For the first time in a long time a salary survey of corporate New Zealand is forecasting remuneration review budgets for the coming year will be less than 3%. Any remuneration professional from a corporate organisation will tell you that in the last few years the magic remuneration budget number has been 3%, regardless of organisation size, profitability and market conditions.
Is the tide is beginning to turn? Are organisations considering being more conservative with their recommendations, in line with what their government and local government counterparts have been doing for several years now?
This year, should you continue to sit on the 3% bandwagon? Or should you look to do something different? Below are some factors to consider when setting your budget:
1. Remuneration Surveys
Many HR professionals look to the various remuneration survey provider predictions for a starting point. Depending on survey submission timing, contributing companies can make their budget predictions up to 12 months in advance of their next remuneration review. These statistics can be like gazing into a crystal ball; well intentioned, but not always an accurate prediction of the future.
2. Your Networks
The best source of market intelligence is often your own network of business and HR contacts. Reach out and ask for their insight, it will likely be much more accurate than the prediction they made months ago in a salary survey submission.
Inflation is a common statistic referred to when it comes to remuneration increases. Consumer Price Index (CPI) measures the changing purchasing power for a ‘bundle’ of consumer goods and services, and the Reserve Bank of New Zealand targets a CPI range between 1% and 3%. At the time of writing, CPI is 0.4%.In times of high inflation, CPI is often used to justify a higher remuneration review budget, to provide a ‘cost of living’ adjustment. However, as is happening now, in periods of very low inflation CPI is often quietly forgotten because it does not assist in justifying calls for a 3% budget.
4. Internal Benchmarks
Another important factor to consider is how your employees are currently being paid against comparable roles in the market, and against your target market position.If you are ahead of where you want to be, then this may be the year to reduce your remuneration budget and focus on giving increases to those employees who are below market, or high performers.
If you are below market, think about upping your budget, or holding some of your main budget back, to ‘catch up’ remuneration for those employees below market, or to retain any individuals identified as key talent retention risks.
Finally, any budget you set, regardless of any other factor, must be affordable and incorporated into the financial forecasts for the coming year. Make sure you keep in regular contact with your financial controller, keeping each other up to date with business plans and market conditions. Ultimately you may need to moderate your plans in order to ensure on-going financial stability of the organisation.
Regardless of the budget you ultimately set, ensure that you focus on the issues that matter to your organisation, rather than just blindly follow the herd!