When the months end in ‘ber, it’s time to check in on year end priorities for managing comp and benefits. Here’s my fourth annual “Ber” to do list for C&B people.
The last few months you’ve made progress on your KPI’s but now planning season is upon you. A few things start to happen for companies on a calendar year fiscal year. They may not all apply, but I’ll bet most of these priorities apply to you:
Seven Comp & Ben Priorities
- 2017 Salary Budgeting–You must deliver salary increase budgets for each country. There are 7 inputs to setting your salary budgets for each country:
- Last year’s budget – the decision makers will want to be reminded of this, promise.
- Local salary trend – big firms, WorldatWork have good surveys on salary trends and projected salary budgets, normally indicating merit, general (across the board) and total increase projections.
- Market analysis – benchmark your company’s jobs every year and compare the results for a matched set of jobs to see how much the market values have moved year-over-year. Average the market compa-ratios (employee salary divided by the job’s market value) for all employees together (incumbent-weighted) to determine your company’s overall market position.
- Business and financial conditions – if the economy, the industry or your company’s finances are strong, don’t be shy, ask for what you need. If there is economic or financial uncertainty, ask anyway, but expect pushback.
- Voluntary staff attrition rate compared to industry norms. If your salaries lag the market significantly but you are not losing good talent (low attrition rates), then your salary budgets can match market trend. But if you are experiencing high voluntary attrition relative to your industry, and you know your pay lags the market, you may need a catch up budget. How much to request? If you have a high attrition rate, and your salaries (and total compensation) lag the market by 10% or more (i.e. compa-ratios of 90 or less), you should request an additional 1.0% of payroll. If the gap is 15% or more, ask for an additional 2%. These are only rough guidelines. Don’t ask for huge catch up budgets–it will show your lack of business savvy. Take small steps and find other ways to address your high attrition other than raises.
- Total cash compensation – when considering your salary budget requirement, make sure your market analysis includes total cash compensation. If you pay big bonuses compared to your industry, it’s ok to let salaries lag the market. I know of a company in Taiwan that pays massive performance incentives and very low salaries (about 60-70% of market.)
- Promotion plans – some companies establish separate budgets for promotions. Other companies do not, arguing it is unnecessary since there are unplanned savings from vacancies during the year, and that vacancy-related savings are sufficient to offset the cost of promotions. If your company budgets for promotions, you can easily determine the right budget by answering two questions: first, what percentage of employees will be promoted? Second, what is the average promotional salary increase percentage? Multiply the answers to determine the required promotion budget, as a percentage of total annual payroll.
- 2017 Benefits Budgeting–You need to provide finance an inflation rate on your insured benefit premiums as well as self insured claims. Contact your broker and start shopping the market before blindly signing a renewal. If you’ve been with the same insurance company for 5 years, they are feeling comfortable so shop the market and make them re-earn your business. Locations with aging workforces will see higher premium increases. Developing locations are seeking to improve safety nets, for example, China is requiring both local and foreign employees to participate in China Social Insurance, so be sure to capture those in your budgets. TowersWatson has some of the best analysis of healthcare inflation in Asia, indicating healthcare costs are rising about 10%.
- Annual Market Analysis–Your compensation surveys are being published in the next several weeks, with some coming out in September. Don’t wait til the last minute! It’s tempting to wait til late October when all your surveys have been published (by Hay, TW, Mercer, McLagan, etc.) but remember you need to confirm your matching, check the year-over-year market movement by job, to see if there are jobs where the market moved up more the expected, or perhaps moved downward, in which case you have to decide whether to accept the new market value or stick to the current market value (and see if it goes down again next year). Your market analysis results can serve as inputs to salary budgeting (see item 1 above), salary range updates, and to inform salary offers in the coming year.
- Annual Pay Cycle Planning–Do you know who is running the annual merit/increment process? Who is responsible globally, regionally, by country? Who is working with the software vendor (if you use 3rd party software) for modifications and configuration? What are the milestone dates? How will Chinese New Year impact milestone dates, manager deadlines, performance rating calibration and approval, etc.? Are you moving away from use of performance ratings? If so, your market analysis (step 3 above) is more critical, since you will need accurate compa-ratios. Who updates salary ranges? There’s a lot of work to be done for the annual salary review. In comp, this is the biggest project of the year, so plan now.
- 2016 Incentive Accrual–One thing I recommend doing now is updating your forecast for 2015 incentive payouts (to be paid early 2017.) Finance needs to maintain their accrual on the balance sheet for the bonus payment liability. If incentive-related business performance has been low, payouts may be lower than budgeted, depending on your plan design and funding formula (if any). If so, it’s bad news for employees, but good news for finance, who can make plans to earmark potential surplus incentive budgets for other needs. However, if business performance has been good, your incentive accrual may be insufficient and finance may have to increase that accrual to avoid a year-end cash flow crisis. Make instant friends with finance by giving them an estimate of year end bonus cost.
- 2017 Incentive Design–You think September is busy, it gets worse each month now through next March, so do yourself a favor and get some things out of the way now. For next year’s incentive plans, ask some business leaders if they have any input/feedback on the current plan design, likely payouts, etc. Update your accruals (see step 5) and have an informal chat with your head of HR and head of Finance and see if they have any sense about the richness of payouts, who’s getting low (or no) payouts, who’s getting bigger payouts, etc. Is the incentive plan doing what it is supposed to do? Will it help attract, motivate and retain the best performing individuals? Is it rewarding the best performing teams, units, regions, etc.? If you can confirm that the plan is working well, then you can plan on a lighter incentive design process for 2016. If you get feedback that says something needs to change, then you should start more detailed planning now and make sure planning doesn’t get swept aside by merit and bonus planning, or other priorities in December and January. Ideally, new incentive plans/schemes should be issued in the first month of the new year, but no later than March, in most organisations.
- Finish your KPIs–it’s time to get realistic about what you can accomplish on your own time. What can you delegate? What do you need help with? If you (or your boss) have unspent consulting dollars, now is the time to get someone to help you get your KPI’s across the finish line. The only thing more tragic than not spending your consulting budget is not spending it AND failing to complete your KPIs!
One more priority applies to filipinos: it’s time to put up Christmas decorations!
Here’s wishing you a strong finish to 2016 and solid preparations for a successful 2017.