How do you manage the puzzle of salary increases (with inflation as a bonus)?
Frozen budgets, talent war and inflation: the recipe could become slightly explosive in 2023 when determining salary increases. This is where Florence Bonpaix, our HR Operating Partner, comes in. She has more than one trick (and one contact) in her boot to find operational solutions. We met one morning in December with the HR community of our portfolio and Virgile Raingeard, CEO of Figures, an app that provides market salary data by jobs in real-time by being plugged directly to the payroll system
" Set up a fair salary policy ", here is the claim of Figures, a company created by Virgile Raingeard, previously HR at Criteo and Comet. Figures is now widely used by startups, and scale-ups and spreading quickly outside France in the EU with 1,000 + clients.
We were able to get exclusive figures from the Figures survey of 180 Figures clients to:
know how they operate to re-evaluate salaries, how often, etc.
find out the ways to overcome the combo of inflation, budget restructuring, and talent retention.
Let's focus on the key findings of this study and the advice of Virgile and Florence to our community to prepare for the 2023 increase exercise.
1/ How often do you review salaries?
The vast majority, if not the majority (67% of companies surveyed), review salaries once a year. A few companies opt for a quarterly review, but this could create ongoing expectations that cannot be met.
What works well at a certain level of maturity: once a year after the performance review and then a review at 6 months for exceptional cases and promotions.
2/ What is the budget to allocate for increases?
Don’t forget increases should be planned in the budget by buckets: merit increases, market adjustments, inflation, and promotions.
At the end of 2022, we have been faced with 2 opposing forces:
budgetary tensions, whether we're talking about budget cuts, waves of departures, or hiring difficulties that have a deflationary pressure on salaries.
A few figures to make it clearer: in France for 2023, companies were planning 5% of salary increase budget overall vs historically more around 7%. It's more than 10% for a series A company (facing more recruitment).
Now, a quick look at inflation, which we are all very concerned about:
for 45% of respondents: the budget simply does not cover the effects of inflation;
48% are planning measures;
7% have no plans yet but plan to allocate a specific budget.
Some ideas for dealing with this hot topic (from a previous Figures study - September 2022):
increase the lowest salaries only those that suffer the most from inflation;
For the most mature companies, you may play on one-shot bonuses to compensate for inflation on specific jobs. You can increase benefits such as better health insurance, paid computer equipment, etc.
Alternatively, some companies take the gamble of playing "business as usual", i.e. not impacting their salary policy by including an inflation component. They prefer the concept of market adjustment. They pay at the market median and each year, we review where the market is and adjust our salary scale.
A recommendation from Virgile would be to increase for merit, market adjustment, and inflation once a year and spend the promotion budget throughout the year whenever promotions occur.
But defining the increase buckets or envelopes means having a compensation policy, i.e. 1) knowing what to reward vs the business strategy: performance, individual vs collective, efforts, results, competencies, equality of treatment, 2) knowing with what: the fix, through bonuses, ad-hoc discretionary bonuses, equity, promotions, 3) and finally knowing how and when.
3/ How do you make market adjustments?
Once the budget has been decided, how do we define the buckets? Is there a share allocated to market adjustments?
In fact, 42% answered yes, 32% no and 26% no but would like to do so.
The idea behind salary adjustment is to check that the salary grid is still in line with the market (market median, for example) and to potentially upgrade some employees to either increase the lowest salaries and bring them back to the market level, or to remain attractive ( ✌🏼the Tech team).
If you want to go further to learn how to determine a compensation policy, it's here.
4/ What are the best salary review practices?
Here are some good tips 👇🏻
Dedicate a separate budget to promotions
Review internal inequalities first: gender, job leveling, lower salaries first; then market misalignments vs your strategy (e.g. emphasizing tech vs sales, managers vs associates…), then focus on merit.
Work on your communication process:
Explain the reward policy and the criteria used to increase people.
Take into consideration and compute all compensation, benefits, and monetary spending elements to communicate on increase: fix, bonus, equity, health insurance, lunch allocation, and even training if any…
Monitor the rate of first-time managers closely and train them on the process, provide guidelines, even with first recommendations to them.
Separate annual performance review meeting and salary review meeting
Make calibration sessions prior to finalizing increases and communicate to the incumbents.
Lastly, a number of people attending the December meeting regretted the lack of market salary data on the social and charity business; Figures may soon come up with some material on it!
Hopefully, this information will help you make those raises a little sweeter! Any comments? We look forward to hearing from you!
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