A formerly small question takes on a more significant meaning in this year's salary budgeting process. The question, essentially whether to Count the Zeros or Discount the Zeros, is covered at length by JC Kovac and Jim Stoeckmann of the WorldatWork blog Compensation Conundrum
JC describes the dilemma underlying the question as follows:
A lot has been made about the 2.2% salary budget projected for 2009, and how it is a drop of 1.6 percentage points from the 3.8% of 2008. I have read many articles quoting our survey and others discussing the disturbing trend of lower increases and projecting those increases into the future — the "new normal."
Now, I am struggling with this data. The SBS is accurately reporting the average increase at 2.2% — however, that number includes all organizations that are reporting 0% increases this year. In previous years participants who projected no increase (0%) numbered only 2-3% of total respondents, but this year that number jumped significantly (30-40%+ based on employee category). By removing the 0% respondents, the average increase (of those giving an increase) sits around 3.1%. Now, 3.1% is still less then 3.8% of yesteryear — but it is still significantly better than 2.2%.
For those of us seeking high level guidance on where to set next year's salary budget ... what to do? Do we use the figures with zeros or the figures without zeros?
The answer is ... Yes.
(You knew I wasn't going to make this easy, didn't you?)
Yes ... because both numbers tell you something important about what's happening in the labor market.
The "with zeros" data gives you a snapshot of the market in its entirety, the speed at which salaries are moving on average, considering all employers, those who are/have awarded increases as well as those who are not/have not.
The "without zeros" data tells you what is happening at those employers who have remained financially strong enough to commit to salary increases and who will be in the best position to compete for your employees.
How much relative weight you give to either figure must reflect your particular situation, including, as Jim says, "things like turnover, time-to-fill hiring trends, hot skill concerns, strength of business performance, and similar data related to an organization's particular circumstances."
These are interesting times, and interesting times will demand that more thought and analysis be applied to what may have been relatively straightforward decisions in the past.
No way around doing your homework this year.