Pay Hikes and Managing Expectations
2
Risk. Reinsurance. Human Resources. In addition, just because the budget is 5.1% it does not mean that all employees will receive a pay rise of 5.1%. So the stage is set for some difficult conversations come the pay review cycle. So how should employers prepare for this? It’s all about managing expectations. In order to avoid disgruntled employees, two things, which go hand in hand, are very important for organisations: Transparency: Employees need to understand the process undertaken before determining their final pay increase; this includes the factors considered when finalising the salary increase budget (rate of inflation, the companies’ ability to afford pay increases, forecasted budgets for the market etc.); considerations for deviating from the budget when it comes to setting the individual pay increase (performance, promotions, internal equity etc.) and what the company philosophy is behind the pay increase (alignment to the market vs. cost of living adjustment etc.). Communication: Throughout the process it is important to keep employees in the loop, providing communications from the board/ CEO which puts company achievements in perspective with salary increases. The worst thing an organization can do is broadcast great increases in revenue and profit margins and when it comes to pay reviews, start explaining that the difficult economic circumstances did not allow for reasonable increases. Employees will always appreciate a line of sight of company targets and pay rises. Employees make companies successful, especially when they know “what is in it for them”. This all may sound very trivial; however “communication of pay processes” is the part which typically needs improvement in most of the reward philosophies of organizations. In fact, the majority of organizations in the GCC claim that their employees often do not understand how the different pay components work and therefore what’s required of them to achieve a pay rise. If all of the above has taken place, it is then up to the HR department to train the people managers, to ensure the message carried throughout the organisation is consistent. During the one- on-one discussions between managers and subordinates the final pay increase will be communicated, therefore it is important that all managers are well equipped to answer questions which may come up during the meeting. There needs to be a common language amongst the leadership of the organization to avoid conflicting messages. Overall, education around the salary increase process is vital. The annual pay review can be a key motivator for employees, however, if it is not carried out properly, employers can cause more harm than good. Pay reviews can be a sensitive subject, so a lack of transparency and communication from the top down can leave employees feeling undervalued and disengaged. Provided the process is clear, easy to understand, fair and well documented, expectations on pay rises will become reasonable. Pay Hikes And Managing Expectations As we enter a new year, employee’s thoughts ponder around the possibility of a salary increase. For the GCC, the expected salary increases are 5.1% of basic pay for 2015, however, in light of severe rent increases, cost for medical cover and education also on the rise, a 5.1% increase in basic pay barely covers the actual increase in cost of living. Aon Hewitt Rewards Practice
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Transcript of Pay Hikes and Managing Expectations
Risk. Reinsurance. Human Resources.
In addition, just because the budget is 5.1% it does not mean that all employees will receive a pay rise of 5.1%. So the stage is set for some difficult conversations come the pay review cycle. So how should employers prepare for this? It’s all about managing expectations. In order to avoid disgruntled employees, two things, which go hand in hand, are very important for organisations:
Transparency: Employees need to understand the process undertaken before determining their final pay increase; this includes the factors considered when finalising the salary increase budget (rate of inflation, the companies’ ability to afford pay increases, forecasted budgets for the market etc.); considerations for deviating from the budget when it comes to setting the individual pay increase (performance, promotions, internal equity etc.) and what the company philosophy is behind the pay increase (alignment to the market vs. cost of living adjustment etc.).
Communication: Throughout the process it is important to keep employees in the loop, providing communications from the board/CEO which puts company achievements in perspective with salary increases. The worst thing an organization can do is broadcast great increases in revenue and profit margins and when it comes to pay reviews, start explaining that the difficult economic circumstances did not allow for reasonable increases. Employees will always appreciate a line of sight of company targets and pay rises. Employees make companies successful, especially when they know “what is in it for them”.
This all may sound very trivial; however “communication of pay processes” is the part which typically needs improvement in most of the reward philosophies of organizations. In fact, the majority of organizations in the GCC claim that their employees often do not understand how the different pay components work and therefore what’s required of them to achieve a pay rise.
If all of the above has taken place, it is then up to the HR department to train the people managers, to ensure the message carried throughout the organisation is consistent. During the one-on-one discussions between managers and subordinates the final pay increase will be communicated, therefore it is important that all managers are well equipped to answer questions which may come up during the meeting. There needs to be a common language amongst the leadership of the organization to avoid conflicting messages.
Overall, education around the salary increase process is vital. The annual pay review can be a key motivator for employees, however, if it is not carried out properly, employers can cause more harm than good. Pay reviews can be a sensitive subject, so a lack of transparency and communication from the top down can leave employees feeling undervalued and disengaged. Provided the process is clear, easy to understand, fair and well documented, expectations on pay rises will become reasonable.
Pay Hikes AndManaging ExpectationsAs we enter a new year, employee’s thoughts ponder around the possibility of a salary increase. For the GCC, the expected salary increases are 5.1% of basic pay for 2015, however, in light of severe rent increases, cost for medical cover and education also on the rise, a 5.1% increase in basic pay barely covers the actual increase in cost of living.
Aon HewittRewards Practice
ContactsRobert Richter Compensation Survey Manager Rewards Practice [email protected]
Martin McGuigan Head of Rewards Consulting Rewards Practice [email protected]
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