Salary Increase Planning

BUDGETING FOR SALARY INCREASES

Budgeting for salary increases typically occurs once the development of the annual compensation plan has been completed. Many times, salary increase budgeting is the final step to the compensation planning process.

It is important to determine the type(s) of salary increases that will be proposed for approval (e.g., merit, general increase, market adjustment, internal equity, adjustments to minimum wage and/or salary range minimum, geographic differential, etc.). This involves deciding:

• what the total salary increase spend will be for the calendar or fiscal year
• how individual increase amounts will be allotted to each department
• when increases will be granted
• who will receive them
• what types of salary increases will be delivered to employees
• if there are mandatory increases such as adjustments to minimum wage
• what if any adjustments to salary range minimums are needed
• if there are pay equity requirements or compression issues that need to be resolved

How Much Should You Budget?

Your organization should consider the following when setting a budget for salary increases:

• market movement of salaries
• historical and projected rate of inflation
• mandatory increases such as adjustments to minimum
• competitive position to the labor market
• company turnover rate and reasons for turnover
• feedback from key internal sources (such as recruiters and management)
• critical compensation issues in the organization requiring correction outside of the normal salary increase budget
• financial ability to pay and state of the business
• salary increase history
• is the program implementable
• total labor costs