Salary Increases – How to manage expectations

 

 

 

 

At the beginning of a new year, employees typically start thinking about the possibility of a salary increase. According to the Aon Hewitt Salary Survey results released in 2014, the expected salary increase is 5.1% of basic pay for 2015. However, with rents, schooling and medical costs all on the rise is 5% enough from an employee perspective? In addition, 5.1% is merely a guideline for the pay rise - it does not mean that all employees will receive a pay rise of 5.1%.

 

Managing expectations

 

In order to avoid disgruntled employees, it is important to manage their expectations. Two things, which go hand in hand, are very important for organizations, CEOs and managers in their preparation:

 

1.       Transparency: Employees need to understand the process undertaken by their employers before determining their final pay increase. This includes the factors considered when finalizing the salary increase budget like the rate of inflation, the company’s ability to afford pay increases, forecasted budgets for the market and similar. It also includes the 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.).

 

2.       Communication: Throughout the process, it is important to keep employees in the loop by providing communications from the board and/or CEO on the company’s achievements in perspective with salary increases. The worst thing an organization can do is broadcast great increases in revenue and profit margins and then explain the difficult economic circumstances when it comes to salary increases. Employees will always appreciate a correlation of the company’s targets and pay rises and are more willing to work towards the company’s success when they know what is in it for them.

 

 

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.

 

Common language

 

From our work with clients across the GCC, we have found that the communication of pay processes is the part, which typically needs improvement in most of the reward philosophies of organizations.  The majority of organizations we speak to claim that their employees do not understand how the different pay components work and what is required of them to achieve a pay rise.

 

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 and it is the responsibility of the HR department to train the people managers to ensure that the message carried throughout the organization is consistent.

 

Salary trends

 

At Aon Hewitt, we recommend employers stay abreast of salary increase forecasts. This can be done by participating in either compensation surveys or in specific salary increase surveys whereby organizations receive a report on what the market is doing in terms of salaries in return for providing their payroll data or salary increase forecasts. 

 

This way, companies can prepare their salary increase budgets in advance and get a view on their general competitiveness against the market. If the salaries appear to be slightly below the market, a marginally higher salary increase budget can be agreed provided that the company can afford it. For example, if the market indicates a 5% salary increase budget, the company can plan 7% to account of the overall slightly lower salaries. Should the gap be a lot bigger however, more drastic measures can be taken such as an off-cycle adjustment following a thorough benchmarking exercise.

 

Economic outlook 

 

The salary increase budgets have remained stable over the last couple of years, around the 5% mark across the Middle East. Given major government investments across the GCC region and upcoming prestigious events such as the Expo 2020, the overall economic outlook will remain positive in the midterm, which implies that salary increases will remain at the same level if not increase. However, the declining price for oil, further political uncertainty within the wider Middle East and rising cost of doing business are cause for concerns around the long-term growth of the region, which cannot be ignored. Only if companies are feeling strong about the region they will invest in human capital via salary increases and new hires.

 

 

 

 

About Robert Richter

Robert Richter is the Compensation Survey Manager at Aon Hewitt Middle East since 2013. With more than 8 years of experience in the areas of reward consulting and, compensation and benefits management, he is responsible of the numerous Aon Hewitt compensation survey offerings in the GCC and the Middle East.

His area of expertise lies in compensation and benefits surveys, compensation benchmarking and structuring, job analysis and job evaluation.

 

 

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