Ways to Maximize Your 2024 Salary Budget

Each year we look at many industry sources on what the average merit or pay increase budget is set for 2024. Currently, through our research, it appears the salary planning budget is set at 3.8%. That means that during your budget planning cycle, probably occurring now, you should be setting a 3.8% merit increase budget for 2024. The 3.8% is based on your employee payroll. Therefore, if you have a $10M dollar annual payroll you should be allocating $380,000 for increases in 2024. Most companies conduct their increase in late February or early March.

We also recommend another 1% of payroll be allocated to off-cycle increase and promotions that occur during the year. That way you have some money to work with during the rest of the year for additional increases or promotions. The big question you need to ask yourself is how do you maximize the impact of your merit increase budget? The key here is to retain your top performing employees (top talent, high potentials), take care of your solid performers and not take care of your lower performers. Yes, that’s correct, don’t give your lower performers any increase, zip, nada, zero.

Here’s an example of how to use your budget effectively. You have 3.8 percent to work with here so give your top performers (10-20% of your employees) increases between 4-8% based on their current pay. If they are already paid very well a 4% increase may be appropriate, if they are lower paid, then a 7-8% increase or higher would be appropriate.

For your solid performers (60-70% of your employees) a 3-5% increase would work well. Base their increase on how they are currently paid in a pay range or against their peers doing the same job. For example, if they are paid on the lower end then give a higher increase; for those paid on the higher end of their range give a lower increase.

Now we come back to your lower performers (probably 10-15% of your employees). We recommend a zero % increase for them. Why would you do that you may ask? The response is why give them an increase if they don’t do a good/great job for you, why do you want them to stay on the payroll? Send the message to them that they aren’t performing and for that reason, you are not giving them an increase now. Don’t say, well they are nice people – that’s great, but you’re running a business, not a charity. If they don’t perform, a zero percent increase is appropriate. If they leave the company, that’s a good thing. That means you can hire a higher performing employee to take their place. It is important to upgrade your talent to stay competitive.

If you need help understanding what competitive pay is for your positions/employees today, let us know, we can help. We use a great compensation software tool that can benchmark competitive compensation for any position in the US, and several other countries also. We work with clients all the time to accurately determine what external pay looks like for new and existing positions in their company.

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Small and medium-sized businesses may not have the time or expertise to implement the necessary people strategies for business success. The ideas above can be easily implemented by you to help improve the performance of your employees which leads to increased employee engagement and increasing the bottom line.

We are here to help you with the people side of your business: employee engagement, retention programs, performance management, vision, and strategic plans, leadership development, selection & onboarding, compensations programs, organizational design, employee handbooks, core values, and all things HR-related.