2018 budget numbers and their limitations haven't really changed from last year. Are you just going to do it the way you've done it before?
Well, maybe, but I'm betting you'd really like a better way. I don't think our profession is really satisfied with the answers we've come up with since the recession. With an average 3.2 increase budget in hand (an additional .1% -- well, that gives us a lot more room to move), who couldn't benefit from some new ideas? Finally, in 2018, hasn't it become crystal clear that the real annual challenge has become not "how much" to pay, but "how and why"?
So here are some ideas. Three tips that I thought I'd pass along to help your company resolve "how and why" to allocate salary increases this year. Two of them are brought to us from WillisWatsonTowers, based on a great recent research whitepaper, one is from little 'ol me. Here goes.
Recognize you need to get focused
Towers' research tells us that these are the top factors currently used "to a great extent" to determine base pay decisions:
70% -- Achievement of individual goals
69% -- Final rating in most current year-end performance review*
62% -- Concerns over market competitiveness
60% -- Demonstration of knowledge and skills required in current role*
59% -- Criticality of the role**
59% -- Possession of the skills critical to the success of the future business model**
57% -- Penetration in pay range for current role*
49% -- Achievement of team goals
46% -- Concerns over internal equity
46% -- Perceived potential
39% -- Demonstration of company values
23% -- Gender pay equity
The three factors with an asterisk (*) have been used in the past to make the increase decision. More and more over last 10 years, we have noticed that they either don't do the full job or are becoming irrelevant as issues of "criticality of the role" and "skills critical to the success of the future business model" (**) appeared on our list and became more acceptable as tools to help with parsing such a small increase budget.
The problem that's emerging, though, is that we're starting to pile it on. In our struggle to manage a small budget, we use almost all the factors on Towers' list. There's no way that you can execute a consistent decision-making process with too many factors to take into account. Nor can you send clear, credible messages to your employees.
Divide your company or jobs by the factors that matter the most to their effectiveness
For example, "gender equity" may matter more in your tech areas. "Criticality of role" refers to immediate needs, and may matter more say in R+D than in manufacturing. And dare I say that "achievement of goals" may matter more in tech than in administration? This type of organization-wide job analysis is worth a look since it will give your increase strategy real purpose.
Increase decisions are only going to get more complex as time goes on, so why not begin to get more of a laser focus? Start differentiating the factors that really matter to specific jobs and/or key job function. To focus on what really matters, pare the total factors that you consider down to no more than six, as suggested by Towers. Accept that the list doesn't have to be the same for the whole company.
It will take a major shift in most companies to acknowledge that there are a core set of factors influencing increases, supplemented by more tailored factors, according to the job or business function. But isn't this a more valid, strategic approach?
Be clear what you mean by "skills critical to the success of the future business model"
I'm suggesting that you use this factor as the strategic compass it is meant to be. Only a few jobs and areas truly fall into this category. If you use it across-the-board as a decision-making factor for increases, you may find it loses meaning. Reserve it for truly key jobs where both skills and competencies (ability to handle oneself) really do impact the bottom line.
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. Margaret is a Board member of the Bay Area Compensation Association (BACA). She coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.
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