3 Reasons to Ditch Your Traditional Plug and Play Salary Budgeting
It’s that time again to start thinking about salary budgeting for next year. We all do it, but do we reward the right people the right way? It isn’t very motivating when Employee A is working hard and producing results according to or above plan, only to get the same annual increase as Employee B who did the bare minimum.
Rethink How You Calculate Annual Salary Increases
The typical approach to salary budgeting is to take a budgeted percentage, provided by the CFO or other organization executive, and determine how to spread that increase amount over the base pay of the entire employee population. The amount oftentimes is so watered down that it has little impact on each employee’s take home pay—and doesn’t really serve a motivational purpose. As a foot note, there are jobs, like true outside sales positions, where base pay increases don’t apply. But, setting those aside, what is the best approach to get the greatest impact on your company’s ROI with limited salary budgets?
Spotlight Performance - Identify the small percentage of highly performing employees on your payroll. This is typically less than 5% of your total employee population, and they don’t necessarily reside at the top of your org chart. Have an executive team meeting where the list of these people is developed.
Build a Career Path - Ensure the people on this short list are part of succession planning and robust employee development plans, and are paid at least at market in their base pay and consider how much beyond market they should be based upon their tenure in their field of expertise, their tenure with you and, of course, their performance with you.
Rock Star Treatment - Give those on the “rock star” list base pay increases that are in line with their value to the company. Figure out what these amounts need to be and adjust your remaining budget accordingly.
Build a Strategic Salary Budget
Careful compensation planning can not only reward top performers but also builds an action-oriented culture and improves employee retention rates. Stop the endless cycle of ‘plug and play’ salary budgeting and use these increases to motivate, retain and reward.