The last couple of years have been financially challenging for many churches because the recession has affected donations, and in some cases, forced budget cuts.
This has resulted in salary freezes or minimal pay increases for church employees. The good news is, church donations are on the upswing again and according to a Barna study, giving is up again.
David Kinnaman, president of Barna Group, put the findings in context. “First, it’s good news that Americans remain generous and the levels of giving have shown a slight uptick from 2011. Churches and non-profit organizations are not out of the woods, but there are some signs of stability and a glimmer of hope among donors.”
Most employers understand the importance of providing a competitive employee compensation package and salary expenses are the biggest piece of the pie. The good news is the economy is showing signs of recovery and organizations are again budgeting for pay increases in 2014.
The Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 1.5% COLA in 2014. The 1.5% Social Security cost-of-living adjustment (COLA) is based on the percentage increase in the Consumer Price Index.
Many organizations use COLA as a measure to determine pay increases but there are several organizations predicting percentage pay increases for 2014. These predictions range between a 2.9% – 3.0% average salary increase – with better performing employees earning a slightly higher pay increase.
According to SHRM, in 2014 executive and exempt employee classifications have projected salary-increase budgets of 3 percent, while nonexempt employees have slightly lower projections of 2.9 percent.
Mercer is predicting average pay increases of 2.9%. These increase range from 0.2% for under performers to 4.6% for the highest rated employees.
“In an improved economy top performers continue to get salary increases nearly twice that of an average performer which indicates that pay for performance is alive and well in the annual merit process,” said Catherine Hartmann, Principal in Mercer’s Rewards consulting business. “Differentiation of salary increases based on performance is now commonplace and remains an effective way for employers to recognize those employees that enhance the company’s competitiveness and contribute to its success.”
Salary increases are part of a structured performance management system that is intended to reward and retain high performers. The goal is to reward top performers with more of the raise dollar pool than poorer performing employees. If employees are performing well they should be rewarded but if they are not, there should be little if any pay increase.
Budgeting for raises should be part of the annual budgeting process. This includes projecting raise dollars and developing a system to award raise dollars based on the best performers.
But how do you do that?
Let’s look at an example.
This information will help you identify and reward your best performers by allocating a higher percentage of the raise dollars to them and a less percentage for the lower performing employees.
OK, let’s assume we have done our performance appraisals and we have the scores, but how do you tie those scores to raises?
Let’s go through an example. Let’s say, for the sake of easy math, that you have:
- 11 employees each making $10/hour.
- Let’s also say: The church board approved a budgeted 3.5 percent this year for raises. That 3.5 percent equals a pool of raise dollars of $8,008.
- You get this dollar amount by taking the salaries of those 11 employees and multiplying it by 3.5 percent (.035x$228,800).
- The $228,800 comes from 11 (employees) x 2080 (hours) x 10 (dollars an hour) or 11 x 2080 x 10 = a salary budget for those employees of $228,800.
- Now let’s also say you determined that average scores (3.0) will receive a 3.5 percent increase and those scoring below average will receive less, those scoring above will receive more.
Now let’s look at what this might look like.
As you can see from the example below, there are 11 employees listed, a,b,c,etc. The next column shows their average scores as well as an overall average score (3.4) for all employees. Now in the next column, you can see the percent increase that was awarded to each employee based on the predetermined criteria.
Some employees received as low as 2% increase and the higher performers received as high as 4.5% increase which translates into a raise of $416 for the poor performers but more than twice as much, $936 for the higher performing employees. Now if you total what all of these increases add up to, you’ll see that these pay increases will cost the organization $8,008 which ends up being what was budgeted.
Keep in mind this is an oversimplified example to demonstrate how to do this. Obviously, when there are dozens or even hundreds of employees, this scenario would look much different.
This process should result positively for the good performers and serve as a wakeup call for the underperformers. Employees who receive a less than average raise need to have a clear understanding about why. It’s not an enjoyable conversation, but the organization owes honesty to the employee.
It is also common to have a three-strike rule when it comes to performance appraisals. If the employee consistently scores below average, they should either receive additional training, improve their performance or be transitioned out of the organization.
Poor performers waste valuable resources and when you are talking about paying salaries with church tithes it becomes a stewardship issue. Think about an employee who makes $25,000 a year and you carry that under-performer for 10 years. That employee is costing the church $250,000 for a ten year period. You have to ask yourself, is that the best use of church resources?
Budgeting for raises should be an aspect of the annual church budgeting process and part of a strategy to achieve the mission of the organization.
Regardless of what is budgeted (or not budgeted) for raises, communicating with employees throughout the process is crucial to avoiding unexpected surprises. Employees need to know if raises will be available, if they are meeting expectations and how raise distribution is tied to performance results. If budget dollars are tight and raises aren’t available for next year, make employees aware of financial challenges and get them involved in helping to find cost cutting solutions.
What percentage are you budgeting for 2014 raises?
If you are interested in learning more about managing employee performance, check out our new on-line Employee Performance Management class. For only $97 this is an inexpensive way to train you or your managers and we offer a money back guarantee so you have nothing to lose. Use coupon code smart20 to get 20% off. Click here to learn more!
photo courtesy: Wondermonkey2k
Article originally written November 2012, updated November 2013.