Salary planning in the face of a changing economy

Salary Planning in the Face of a Changing Economy – How to Manage Macro-economic Challenges

The last two years have been a turbulent time. Given the changing economy and the coronavirus pandemic, it is pertinent for HR and junior leadership to understand how salary planning in their companies is affected. 

In countries where economic downturns have occurred, employers have no choice but to cut employee salary levels. For example, during the pandemic, a study by the Washington Post revealed that workers were “twice as likely to get a pay cut now than they were during the Great Recession, according to the group’s analysis of data from the payroll processor. ADP.” Moreover, salary cuts were spreading across white-collar industries. Despite these negative statistics, it can serve as further incentive to recover your company’s salary planning process. If appropriately managed, it can also help to boost productivity in the long run.

What are the various factors that make salary decisions for employees, and how can insights be used to make better choices in this area?

Compensation is at the centre of many recruitment and retention conversations. However, the process is not straightforward. Many factors need to be considered when deciding on salaries for companies and employees.

The first thing to consider is the market rates in your industry. Next, establish your budget limits, look at competitors’ salaries and determine company value. In addition, situational variables such as inflation rates, company profitability and economic growth can also play a role. Secondly, on a more personal level, a company needs to ensure that a salary reflects the employee’s value and contribution to the company. Finally, decision-makers can break down these individual variables into several factors: Skillset, Experience, Work ethic etc. When it comes to evaluating these unique variables, there is a lot of data available based on people’s skillsets. This data can help managers make informed decisions and ensure consistency in their salary planning. But, believe it or not, if CHOs and those on an executive management level don’t know how to utilise it correctly, this can be a bad thing. Further, some data points are skewed by different measuring criteria within companies.

As a result, many companies benefit from implementing an HCM system. Commenting on the benefits of HCM solutions, Sougat Charkartty states, “These systems enable visibility and workforce solutions. Managers have direct insight into where the money and resources are being deployed, and the productivity across departments.”

How do you determine what salary is appropriate for a given position, and how do you find the right balance between offering competitive salaries and staying within budget constraints?

Compensation data can be a valuable resource for HR managers as it helps Organisations benchmark their business against competitors in the same industry and region. However, while salary surveys and studies should supplement your internal compensation data, you must have a clear idea of your market rates to offer the right salary to potential hires. 

Finally, it’s essential to ensure that there is no unfair discrepancy between genders or races within your organisation, as this opens up the door for legal issues.

If you don’t have the budget to compete with larger organisations, you could still offer competitive salaries within your own company by identifying opportunities for cost savings and efficiencies. External software could also help to pinpoint these areas. For example, you’ll allocate more resources to wages if you promote someone within the organisation instead of hiring an outside candidate at standard rates.

Other ways to reduce costs and “build out the employee experience” are flexible work schedules and more competitive benefits. These gifts can sometimes be more appealing than just salary to an employee in the long run and, in some cases, replace additional wages. Whilst HR professionals are often best positioned to identify areas with cost savings, employees can communicate ideas throughout the organisation to make managers aware of possible opportunities. One of our previous articles discusses the importance of an open communication channel for ideas in more depth.

What are some of the challenges involved in setting employee salaries, and how can you overcome them using data-driven insights?

When setting employee salaries, there are several challenges that HR and managers need to evaluate the following factors carefully: 

  • The level of experience – it’s not fair to reward someone who has been with the company for years in the same way as someone who a company just hired.
  • Performance gaps – when people try hard but don’t meet their goals, they often deserve to be paid less than those who overachieve. 

Using data-driven insights can help organisations better understand these challenges, ensuring that employees’ salaries correspond with their skills and expertise. Companies can also offer Performance management programs to help underperforming employees receive their deserved pay.

This support is possible as data gives management valuable insight into what salary adjustments are required relative to the market rate. With regards to experience, using data-driven insights lets companies compare the level of understanding between two or more employees with similar skill sets and different roles within the company. These insights enable employers to make adjustments where necessary, so everyone is paid a fair wage based on their experience.

Assessment of insights against the correct criteria can also help determine whether someone is underperforming and why. Employers may also see which employees are motivated by financial incentives and adjust salaries accordingly. This system helps ensure that all employees are paid fairly and work harder, effectively, and accurately.

How does your company ensure their employees fairly, and what role does data play in this process?

Unsurprisingly, employees want to know they are being paid fairly, compared to others at your company and with other people working similar jobs elsewhere. 

To combat this, employers can organise employee pay into a hierarchy that places higher-level roles at progressively higher pay levels to ensure internal equity regarding salary. Setting up standardised pay grade structures helps ensure equitable compensation for similar or identical duties across an organisation. Gathering input from employees about what they value also helps ensure communication around salaries is clear and consistent throughout the organisation. For example, employee surveys that measure job satisfaction or overall happiness with pay rates can give insight into whether or not an employee believes they are compensated appropriately relative to others at the company. This information gives companies a better idea of where companies should set salaries []

Are there any other considerations that need to be considered when making salary decisions, such as benefits or bonuses, and how can insights help with those too?

Salary negotiations can be complex and involve multiple moving parts. However, a competitive compensation package does not always equate to finance. Moreover, in a new working age, companies have moved to a people-centric management style- “especially post-pandemic, where employers have been forced to look more closely at rewards. As such, there is a big consideration for promoting the employee experience” [Sougat Chakravartty, Birlasoft]. This experience manifests itself in different ways across different companies. It could involve stock options for long standing-employees, healthcare, or anything else a company can offer to promote a culture of wellbeing. “Companies err on the side of caution with regards to pay. Good working conditions, benefits packages and a strong company culture helps combats issues brought about by a fluid economy, as the compensation extends past pay”. 

Finally, employees must be aware of the benefits extended to them. These could be offered via an HCM system or a comprehensive offering document during their onboarding.

About Birlasoft

Birlasoft is a strategic implementation partner working with Oracle. With decades of experience, the specialist team can help your business make the most of Oracle HCM and their associated offerings. If you would like to find out more or book an appointment with one of our specialist experts, visit our website here


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