PAY INCREASE PROJECTIONS
Despite the labor shortage caused by an umployment rate of under 4%, U.S. companies are projecting 2018 year-end/2019 pay increases to remain at about the same level they’ve been since 2014.
- The overall average points to pay increases being at an average of 3.0%, with various highly reputable sources showing them being as low as 2.8% and as high at 3.2%.
- This represents an uptick of only 0.1% from the prior year.
- 3% of companies plan on giving no pay increases—this is the lowest percentage since the 2008 recession.
PAY INCREASE DIFFERENTIATIONS
1) The pay increase average does not vary by employee classification. It’s the same for employees regardless of their being:
- Non-exempt (“hourly”) employees
- Exempt (“salaried”) professionals
- Managers
- Executives
- 2) Average pay increases do vary somewhat (+/- 0.3% to 0.5%) by industry. Examples include:
Higher than average:
- Construction
- Insurance
Lower than average:
- Education
- Transportation
3) The most significant difference in the size of an employee’s pay increase is clearly based on individual performance.
- Pay increases tied to individual performance (commonly referred to as “pay for performance” or “merit increases”) remain the cornerstone of compensation plans.
SETTING PAY INCREASE GUIDELINES BY PERFORMANCE LEVEL
As just stated, the biggest difference in the size of pay increases to be seen in the upcoming round of pay reviews. With this in mind, it remains very important for organizations to be able to correctly differentiate individual performance levels.
- This fact makes having a sound performance management system in place, which includes:
- A rating scale (by far, the easiest to create)
- Objectives with measurable results/outcomes
- A set of competencies
Below is an example of of a very simplistic performance – increase matrix:
| Employee Performance level | Pay Increase % |
| Significantly Exceeds Requirements | 5.0% – 6.0% |
| Exceeds Requirements | 4.0% – 5.0% |
| Meets Requirements | 2.0% – 3.0% |
| Partially Meets Requirements | 1.5% – 2.0% |
| Does Not Meet Requirements | 0% |
NOTE: This very simplistic matrix example is not representative of what Trinity would recommend to a client. An actual Trinity matrix would take into account other client specific considerations for establishing differences in pay increases.
INTERNAL EQUITY
The pay review process is a great time to review the internal fairness of employee pay. Fairness does not always mean equal pay for employees holding the same position. On the surface, this statement may seem to be “politically incorrect”; however, it is “pay correct” when pay differences are due to one or more of the following bona fide factors:
1) Performance
2) Education/Training*
3) Experience*
4) Special Skills/Compentencies*
5) Years of Service*
*Provided the factor causes or contributes meaningfully to better performance by the employee
Certainly, pay differences based on factors such as age, gender and other protected classes of employees are not only unlawful, but also are misguided.
- They are wrong both for the employee as an individual and for the organization as a whole.
THE ROLE OF THE MARKET PLACE
To be truly effective, the pay review process should take into account what’s going on in the labor market. The market place provides an important perspective as to the monetary value other organizations place on various positions.
- Clearly, the value can vary from minor to sizable between industries for the same positions.
In addition, when demand exceeds supply, the market place acts by larger increases being given to those positions.
- Commonly, the greater the demand to supply gap, the greater is the monetary value (i.e., pay) assigned to such positions.
HOW TRINITY CAN HELP:
- Trinity’s Team has a high level of expertise in all aspects of compensation design and management, as well as performance management systems.
For more information:
- E-mail Trinity at info@TrintyHR.net
- Call us at 856.905.1762 or toll free at 877.228.6310
- Visit our website at www.TrinityHR.net
You have HR challenges…Trinity has solutions!