What can you do to prepare for the new year? 

All signs are pointing to a “back to the basics” resetting of sorts when it comes to compensation practices. Companies are not paying premiums to new hires, nor are they increasing base pay with market adjustments to retain people. Merit increase budgets are also getting closer and closer to pre-pandemic levels each year.

Too often, the next year’s proposed merit budget is simply an adjustment from the prior year, with some influence from market data like Mercer’s Compensation Planning survey. There is not enough consideration given to how competitively you are currently paying and which jobs might need pay adjustments for realignment due to shifts in the market. Additionally, managers are often in the dark about how to explain the budget and allocations, putting them in a sticky spot with employees.

A fresh approach to the merit process

Here are some ways you can modernize your merit increases for the new year:

• Set budgets: Use data to determine the true budget percent necessary rather than just following last year’s numbers.
• Allocate wisely: Assign additional budget to the areas in need rather than assigning the same percentages for all departments.
• Be proactive: Proactively embed pay equity into the process rather than making reactive pay changes.
• Empower managers: Avoid relying on managers who don’t have enough information or the skills to explain the budget and allocations; prepare them to address employee questions confidently.

Future fit your organization

Artificial intelligence (or AI) is no longer the stuff of science fiction movies. Many organizations are leveraging AI in important ways that have increased the productivity of their employees. If you’re not embracing AI yet, it’s time to rip off the Band-Aid and get smart about AI now. Start the conversation with your leadership about how AI can safely integrate into your organization — what will be allowed and what will not? Identify the functions and processes in your organization that can benefit from AI and how to redeploy the resources that are saved by those efficiencies. Of course, you will also want to discuss and model what embracing AI will mean for your current job architecture and employees. Perhaps, as many organizations have discovered, there’s an opportunity for you to deploy some education and reskilling.

As many organizations move toward a skills-based job architecture in order to be more nimble in addressing needs within the company, take the time to ensure your job architecture reflects your organization. Does it reflect who you are today and enable what your company will be in the near-term future? Almost more importantly, examine whether or not your job architecture provides clarity on job pathing, advancement opportunities, and parallel tracks for both managers and employees. Finally, think about how your job architecture connects to your compensation strategy and drives pay.

Stay up to date on increasing legislative environments in Canada, the US, and globally. Focus on compliance and mitigating legal risks in your compensation practices by keeping your leadership team and HR team updated on evolving employment laws and regulations, including pay transparency. To do that, you will need to find a source of information that you can rely on for accurate, timely reporting. Finding a resource that’s efficient for you to leverage is even better.

Tell your story, transparently

Whether or not your organization has been communicating transparently about pay, your employees are already talking. Take back the narrative and make sure what’s being discussed at the water cooler is accurate and reflects the truth you aim to deliver. The journey to pay transparency requires strategic planning and a thoughtful approach in order to manage expectations, enhance the company’s culture, and support the compensation philosophy. Engage a law and communication expert to partner with you as you assess your situation, define your story, solidify foundations, implement the strategy, share your story, and measure the impact.

We’re here to help

Would you like to figure out how each of these focus areas fits into your plan for 2025? Give Mercer a call at 855-286-5302 or email us.