Now that a new year is upon us, that means that it’s time for a new salary budgeting plan. With everyone still a bit wary of the economy and what lies in store for us in 2011, many companies are struggling with how far they should go. However, after hitting record-breaking lows in 2009, salary increases are expected to rise. Also, with more companies reporting improved confidence with their budgets, they are looking to lead or at least match market pay rates despite the still weakened job market.
According to early surveys conducted by Mercer, Towers Watson, WorldatWork, Hay Group and ERC on 2011 salary increases, companies are projecting higher pay increases compared to the past two years. Most companies are planning for salary increases between 2.7% and 3.0%. These results can be used as credible references for your company’s own salary planning needs.
- ERC: 2.8%
- Mercer: 2.9%
- WorldatWork: 2.9%
- Hay Group: 3.0%
- Towers Watson: 2.7%
According to the Economic Research Institute, with the recession projected to be starting to come to an end, 2011 is expected to be the year in which companies start to review why certain jobs are paid what they are. That being said, these companies will most likely be turning to the market for answers to help them stay current with employee compensation.
Do you know why you pay what you pay?
For starters, take a look at the 2010-2011 Kavaliro Employment and Salary Handbook for an outline of some of the most trending jobs and their current/projected salaries for the year. There is also a lot of helpful advice on how to retain employees and manage employee satisfaction in other ways than simply compensation.
Next comes the debate on how to distribute raises. How does your company usually do this? Do you give across the board raises, raises based on performance, or some other method?
Traditionally, many companies have given across the board raises, which often can send mixed messages to employees. Knowing that everyone will get the same salary increase despite dedication and performance can hinder an employee’s motivation and prevent them from reaching their full potential, which in return prevents your company from reaching optimum performance. That is why differentiation based on performance with compensation plans has become a popular way to recognize and reward employees that are loyal and a “cut above the rest”.
Basing your salary increases on job performance can also help to motivate your employees. Knowing that they have to work to be rewarded can help anyone always do their best work. Like stated in Kavaliro’s 2010-2011 Employment and Salary Handbook, instituting regular performance reviews can also help employees feel more accountable for their work and motivation to succeed.
It can also help to have employees complete self-evaluations to gain insight into areas that they feel they need to improve on and areas where they feel strong, so you can discuss and work on these areas together. Increasing communication with your employees is another way to increase employee satisfaction. When employees feel heard and appreciated for what they do, they are more likely to remain loyal to their employing company.
So, how do performance based salary increases work?
If you decide on an average increase of 2% for instance, you might give top performers as much as 4%, and lower performers as low as 1% or less.
A survey conducted by WorldatWork shows that employers are planning to give average pay increases of 3.7% to top performers, 2.4% to average performers, and less than 1% to bottom performers in 2011.
Now, more than ever, it is important to keep up on market trends to help you make decisions for your company, not only for employee compensation purposes, but for most financial decisions. It has become a way for many businesses to survive the recent economic instability. That is why Kavaliro remains committed to studying the most recent employment and business trends, and relaying them to you!