The key decision maker in employee compensation: The budget

by on June 16, 2009 · 0 Comment POSTED IN: HR Info Center

The changing corporate salary budget determines the yearly employee compensation pool

All decisions about employee compensation start with the budget. The increases and decreases in overall employee compensation all begin and end here. The national average has been a 3 percent increase in base year after year for about five years.

Now, there were bold years in which people came out and they said, “This year it’s going to be 3.5%” and about February they changed it right back to 3%. Early in the year, surveys said that in 2009 it was going to average 3%.

I think whoever put that survey out is on crack because I speak all across the US and Canada to hundreds of companies per year. I interact with their CEOs and their HR VPs and I got to tell you, this 3% is not the national average employee compensation increase in 2009. It would have to be a lot closer to 0%. Now the fact is it was there for five years in the row, we just didn’t recognized it because we regard it as standard, a common place. Just like inflation, it’s always there. But in 2009, we’ve discovered no it’s not,

If you had a three percent budget- meaning you increase your employee compensation by three percent, does that mean everybody gets 3%? Of course not. You can give more to some people, couldn’t you?

But let’s be real here. In a 3% budget, how big could any individual’s salary treatment really be? For example, could you give somebody you’re not promoting a 14% base adjustment to their base employee compensation? Well, I wish you’re here and I can see your face and let’s raise your hand and talk with me about it.

I got to tell you, the answer is absolutely not, not if you got anybody impersonating an HR leader in your company anyway because we don’t let that happen, okay? We invent hog laws on human resources.

The hog laws of employee compensation
They’re rules that say one little piggy shouldn’t get all the employee compensation. So, we aren’t going to let you have 14%, we’re going to make up some rule of zero to five.

“Now, why 5%”, you say. Well, if you got to mathematically average 3%, okay, given out 6% would mean somebody else had to get 0% for somebody else to get 6%. That’s no fun, okay? And while it’s possible, somebody could get 0%. You don’t want to count on that.

So most of us out there with companies of any size are much more used to the notion of a zero to five in a 3% budget. So, again, if you’re trying to predict somebody’s salary treatment and you know that they have a 3% budget, you can already guess it’s not going to be more than 5% without a promotion.

Edited remarks from the Rapid Learning Institute webinar “How to Drain the Drama from Salary Reviews: A Conversation Roadmap” by Gary Markle

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