The end of 2020 is quickly approaching, and hopefully, by now, you have at least started talking about your 2021 church budget!
One fixed cost budget line item is the salary expense.
Churches with the resources to hire employees strive to have engaged employees by providing a great place to work.
One of the key indicators of engaged employees is competitive compensation. To keep salaries competitive, you will need to determine the annual salary increase.
Budget For Pay Increases
Church leaders often ask how much to budget for salary increases. This can be a difficult decision if you are giving it your best guess.
However, a well thought out compensation strategy – coupled with good budgeting practices – allows for allocated dollars to reward employees for doing a good job.
Church Giving Is Down
The economy has taken a hit in 2020 with the pandemic resulting in lowering the budget for 2021 pay increases.
The pandemic shutdown has not been a financial friend to churches.
A survey given to protestant churches shows that 64% of churches reported a decline in giving since the pandemic. The declines in giving have been as slight as a 10% decrease, to as high as 75% decline for 9 percent of those churches surveyed.
Employers understand the importance of providing a competitive employee compensation package – and salary expenses are the biggest piece of the pie.
Hopefully, the following information can give you a conversation starting point as you begin this important decision-making process.
These 2021 average salary budget increase projections will help you plan!
2021 Average Salary Pay Increase Projections
It is projected that the Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 1.1 percent increase in 2021 – down .5 percent from 2020.
The Social Security cost-of-living adjustment (COLA) is based on the percentage increase in the Consumer Price Index.
Many organizations use COLA to determine pay increases, but there are other organizations predicting percentage pay increases for 2021.
According to these predictions, employees should see an average of 2.9% salary increase – with better-performing employees earning a slightly higher pay increase.
According to SHRM, employees can expect an average base salary increase of 2.9% in 2021 – down from 3.3% in 2020 – which is the first time salary budgets have declined in 12 years!
Manage Worker Performance
Salary increases should be incorporated into a structured performance management system 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 budgeting 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.
You want to objectively award pay increases through a structured performance management process.
This will require conducting the annual performance appraisals and reviewing employee goal completion.
This information will help you identify and reward your best performers by allocating a higher percentage of the raise dollars to them and a smaller 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 (.035 x $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 performance appraisal 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.
In the next column, you can see the percent increase awarded to each employee based on the predetermined criteria.
Some employees received as low as a 2% increase. 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.
If you would like an editable copy of this scoring sheet as well as access to all of our 141+ forms, documents, and job descriptions, click here!
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 wake-up call for the underperformers.
Employees who receive a less than average raise need to have a clear understanding as to why they received the score they got – and how that impacted their raise percentage.
Have A Conversation
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 ten years.
That employee conservatively costs the church $250,000 for a ten year period. If you factor in a percentage increase each year, it is significantly more! 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 organization’s mission.
Communicate Raise Decisions
Regardless of what is budgeted (or not budgeted) for raises, communicating with employees throughout the process is crucial to avoid 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 2021 raises?
If you would learn more about raise distribution, please check out our book:
This book provides the tools to make the performance evaluation process easier as well as insights that can help to create a positive appraisal experience. To access this book, click here.
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