The Right Way To Adjust Salary Scales: Cost of Labor vs. Cost of Living
When you decide how much to budget for pay increases and how to adjust your salary scales, do you use cost of living data?
Step away from the tables. They’re not going to get you the talent your company needs to succeed.
Cost of Labor
How much more money gas may cost one consumer compared to another isn’t the way to bargain a salary. What really matters is what your competitors are willing to pay to recruit and retain talent, and what you can afford to pay.
To properly adjust salaries from one year to the next, an organization collects data from published salary surveys. That tells you what other companies are willing to pay for similar positions.
You can then use this data to determine the competitive pay rate for each job.
Each job can have a series of grades and pay ranges based on its value to the organization.
The range from minimum to maximum lets your managers differentiate individual employee pay, yet remain within a range that’s competitive and affordable. Employees have the ability to increase their earnings as they learn and grow.
As an employer, you have to compete for talent. Let’s assume you have limited resources, you then have to balance your ability to fund salary increases with your desire to acquire new talent while you keep your existing talent.
Traditionally, companies spend two-thirds to three-quarters of their salary increase budget on increases for current employers via pay range increases. However, if your managers can comfortably award increases within the current salary ranges, you might not have to adjust salary bands upwards in a particular year to keep your current talent.
Salary Range Adjustments
It’s important to recognize that adjusting salary scales doesn’t change anybody’s pay. It simply changes the range of pay that managers have to work with when they determine individual pay increases for employees.
Your managers will consider other factors when awarding pay increases, including employee performance.