6 Guiding Principles to Building Your Compensation Plan for 2019
It’s that time of year again! With summer winding down and Labor Day in our rearview mirror, the next thing around the corner is budgeting and planning. Yes, for most people, they head into this time of year dreading the number crunching and compensation planning that they will live with all of next year. Of course, I work with a variety of companies to carefully balance their wages, bonuses and cultural objectives, so I wanted to share a few tips that have helped them put together a solid compensation plan.
Compensation Planning 101
Annual compensation planning includes determining the percentage by which organizations will increase salary ranges, as well as determining merit budgets, and bonus structures and targets for the next year. According to the World at Work 2018-2019 Salary Survey, merit budget projections are once again right around 3% for most industries and locations in the United States. Some areas, like the Bay Area in California, are projecting slightly higher merit budgets of about 3.2%.
I want to encourage you to avoid plug and play compensation planning, but rather look at compensation with fresh eyes every year. Things change and so should your look at compensation, especially in recent years with a tightening job market and more favorable tax situations.
6 things to keep in mind when thinking about next years’ compensation plan:
Increases - Budget about 3% for merit increases.
Strategy - Create a compensation philosophy to guide pay decisions, which indicates whether your organization needs to pay at or above market in base pay, and where you need to be with bonus levels to get and keep the best people.
Base Pay - In general, base pay levels need to be at or near market, depending on the tenure and performance of your employees. Bonus and incentive plans should be used to pay for stellar performance, both by individuals and the company.
Exceptional Talent - Remember that star performers need to be paid as stars. You need to pay equitably for same or similar work, but remember that high performers need to be recognized and paid for their contributions, or their engagement may suffer and they may leave your company.
Market Conditions - In this tight labor market it is necessary to pay competitively to get and keep great talent. While you may need to pay more for your jobs than you did a few years ago, turnover is expensive. Strike the right balance between paying competitively, and paying for turnover.
Cultural Impact - Employee engagement can’t simply be bought. Great culture and appropriate pay levels together make for a strong employer value proposition.
For more ideas around how to make the most of every compensation dollar in 2019, see my previous posts on Bonus Plans and Pay Equity. Then contact me.
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