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The Indiscriminate Allocation of Salary Budgets

A new report exploring how Canadian companies are spending their salary budgets reveals that employers may not be linking monetary rewards with on-the-job performance as mindfully as they could — and, quite frankly, might benefit from expanding their compensation ideas beyond the strictly monetary anyway.

The 2014 General Industry Salary Budget Survey, from American global professional services firm Towers Watson, reports that employers are budgeting three percent for salary increases for their non-management employees for 2015.

Fair enough.

Non-Financial-Incentive-Plans

But the trouble arises when you examine the weighting of the anticipated salary budget breakdown. Canadian employers, the report suggests, are prepared to allocate a chunk of their bonus bucks to those staffers with the lowest performance ratings. And so even though the workers with the highest performance ratings in 2014 scored an average salary increase of 4.7 percent this year, and those with an average performance rating got a compensatory boost of 2.7 percent, those employees who performed the worst still came home with 0.7 percent more in their pockets than they had the year before.

Not fair at all.

This problematic move, says a Towers Watson analyst of the report, is likely undertaken by organizations in a mad scramble to retain staff with dollar-based rewards. But handing out raises to everyone, regardless of quality of work, diminishes the money available to compensate those who are most justifiably deserving of it.

Better to dig into another bag of tricks when looking to recognize and celebrate the achievements of one’s employees, or to secure their engagement and loyalty. Think praise from the boss, attention from corporate leaders, stock options and the prospect of taking on an expanding role within the company.

Indeed, according to the Towers Watson study, a mere 36 percent of Canadian employees believe that their organization offers them opportunities for career advancement, and a full 40 percent simply believe they’ll have to move to another firm if they want another step up the ladder.

The lesson here? Employers need to take another look at their remuneration and incentive stash — and draw from it more thoughtfully.

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