What a Relief! 10 Different Ways to Slice a Teeny, Tiny Merit Increase Budget

You’re celebrating the first report card of the year. Both of your kids did well, although Tommy could have done much better with fractions if he had studied for the last test. His teacher thinks he needs to build his confidence. Your husband’s exhausted from a business trip to Mumbai, but it looks like his deal will go through. You’ve finally figured out how to pay for the kids’ upcoming class trips and braces.

There’s one slice of pepperoni pizza left over in the box and it’s getting colder by the minute. What’s the fairest way to deal with it? Do you split the slice in four? Divide it between the kids? Give it to Kimberly who aced all her classes? Let Tommy, who needs an ego-boost, decide what to do? Award it to the breadwinner? Send the kids to bed, and talk over which one of the adults deserves it most? Eat the pepperoni pieces and offer the slice to the others?

We'll all be facing this dilemma over the next few months as we get real about this year's tiny merit budgets. Take a close look at this example, there are a few things to learn. Notice that, depending on the family, there are lots of options to weigh. And -- in most families -- no one thinks that last slice is insignificant.

What a relief! The folks at Presidio Pay Advisors have given us 10 options to consider as we struggle over how to divide up that last slice fairly.  Some of them have been discussed by my fellow writers on Compensation Cafe. Each of the 10 could be a "best fit" for a company I know.

I’ve listed them here (and put them in my own order of interest) because I thought that we could all benefit from both an overview and a realization that we really do have a few choices. For a more in-depth look at each of the 10, check out their pros and cons in "Managing Salaries in ToughTimes."

1. Market based. Identify those positions and incumbents whose salaries are furthest behind competitive market levels. Use the merit budget to increase salary levels as far as possible toward market levels. (Unfortunately, this is the approach that skips all those messy but important performance issues.)

2. Performance. This has been the most talked about, from what I can see – awarding increases only to those with the highest performance management ratings.

3. Position in salary range. Allocate increases to those in the lower third of the range who have earned the highest performance management ratings (or “Satisfactory” and above, if you can afford it).

4. Function. Allocate increases only to functions that are critical to your company's long-term success. Obviously this list shifts from business to business, so here’s some examples. In Technology companies, Software Development would be a frequent target. In early stage Life Sciences companies, it might be Clinical Trials. In Telecommunications, it may be Customer Service or it may be Technology Development (or both), depending on the direction of their strategy.

5. Retention. Reward a small number of key incumbents in functional areas where turnover could damage company results.

6. Combination of incumbent performance and importance to company. In this case, you are limiting increases to incumbents who are rated “Exceeds” in functions or positions where turnover could damage company results.

7. Rate the top 10% in each department. This involves setting up a process that facilitates collaboration among the department managers.

8. Exclude senior management. Many companies have chosen this route in the past when an assessment of senior management's salaries indicated that they are better prepared to weather financial hardship, and it was agreed that they should show this consideration to the lower paid staff. Besides, senior managers usually get other forms of compensation.

9. Performance bonus. Instead of adding raises to salaries, pay them as lump-sum amounts to those whose performance qualifies. It's a way to provide recognition to those who have earned it, and at the same time eliminate fixed costs.

10. Salary refreeze. (If you have any budget at all, return to Numbers 1 to 9. Add your imagination, a solid business rationale and a calm view to the future!)

Margaret O’Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret earned her M.S. and Ed.S. in Instructional Technology at Indiana University.  Creative writing is one of her outside passions.

 

Comments

[working girl]

Great summary!

[Margaret O'Hanlon]

Thanks -- nice to hear from you again !