Effective Salary Planning Isn’t Just About Budgeting for Raises. And It’s Not Too Early to Start Planning for 2011.

We have talked to lots of banks, credit unions and other organizations that chose to forgo or greatly reduce salary increases in 2009 and 2010 due to significantly lower company earnings.   While it’s only common sense that you can’t raise salaries if there isn’t the money to pay for them, the risk of your best talent seeking other jobs grows as time passes without seeing a raise.

To add to the challenge, data on actual raises in 2010 and early forecasts for 2011 paint a blurred picture at best.  So what do you do when there isn’t much useful market or competitor data to guide you?  The best approach in these trying times isn’t really different from what it’s always been – only more challenging.  Instead of thinking of your salary increase budget in a vacuum, think in terms of broad salary planning for your anticipated workforce.  For example, ask yourself the following questions:

  • Are you experiencing turnover in positions that you can afford not to fill?  Lower headcount could free up some salary expense that could fund raises for others.
  • If you are filling vacant positions, will you be able to recruit qualified candidates at salary levels below those paid to employees that left?  This may be especially true in cases where turnover was due to retirement of long service employees.
  • Do you expect revenue growth that can be generated without headcount increases?  Will this revenue growth be profitable growth evidenced by increased earnings?
  • Are there underperforming employees that should have raises postponed  while you work with them to improve performance?
  • Are there employees already paid well above market rates that might not qualify for a raise or might have their raise postponed?
  • And perhaps most importantly, how do your overall salary levels stack up against current market salaries?  If you haven’t checked the market lately (perhaps because you didn’t grant raises), then you lack important information on competitiveness that can tell you whether you are still paying competitive rates or that a gap has opened between your organization’s salary levels and the market.

Truly effective salary planning takes into account all relevant factors – only one component of which is the amount budgeted for raises.  And knowing how your salaries stack up against the market is a critical step which Matthews, Young can help with.

So, it’s not too early to start this review.  And as we gather more intelligence on projected raises for 2011, we will get back to you.

David Jones, Principal and Executive Compensation Practice Leader

Matthews, Young – Management Consulting

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