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Salary Planning Budget – It’s a Three-Peat!

September 12, 2016  |   Compensation,Uncategorized   |     |   Comments Off on Salary Planning Budget – It’s a Three-Peat!

human-resourcesIt’s that time again! Time to start the Salary Planning process for 2017. The salary budget surveys are in and the results show the median and average salary planning budget at 3% for the third year in a row, with a small uptick to 3.1% projected for 2017. Low inflation and overall fiscal caution despite low unemployment seem to be driving companies to keep their salary budgets steady for a third year in row. Salary budgets do vary by industry, company size, geography, etc., but we continue to see salary budgets across all demographics in the 2% to 4% range.

Salary Budget Survey Highlights

We dug into the 2016-2017 WorldatWork Salary Budget Survey to glean and provide the following highlights:

Impact of the Economy: It appears that the low unemployment is being counteracted by low inflation. Should we see an uptick in inflation, we may start to see salary budgets increase. However, there are conflicting economic indicators.

• There is evidence of a tightening labor market in the U.S., which typically pushes wages higher. As reported by the U.S. Bureau of Labor Statistics (BLS), since the end of the Great Recession in June 2009, the U.S. unemployment rate has fallen from a high of 9.5% to 4.9% as of June 2016. But, as the government recently reported, U.S. economic growth was only 0.8% (revised) in the first quarter of 2016 and 1.2% in the second — a slower pace than many economists had expected.

• As Craig Rowley of Korn Ferry pointed out, “The economy is only growing annually at 2%, so even though unemployment is getting better it’s hard to raise prices right now” to produce the increased revenue that could fund higher wages across the board. As to the apparent contradiction of tepid economic growth and a tightening labor market, “keep in mind that part of the drop in the unemployment levels is people dropping out of the labor force,” Rowley indicated. “The participation rate has been at a record low.”

Impact of FLSA Changes: Despite the increase in the exempt threshold, over 95% of companies indicated that their 2017 salary budget increases would not be affected. As companies dive into the implementation process and calculate the costs of these required changes, it is possible that salary budget projections for 2017 may shift upward.

Employer Differentiation: Companies are most definitely using pay to differentiate themselves, but they are using various elements of their total rewards package to do so — not their salary increases.

Pay for Performance: Despite conservative salary increase budgets, companies are committed to differentiating pay based on performance. For 2016, mid-level performers are expected to receive merit increases of 2.7%, while high-performers are anticipated to receive 4%.

Promotional Increases: Promotional increases remain steady at an average of 8.4%.

Salary Structure Adjustments: The reported overall salary structure adjustment for 2016 is 1.9% and is anticipated to move to 2.1% for 2017.

In July, WorldatWork released top-level results from its 2016-2017 Salary Budget Survey. The results are shown below:


Other Pay Forecasts for the Coming Year

Among other recent pay forecasts for the coming year:

The Conference Board, a business membership and research group, published its U.S. Salary Increase Budget forecast for 2017 in July. It projects that median U.S. salary increase budgets for 2017 will be 3% — the same as the median increase that the organization has reported for the previous six years. Similar to WorldatWork’s forecast, The Conference Board expects this 3% salary increase to hold steady across all employment categories (nonexempt hourly, nonexempt salaried, exempt and executive), again equal to actual 2016 increases.

ERI Economic Research Institute, which provides compensation data to private and public organizations, published its preliminary 2017 salary increase projections in June. Again, no surprises here: The firm is also forecasting a 3% salary increase for the U.S. next year — unchanged from 2016 and 2015. The analysis also foresees U.S. unemployment falling only slightly next year, dropping from 4.9% to 4.8%.

The Federal Reserve Bank of Atlanta, looking at the median % change in the hourly wage of individuals, pegged year-over-year wage growth as of June 2016 at 3.6%. The Atlanta Fed noted that wage growth, while by no means surging, has been accelerating since October 2015 at a pace not seen since January 2009.

Other recent salary budget forecasts for 2017 have been issued by compensation consultancy Korn Ferry Hay Group (citing a 3% median pay increase), consultancy Willis Towers Watson (3% average salary increases for management and nonexempt employees, while executives can expect 3.1%), pay consultancy Empsight (median merit increase budgets of 3% across all categories, and 2.8% at the 25th percentile) and pay survey data provider BLR (finding 2.5% to 3% across all employee types).

Strategies to Reward Top Performers

With salary budget increases remaining steady, we will continue to be challenged with finding ways to reward the top performers. The following strategies will help you achieve higher merit increases for top performers:

Develop a merit matrix that rewards your top performers. High performers are attracted to companies that pay for and recognize strong performance. Low performers are more likely to stay at companies where the relationship of pay and performance is weak. It is possible to create a merit matrix that truly rewards high-performing employees that deserve an increase greater than the merit budget. BCR has a merit tool you can download to facilitate you in the process: http://www.benefitsandcompensationresources.com/tools

Reserve a portion of the merit pool to reward top performers. Top performers tend to create the highest ROI, so they should receive a greater allocation of the company’s merit dollars. There are a number of options that companies can implement to ensure top-performing employees are receiving larger increases such as:

– Automatic zeros for average and below performers;
– Carved-out funding/budgeting;
– Use a two-pool merit increase approach;
– Lump-sum merits; and,
– Special discretionary achievement bonus pool.

Make sure your company’s compensation policy doesn’t allow increases for poor performers. Seems obvious, but in lean merit times, companies often take a blanket approach to increases, and end up rewarding employees that are under performing or over market. This should be built into your merit matrix.

What’s in Your Total Rewards Toolbox?

In this environment of conservative salary increase budgets, we need to get creative in how we attract, retain and motivate our workforce. In addition to merit increases, we need to look for other monetary and non-monetary tools in our total rewards tool boxes to reward our employees. Following are some ideas for your consideration. You’ll want to determine which tools fit best with your company’s culture:

• Spot Bonuses
• Retention Bonuses
• Project Completion Bonuses
• Additional Special Incentives for High Performers
• Incentives for Employee Wellness Plans
• Financial Wellness Seminars
• Student Loan Repayment Programs
• Career Development Opportunities
• Casual Dress Days
• Early Release from Work Days
• Celebrations with Food and Team Building Activities

Fourth quarter is fast approaching, so now is the time to roll up your sleeves and get your 2017 salary planning project off the ground.

Contact Us

BCR has experience in working with organizations on developing pay philosophies, compensation structures and salary planning programs and processes. Reach out to us if you should want to explore how we can assist you in ensuring your organization’s valuable human resources are being truly rewarded for their performance.

• WorldatWork 2016-2017 Salary Budget Survey
• Stuck Below the Surface: Why Salary Increase Budgets Aren’t Moving Up, by Lindsay Strack and Kerry Chou, workspan Magazine, September 2016

Written by: Jill Rea, BCR Consultant

BCR is a local, minority-owned firm with more than 25 years experience in serving non-profit, public, and privately held entities in the key areas of Benefits and Compensation Consulting, Performance Management, Human Resource Organization Development, and Human Resource Information Systems and Processes.

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