With just four weeks left in 2022, most CEOs and business owners have already locked in the 2023 budget. Assuming that’s true for you—or it will be soon—December is go-time for announcing employee raises. You may even have your one-on-one meetings already set with each team member.

But this year’s announcements seem to be a bit more complex than in years past. The great resignation and sky-high inflation make even the standard COLA increase a stretch. 

HELPFUL HINT: Grab your FREE download of my Employee Review Calculator below to help you create a review that your employees will appreciate and understand.

Like most business decisions, I find a standard, thoughtful process to be immeasurably helpful. Especially when it comes to salary decisions, as most employees take the review and pay raise decisions to heart. So the more thoughtful your decision is, the easier it will be to explain it to your employees. They may not be happy with the result, but they will understand how you got there! 

A THREE-POINT PROCESS

My process has been shaped over the years to include three components: 

• Job Performance
• Market Average
• COLA

Let’s look at each one and how these work together to produce the salary decision.

#1 JOB PERFORMANCE

How well is the employee performing? That’s the question to answer as you assess that employee’s contribution to the team and the company goals over the past year. You have to track what they are really good at as well as what they are struggling with. No employee does everything well, and there’s always room for growth. As the CEO and owner, you need to cultivate employee potential. The annual review is just one way to invest in that person and set plans for the year ahead.

I’ve developed an entire system for assessing my employees’ performance. First, I connect it to the Officeheads core values. I document if that employee has upheld each core value, giving 1 for yes, .5 for sometimes, and 0 for no. Second, I look at how they’ve performed their role, leaning into the metric proposed in my favorite business book, Traction: Get a Grip on Your Business by Gino Wickman. I assess each employee’s work by asking Wickman’s three questions: Do they get the job? Do they want the job? Do they have the capacity for the job? I assign points for each of these questions, and then add it to the core value points for an overall performance rating. 

Since I’ve already assigned salary increases for the performance ratings, the merit portion of the salary increase is easily decided by this calculation.

#2 MARKET AVERAGE

What’s the average salary for this role? That’s the question answered in this step of the process. Considering today’s hot job market, this piece of the salary puzzle is extra important this year. It’s important to keep track of the pay average for the role because it will show if your compensation is in line with the market. By keeping it competitive, you honor your employees and recognize the value they bring to your company.

I start by popping out to Salary.com to search for the average pay in my city for each role on my team—and that’s regardless of where that employee actually lives. You may be surprised by your findings, as I was when I discovered a few years ago that I was underpaying one role in particular as compared to market average. That year, I made the proper adjustment to affirm to my team that I valued them and wanted them to stay.

#3 COLA

What’s the COLA? This is the easiest question to answer! The annual Cost-of-Living Adjustment is determined by the Social Security office each year, so you just need to look it up online. This year’s adjustment is a whopping 8.7%, considering most employee increases average 3% to 4%. Many companies are feeling the pinch here, with CEOs and business owners making tough decisions when it comes to employee pay and retention.

PUTTING IT ALL TOGETHER

If pay increases and performance reviews are keeping you up at night, you need a process. These three pieces have helped me solve the employee salary puzzle each year. As a self-avowed spreadsheet geek, I’ve even created my own calculation widget! I’m happy to share so you can put this to work for your team. 

Want to adopt my process as your own? Grab a FREE download of our Employee Review Calculator. Just fill out the form below.

As always, if you are ready to get on track for an outstanding 2023, reach out to us today. Our team can help your team and company reach your financial goals in the year ahead.