This post was inspired by the CYA report podcast I listened to the other day around salary increases and bonuses. This seems to be a topical time as well given we are heading in to the end of the financial year where these things tend to be reviewed.
I've worked in systems where a simple CPI increase is issued as well as systems where more complex guideline increases are issued. For the former, the US term seems to be issuing COLA's (Cost of living increase).
In this post I'd like to outline a few of the many benefits of going with a guideline model and that CPI is only one part of a much larger remuneration system.
First of all - what is CPI?
CPI stands for 'Consumer Price Index'. It's released by the Australian Bureau of Statistics and is a "measure of the average change over time in the prices paid by households for a fixed basket of goods and services." (ABS).
It's important to note that there is not one CPI, there are many CPI's and it all depends on what the CPI is representing. Is this the Sydney CPI, or weighted capital cities? Is it for a particular quarter or the whole financial year?
What I'm getting at here is that CPI is a very specific and overly narrow indicator when it comes to using it as a sole basis for remuneration reviews. What it really should be is a data point that sits alongside other information when organisations make a decision about remuneration.
A more sophisticated approach
A much better approach is to look at a range of relevant data points alongside CPI.
How is the business tracking against its financial targets?
What is the state of the industry at the moment?
Do your competitors have published increases such as EBA's? If so what are they doing?
Do you have access to remuneration surveys? If you do, where do they get their data?
Have you mapped salaries internally with reference to each other? i.e (similar positions in different states, or similar level roles in different fields or teams).
Do you have systems in place to measure performance and can you integrate that into the remuneration review decisions?
In conjunction with finance and business leaders within the organisation, a much fuller picture can be formed around what the organisation can afford, how it is tracking against the market and what tactical options are available internally.
After asking these questions the organisation may come up with a specific percentage increase for the organisation or departments and then managers can use their discretion in applying those increases within their budgets.
Larger percentages can be given to higher performers or good performers who fall below banding. It's important to consider hover that great performers can still be overpaid. An administrative assistant is only worth so many dollars, regardless of how excellent the individual is. Remember to also look at the performance of the individual against the work actually performed and their compa-ratio against the market.
Communication is important
Much of the value from remuneration changes comes from the communication piece. Its all well and good if HR knows Joe Bloggs received an above average increase but does Joe know? And did Joe's manager communicate that effectively to link Joe's performance with his remuneration?
Managers have a very critical role to play when it comes to communicating the meaning behind increases. Given this HR should consider the resources in place to assist them in doing that effectively.
The last thing you want is all your hard work to fall down at the last hurdle!
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