It is the time of year when many organizations plan next year’s merit budget and salary structure adjustments.
Perhaps you have read articles about how merit budgets are eking up from the historical 3%. It is essential to know the trends within the industry to plan precisely. Depending on your organization’s industry, the expected merit budget percentage may be trending slightly above or even below the 3% average. Your team may recruit from several different sectors, and each of those segments may have various merit projections. It is essential when planning that you consider what is happening in your target market.
Without access to local or national survey sources, it can be tough for organizations to set their merit budgets for the new year. Some agencies may use the Consumer Price Index (CPI) to determine their increase budget. Understanding the CPI is essential as it does not necessarily reflect the cost of labor in your organization’s work locations. The Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Cost of labor reflects what the going rates of pay are for jobs in your work locations. Depending on your work location and industry, the cost of living may be higher than or lower than the price of labor.
Merit budget and salary structure adjustments are not typically calculated using the same percentage. While merit budget is a percent of total salaries that organizations utilize to award increases based on performance and experience, the salary structure adjustment is not contingent upon either. The salary structure adjustment is a percent increase applied to the organization’s salary structure to keep up with rising wages. It is vital for companies to adjust their salary structure annually to keep up with market movement.
How can we help?
Compensation Works can analyze and recommend the best approach for you to help you remain competitive in the market.