Reader Question – What to consider for salary planning ?

what to consider for salary planning

Today’s reader query is suggested by a question asked by a LinkedIn member, who wanted to know : “What indicators are important in your company planning (changing, reviewing) pay policy for next year ?”.

Just like for any other year, I suggest going through a four-step approach :

1 – Is my pay policy still adapted / a good fit with my company overall strategy and objectives ?

2 – Performing a gap analysis between the policies /processes, expected outcomes and actual ones. Do I need to change something to bring results more in line with what we are trying to achieve ? For example : we may be targeting to be positioned at Q3 in terms of guaranteed cash, yet survey results demonstrate that we are paying at the 60th percentile.

3 – Internal equity analysis of elements impacting people costs :

  • manpower planning (for example : how many hires, in which jobs/grades/salary ranges, promotions, relocations…),
  • costs related to right-sizing the organisation,
  • cost reductions through the replacement of baby boomers retiring by younger therefore less expensive employees,
  • expected performance of the company (possibility to pay or not salary increases or bonuses, impact of performance on bonus and incentive payments if any) etc…

4 – Externl competitiveness analysis :

  • How are we paying relative to market ?
  • Are we positioned as we have planned ?
  • Are there specific areas where we have difficulties in retaining employees or recruiting talent ?
  • What are other companies planning to do in terms of salary evolution / increase budgets ?
  • What is inflation expected to be ? etc…

The importance you place on each section will vary year upon year, based on your company strategy, financial/economic health etc… but the overall process should remain the same.

So, what indicators do you use when planning pay policy for next year ?

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