2009 and 2010 Merit Budgets Fall Below 3%

Wednesday, February 24, 2010

World at Work, a global human resources association focused on compensation, benefits, work-life and integrated total rewards, released the detailed results of its January 2010 Update of the 2009-10 Salary Budget Survey on January. 14, 2010. The survey, completed in May 2009 received 2,644 submissions from the United States and 208 from Canadian companies and is a benchmark survey used by many employers to formulate their upcoming salary and merit budgets for 2010. The survey reports actual salary increases for 2009 ranged from a low of 2.0% to a high of 2.3%, while projected increases for 2010 are at 2.8%.

With salary and merit budgets at historic lows, merit budgets frozen or even cutbacks, how are employers to differentiate between high and low performers? The answer is there is no easy way to spread a less than 3% budget across all performers. Employers are forced to focus on the top performers. A planning tool that can prove to be helpful in some organizations is a Merit Matrix.

A Merit Matrix is a simple simulation tool easily built in any worksheet software product and consists of a Row by Column table (Table # 1) with the number of employee head counts in cells respective of their Position in Range, Comp-Ratio or other measure and their respective performance level. The proportion of employees is found for each cell in the table (Table # 2). The proportion of each cell is then used to allocate the organization’s merit budget across a third table (Table  3) of proposed merit increases by salary range and performance rating. The fourth and last table is the resulting fraction of the merit budget for each cell. If the sum of the cells in Table # 4 is equal to or less than projected merit budget, this is an indication the allocated merit increases will come in under or at budget. Since our sample merit budget is 3% and the estimated applied budget modeled is 2.77%, we should come in slightly under budget.