

Although adjustments to minimum wage typically only affect the employee population below the bottom of the salary structure, hourly pay compression can become an issue as the minimum wage is significantly increased.

Some companies will adjust to minimum wage only at the required effective date. Some will implement an adjustment earlier than required. Others will review their entire nonexempt salary structure and adjust some or all jobs to ensure appropriate pay relationships within the structure. It may be appropriate to review the lower-level jobs within the exempt structure as well when conducting this review. Some companies offset the cost of minimum wage by other total reward programs or pass the costs on to customers while others absorb the cost.

It is critical to factor the cost of adjustments to minimum wage and salary range minimums as these significant market changes take place.

It is becoming increasingly important to stay abreast of federal, state, and even city minimum wage law to ensure compliance. Refer to your state and federal websites to track these requirements. ERI's Geographic Assessor also tracks all changes to city, state/province, and national minimum wages throughout North America.

Internal Equity Adjustments

Companies will occasionally administer internal equity adjustments to employees. This can be done for an individual, job(s), team, department, salary structure, or even companywide. Normally, this is administered at the time the issue is identified. For larger teams, it may be administered with the effective date of the salary plan or at the beginning of the business year. This practice is commonly used in business to manage specific compensation issues.