2016 Pay Raises: The Good, the Bad, the Ugly

The Good news is that most companies are giving raises. The Bad news is that employees shouldn’t expect much more than last year. The Ugly is that it is becoming more and more complicated for employers to figure out the right pay structure.

The Good: Mercer’s 2015/2016 U.S. Compensation Planning Survey reveals the average salary raise budget is expected to be 2.9% in 2016. The highest performing employees are expected to receive increases of 4.8%, average performers 2.7%, and lowest performers almost zero at .2%.

The Bad: Although the economy has improved and the job market is robust, salary raise budgets show few signs of growth. Average budgets for salary raises was 2.8% in 2015, which is similar to 2016’s expected raises of 2.9%. For the most part, these raises simply keep employees in line with inflation.

The Ugly: Developing the right formula is not simple. Standard merit raises are “out” and performance-base pay is “in.” Aligning raises with specific, attainable, and measurable goals for each employee or department is time consuming and an HR headache for managers.

Here are 5 ways to reward employees for 2016.

Performance: Performance-base pay leads the pack and is an effective ways to reward employees and at the same time meet company objectives. It is recommended that supervisors set one or two major performance goals with their direct reports and match each goal with a promised pay raise.

Promotions: A growing trend that focuses on careers and performance. Promotional raises for professionals is rising to 7.7% in 2016 from 6.9% last year.

Length of Service: An old fashion method, yet feasible in some cases. Best used for retention of workers who don’t have the opportunity for promotions, yet are solid workers and vital to the operations of the company.

Educational Achievement: Consider pay increases for employees who complete degrees or complete company-sponsored training or certification programs.

Outstanding Contributions: For employees that go above and beyond the call of duty, consider an arbitrary pay raise or bonus.

A customized strategy for rewarding talent may be time consuming, yet if it produces the results you want to see in your employees’ performance, then it is worth the time. And to make it easier, avoid giving raises at the end of the year. With holiday stress and other company reporting requirements that take up manager’s time at year end, consider giving raises at other times. Perhaps one department is first quarter, another the department the next quarter. Or, consider mid-year reviews and related pay raises which breaks up the year. You can then provide a small bonus or gift at holiday time that is more of a “thank you” than a raise.