My company is interested in understanding a few trends for 2010 that other organizations are following as it relates to merit increases, promotion increases and bonuses.
We are trying to understand the following:
1. Do organizations have separate pools of money set aside for increases and bonuses; e.g., 4% for each and/or 8% as an aggregate amount?
2. If they are separate amounts, is there a separate component in the merit increase pool that is designated for promotional increases; e.g., 3.75% for merit increases and .25% for promotions?
We are not interested in actual numbers, but more in practices.
We budget salaries & wages assuming that everyone gets a fixed percentage increase (usually between 3 – 4%) on Jan 1st. In actual practice, people below the Sr. management level get raises on their anniversary date so there is some built in cushion for increases at a higher rate & for promotion increases. A bonus pool is budgeted separately as a lump sum for each business unit – in the budget it is calculated as a percent of payroll.
We are a mid-cap private firm with $250 million annual profit. We set aside a combination merit/promotion budget pool of funds and a separate bonus/profit sharing budget pool of funds. The merit budget is likely self explanatory while we set the bonus budget pool based upon an assumption that we will hit our “targeted” performance under a balanced scorecard approach. Stretch performance bonus achievement is heavily dependent upon exceeding targeted net income for the full year and is thus funded (accrued) out of the net income beyond target for the year. Bonuses are paid prior to March 15th of the following year.
We are limiting salary/ wage increases in 2010 to a maximum of 2%; exceptions will be made for promotions. Our Incentive Bonus Pools will be determined on a segment basis and are generally dependent upon growth in adjusted after-tax earnings.
We have separate pools set aside for increases and bonuses.
Yes, there is a separate amount in the increase pool for promotions and the amounts for promotions are generated individually for the employees slated for promotion, not as a general % for the whole firm.
Bob Beggs (firstname.lastname@example.org)
We actually manage the three components of salary (general adjustments, promotional increases and bonus) separately. General adjustments are tied to market changes (in today's low inflationary, distressed economy these are zero). Promotions are separately budged and continued when the salary adjustment pool was zero to recognize skill development of our team members. Bonus (we call it Results Based Incentive) is awarded to all team members and established by the CEO early in the year. At the team member (i.e. non-management) level, the RBI percentage is the same for each team member and recognizes company-wide results.
Bob Scherba (RScherba@williams-int.com)
1. Our practice has always been to have separate amounts planned for merit and bonus.
2. Within our merit plan, we have a portion segregated for promotions and/or equity adjustments.
We use three different numbers:
- We set a target percentage each year for merit increases.
- We pad our salary number (after merit increases) with a flat amount that we can use as a pool for periodic promotions or market adjustments.
- We have one bonus plan in place for employees/managers and another in place for Sr. Managers. The employee/manager plan is based on a percentage of salary and although there is variability in what can get paid, there is a fixed number that it can’t go over. We budget the maximum which usually leaves us under budget allowing us to give spot bonuses or increase amounts for extraordinary performance. The sr. manager plan is based on earnings so we budget it that way.
Steve Reidy (SREIDY@rez1.com)