Budgets: The 900 pound bear of compensation management

by on June 12, 2009 · 0 Comment POSTED IN: HR Info Center

In compensation management, the major determining factor is the salary line on the corporate budget.

The first thing I need to know with compensation management is do we have any money for raises.

If we don’t have any money for raises, then why are we talking about pay for performance? Okay, you can’t pay for performance or compensation management if you don’t have any money to pay with.

Budget has always been part of the compensation management equation. But in good years, since it’s invisible, we don’t notice it. In other words, there are some good parents this year that have to tell their kids that their normal budget for Christmas is not going to be what it used to be because mommy and daddy are kind of cutting costs right now, okay? And we’ve got the same thing going on in organizations for example.

Everyone has to look at their compensation management plan now
This whole notion of “Do you have any money” in the past we’re talking about the airlines. But nowadays, you can talk about the automotive industry. You can talk about big banks. You can talk about all sorts of organizations that don’t have money.

The amount – the size of that pie is the single, biggest determinant in compensation management of an increase and always has been

So, we got to first know what you have. Most of you, if you have any money, it’s not very much. Okay, the national average of five years straight was 3%. I don’t – I think most of us will just be delighted with a 3% budget this year but most don’t even have that.
Let’s just assume we have a year where you got some money. Let’s assume that the registers are ringing and you’ve got a 3% budget. I want to make something real clear. Just because we have a budget like we had in the past doesn’t mean everyone is going to get that amount, right? It means that’s the size of the total pie. We take payroll times 3%. We got the pie, but we could give more to one person than to another based on other factors, right?

If we have 3%, there still are some constraints with compensation management. There always are. Some of the natural constraints are – in a 3% budget, you can only give so much.

For example, could you give 14% to people if you had an average budget of 3%? Some of you are saying, “Yes.” Well, I assure you, you can’t. And I assure you – when you think about it, you know you can’t. In order to give 14% to an individual without a budget increase, not merit increase. I’m talking about non-promotion money, non-adjustment money, budget money. Could you give 14%?

The answer is of course you can’t because if you have to balance on 3% to give one person, 14% means you got to give a whole bunch of other people at zero and that’s not any fun and so, people like myself, the HR types out there, we invent hog laws.

The hog laws of compensation management.
They’re rules that say one little piggy shouldn’t get all the slop. In other words, 0% to 5% is all I would allow you. And a lot of you HR people listen to me know exactly what I’m talking about. We do this all the time. We come in and go, “Well, we have to be fair about this. We have to have some kind of rules of engagement.” And so, these rules were invented.

These rules restrict pay for performance, doesn’t it? If the most performance you can pay for is 5%, that’s not really all that much – its not at all thrilling to the people on the other end.

Leave a Reply


Request a Free Demo

We'd love to show you how this industry-leading training system can help you develop your team. Please fill out this quick form or give us a call at 877-792-2172 to schedule your one-on-one demo with a Rapid Learning Specialist.