In August 2016, I posed the question “Are the days of 3% over?”. At the time, I was hearing through the members of the New Zealand Remuneration Network that some organisations were considering reducing their remuneration review budgets from the standard 3%. In that post, I encouraged our membership to think about how they were setting their budgets and consider blazing their own trail rather than following the heard.
Recent market insight from Strategic Pay, who surveyed 512 New Zealand organisations in March 2017, suggests that many of you put a lot of thought and energy into your decisions this year. The Strategic Pay report highlighted that on average, employees in New Zealand can expect to receive a base salary increase of around 2.2% in the coming year.
But here is the conundrum of this downward trend, how best to allocate meaningful salary increases with a smaller pot of funds?
One option is to give everyone the same amount, say 2%. By taking this course of action you might be seen as being ‘fair’. But, in doing so, you risk demotivating your high performers who feel they are due much more than ‘Mr Average’ sitting next to them.
On the other hand, you could focus your efforts and limited cash on high performers or identified retention risks. But, in doing so, you risk disheartening ‘Mr Average’ who is essential to keeping your business ticking along.
Perhaps you should focus on correcting past wrongs such as increasing salaries for those below market, or perhaps ‘catching up’ your gender pay gap?
As with setting your remuneration budget, to solve the allocation conundrum you will need to forge your own way.
Please share in the comments your suggestions for solving this puzzle.
Nice article Kat! I think you’ve summed it up very nicely. 2% (or even 3%) isn’t a lot so you need to be very deliberate in how you spend it. I don’t think you can ignore the 70% of the workforce who are the lifeblood of the organisation, doing a solid job day in and day out, but yet you also need to recognise superior performance.
For your high performers I think this is where a holistic approach is really beneficial, ensuring career development conversations, a clear view on progression, development opportunities – with actions speaking louder than words. You need much more than just a bigger increase at Annual Review time, because that on its own is not going to cut it.
Personally I also quite like the idea of having your budget as a % of the midpoint. So if your midpoint is 100,000 and your budget is 2% then you have a fixed increase of $2,000 – regardless of whether the person is paid 80k or paid 120k in that pay grade. At 80k you are actually giving a 2.5% increase and at 120k a 1.67% increase, but you are still working to that 2% budget based on your midpoints.
By nature, this helps increase your pay positioning over time by effectively redistributing the quantum of the increases. To do this you need to be really good with your market data and have managers who are able to have conversations on market based pay, but it is an option.