Compensation planning for 2021

Compensation planning for 2021

By on Aug 20, 2020 in Blog, Compensation Consulting, HR Consulting, Performance Management, Reward and Recognition |

August is generally when we start seeing data on pay budget increases for the following year. A number of consulting organizations conduct surveys and report what organizations plan to do the following year as far and what their pay increase budgets will be, and also what changes they may make to their pay grade midpoints based on changes in market rates.  To say the least, planning for 2021 changes is going to look a bit different than previous years because of the COVID pandemic.

For the past several years, most organizations have been budgeting above 3.00% for their pay increases. Actual pay increases at the employee level will generally vary by performance and other factors.

According to the WorldatWork.org total rewards association, pay increases for 2021 are expected to be lower than 2020…the first time this has happened in twelve years.  The projected increase rate for 2020 was 3.30% but it is expected that it will be closer to 2.90% in 2021.  Most organizations still plan to give some sort of increase, and many are still planning for it to be in the 3.30% range, but others are holding off on increases until later in 2021 or skipping them altogether.

It’s understandable that you may be tempted to hold off on increases.  There is a lot of uncertainty going into 2021 and the economic situation may not improve.  You may be banking on the fact that your employees are also feeling this uncertainty and are less apt to move given the environment, even in the face of no pay changes in 2021. Keep in mind that there are some risks to this strategy. Your high performers are always going to be in demand. No pay increase in 2021 may make them willing to take that recruiter’s phone call.  Employees have been under a great deal of stress in the past six months, trying to balance work with family responsibilities.  No increases in pay will only add to this and possibly diminish further their levels of engagement.

Regardless of whether you decide to make merit increases happen, make sure you stay on track with your performance appraisal process. It is still important to document performance and provide feedback even if pay increases are delayed or smaller than in the past.

WorldatWork will have updated data in October. We will make sure to let you know what has changed and also provide some recommendations on what you should do.

Many of our projects involve providing recommendations on effective compensation practices and providing data on compensation benchmarks and best practices.  You can find more information on ways we’ve helped our clients in our updates on our website.  If you want to talk to us directly, contact us…we’d love to hear from you!