Has the time come to shake up the annual merit increase?
Should we move away from the one-size-fits-all, same-for- every-employee merit matrix to something more differentiated, more strategic? Reconsider the "once each year" timing and look at other, particularly longer, alternatives? Get serious about shifting some portion of this annual base increase over to some sort of variable opportunity?
There has been a lot of discussion around these questions, but how much real action is being taken? Last month I launched a brief survey in order to find out. Many thanks to the 124 compensation and HR professionals who responded; survey reports have been distributed to all participants who requested them. Today and tomorrow, here at the Force, we'll cover the highlights of the surveys findings.
Findings: A Minority Breaking Ground?
Survey findings suggest that there may be more talk than action at this point, but there is also evidence of movement underway.
Most of the respondents indicate that their organizations are not considering changes to their annual salary increase policies beyond tracking and responding to competitive salary increase levels. A sizeable minority (34%), however, are saying that their organizations are considering or planning changes.
While breaking the study respondents into organizational size groupings by FTEs yields sample sizes too small to be either statistically valid or clearly conclusive, it is interesting to observe that the smallest size group (<500 FTEs) is nearly twice as likely as either of the larger size groups (500-4,999 or 5,000+ FTEs) to be considering or planning changes to their salary increase approach.
Many in the reward profession (particularly those in positions of power) hold fast to the belief that innovation typically happens at the largest employers, because they have the professional staff and the means to be creative. These findings raise the possibility that the opposite may be true, that smaller organizations who may not even have reward specialists on staff (and thus might not be hampered by “conventional wisdom” or a traditional rewards perspective and education) may be more willing to react directly to the needs and opinions of business leaders.
Whether a valid conclusion or not, it is intriguing to consider. Perhaps we in the reward profession would benefit by stepping outside our echo chamber and learning more about what is happening in smaller, more entrepreneurial organizations.
So, what shakes?
Next, we take a closer look at the one-third of respondents who are considering, planning or have already implemented changes to their annual salary increase policy. We asked these respondents to select from among the following four options to describe the changes being looked at or pushed forward by their organizations.
1. Differentiated. Moving from a one-size-fits-all (or mostly so) to a more selective policy that differentiates salary increase opportunity in response to mission critical skills, job value or other factors.
2. No Longer Annual. Moving from an annual increase timing to something less frequent and/or that varies based on certain factors.
3. Fixed to Variable. Moving to shift some portion of annual salary increase opportunity to a variable/incentive award opportunity.
Then, for each of the above, we asked respondents to tell us whether that option was (at their organization):
1. Not being considered.
2. Under consideration.
3. Planned in the next 12 – 18 months.
4. Already implemented.
More Talk Than Action
Respondents confirm that there is more talk than action happening at this point. As the table below shows, there are three times as many organizations considering changes as have already planned or implemented them.
Intrigued? Stop by tomorrow for Part 2.
Note: If any survey participants have not received their complementary survey report, please feel free to contact me at firstname.lastname@example.org