
Source: online.wsj.com
The past two summers I have written posts about compensation managers providing finance a planning number for next year’s budget. So What’s The Number – Year II - last year’s offering encouraged compensation departments to be very conservative and help their organizations to preserve assets in order to be sustainable. The specific suggestion was to start at 0% and then build based on facts about the competitive environment. Amen brother. Sing it again this year – loud and clear.
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The July Jobs report just came out. There is a lot of press coverage (The Wall Street Journal has a nice review.) The short version is that unemployment remains hig at 9.5%; discouraged and unemployment remains high at 16.5% ; long-term unemployment is still at the highest levels in the country’s history. On the good news side, payrolls and hours worked are up about 0.2% (i.e., people with jobs are working a bit more). Temporary employment however, is down – hard. Temporary employment is typically seen as a precursor to “real hiring.” Bottom-line – the employment market continues to be really bad and there are essentially no signs that it is going to improve.
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We could stop here and just say – keep the merit budget as low as possible and your CFO, CEO and CHRO (if that isn’t you) happy. World at Work and other surveys are suggesting that the 2011 merit budget increases are going to be higher than last year. See the good article on WorldAtWork.org I continue to think those surveys are wrong. They are based more on the conjecture of Compensation Mgrs. than real budgeting. Most organizations are only now looking at real 2011 financials.
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Regardless – let’s take a quick look at other considerations. American companies are holding more cash on hand than any other time in history. Check out the article linked to the graphic to the right. The common interpretation is that companies are concerned about where revenues will be and the extent to which they will be able to access the credit markets for liquidity. For most companies – big and small – it’s not the earnings that get you, its the lack of cash.
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Base salary is cash. When it goes out the door it goes. When you talk about a merit budget, understand what the cash position of the company is. If you talk to the C-suite demonstrating that you have a feel for liquidity issues and the reliance of the organization on credit to finance its operations, your opinion about merit increase budgets will carry more weight – I guarantee it.
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Human Markets has written before about the role of productivity in the current labor market – its impact on unemployment. (Workers are working more; they are absorbing new work.) The simple fact is that virtually no organization in this climate can blithely accept making their workforce less productive (from the sense of reward spend relative to profit). Before suggesting a merit budget – look at what it will do to productivity year over year. The fact is that your workforce, may be more productive than they have been. Investments are still being made and tools may have come online this year, or will next year, that will make the group more productive. Sadly, one aspect of this analysis might be to consider, have positions been eliminated that free up money to spread to others.
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One final consideration – pricing. There is talk of deflation in the air. Is that happening in your world? Are prices stagnant? Rising? Falling? A quick look at your market power to maintain or increase price is a great shorthand to include in the analysis of what the number should be for 2011.
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Finance will very frequently take a simplistic view that we should have as low a budget as possible. The more you are knowledgeable and using the metrics that they use and understand to create context for your recommendations, the more you can pull them up to a level of sophistication about this decision. If you fall into the trap of X% of increase is Y$’s and that’s it – you have lost the game already. You look like you a 12 year old going to Mom and Dad for an allowance. We can do better.
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At the same time, if you go and say our budget should be X% because SHRM survey says so, or worse, the Quad County SHRM Chapter survey says so – you are going right to the “I need the allowance because everyone is going to see Killer Zombie Babes” so let me go too! Surveys are for followers – analysis is for leaders.
2 Comments | In: Compensation, How to do HR, Multiple Markets | tags: Merit Increase, Productivity, Surveys. | #