Before Budgeting - Tips For Compensation Planning

As an HR or compensation professional, you're well aware that the definition of compensation planning is changing. With the global pandemic, economic challenges and related government assistance program, many questioned what, if anything might change in terms of planning and budgeting for 2021.

Now that most organizations have moved on, understanding that we're in a new reality for a while, they are turning toward re-invention of their business and looking toward the future. While salary increase budgets might look different this year, the planning and guidance needed for employees and managers will still need to be created. Sometimes, the hardest question of all is, "Where do I begin?" Organizing your inputs and understanding your desired outcomes are key to a successful planning process.

If you want your department to keep a prime seat at the strategic-planning table, you should approach each and every year's annual planning process as an opportunity to make highly informed pay management recommendations that your executives will truly value. After all, your company's payroll is undoubtedly one of its largest expenses. Your annual planning recommendations and guidance should seek to optimize the effectiveness of that significant portion of the company's resources.

Key Takeaways

About This Report

Understand your budget-approval process Annually, compensation professionals are asked, "What should our annual increase (or merit) budget be for next year?" Though the merit increase number has hovered around 3% for several years, depending on your industry and economic situation you now may be considering a lower number. In addition, the funds you do set aside may be serving a purpose other than merit increases. Today the more relevant question may be "What should our total increase budget be?" Promotional, market and equity adjustments may be where you place your emphasis in the coming years, but no doubt some portion of the population will still be merit eligible. But, a lot of that will depend on your ability to understand the objectives of your own organization as well as what your competitors are doing.

Analyze your annual compensation plan through multiple perspectives To develop a sound total increase budget, as well as create truly effective pay strategies, you must understand the various elements that go into them. For starters, effective pay strategies have to be targeted, data-driven, and multi- perspective. In this case, those multiple perspectives are:

About the Publisher

Published by Mercer delivers advice and technology-driven solutions that help organizations meet the health, wealth, and career needs of a changing workforce. Mercer's more than 22,000 employees are based in 43 countries, and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With more than 60,000 colleagues and annual revenue over $13 billion, through its market-leading companies, including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit

Publish Date

November 2021