Salary boosts reflect firm's pay structure, financial data, merit

By Mila Stahl

The second half of each calendar year is when most employers do their compensation planning for the next year.

Many surveys of what employers are budgeting for 2008 are conducted in the summer and fall for the following calendar year. Additional relevant information is available by examining actual 2007 budget and structural increases and reviewing key economic indicators.

Budgets vs. structure

It is important to distinguish between what employers adjust their compensation plans by (i.e. structure) and actual budgets for merit/wage/salary increases.

Adjustments to compensation plans (usually existing pay range minimums and maximums) are often referred to as changes to the pay structure.

Pay structure adjustments reflect economic factors, industry impact, employer's ability to pay, etc. and are best looked at as an employer's adjustment to their compensation plan in response to remaining competitive in the labor market(s) in which they compete.

Total budget increases for actual pay reflects both the structural adjustment and employee's 'merit,' longevity or other basis for movement within and along the pay range structure.

U.S. economic indicators

Our varied research sources are generally positive about business in late 2007 and early 2008 and anticipate solid economic growth, the return of modest inflation and moderate wage increases.

Rising health-care costs and inflation remain several of the "wild cards" in the array of external economic indicators that can potentially put pressure on wages and salaries in 2008. The Consumer Price Index for Urban Consumers (CPI-U, not seasonally adjusted) is currently 2.5 percent and is on a stable if slightly declining trend (i.e. 3.4 percent in 2005, 3.2 percent in 2006). While global oil prices remain a concern, domestic gas prices have recently stabilized, the U.S. stock market remains strong and the U.S. economy continues to demonstrate healthy growth.

A variety of factors could influence the U.S. economy in 2008, among them:

• The drag caused by the downturn and gradual recovery in the housing industry;
• The continued restructuring of the domestic automotive industry and its rippling effect on other industries;
• Interest rates potentially rising, although not projected at this time;
• Increasing health-care costs.

Recommendation

As of October 2007, our firm's best recommendation for 2008 pay structure and merit increase budget planning is as follows. If you are looking for a single number, you will likely find it within these ranges, understanding that any appropriate percentage will be driven by your business strategy and conditions, geographic considerations and the competitive environment within your industry.

2008 Planning
Wage/salary structure: 2.6-2.8%
Actual merit/budget: 3.7-4.2%

Mila Stahl is vice president and principal of the Human Resources Group, a Madison human resources consulting and recruiting firm.

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