Calculating merit increases: a structured approach.

Abstract

Determining the amount of salary increase appropriate for each employee poses a major dilemma for many human resources managers and/or compensation managers (not to mention the employee's supervisor). This task requires complying with the company's compensation philosophy, meeting market competition, and rewarding employees fairly and equitably. Authors William W. Seithel, vice president, personnel of the Midwest Stock Exchange, Inc., and Jeff S. Emans, director, employee compensation of the Kemper Group, describe a method for pinpointing a salary rate increase that is not only structured enough to move people through the salary range in accordance with a reward philosophy, but precise enough to provide a basis for projecting costs and flexible enough to meet the needs of various performance levels. The method entails the use of a structured matrix that spells out the target percentage raises for various levels of performance. By using both the matrix-which is constructed to meet the individual company's needs-and a guide chart provided by the authors, it is possible to calculate a specific percentage increase for each employee. The manager who uses this system will find that the matrix is a mechanism for control as well as a means for projecting costs.