Nothing distresses a gardening enthusiast more than a sudden frost. And 2008’s stock market and housing collapse that plunged the nation into recession was about as sudden a frost as they come for even the most green-thumbed of employers.

Although the economy has yet to fully thaw, so to speak, new research from Mercer shows that employers are beginning to assess the impact that two years of salary freezes and limited pay increases have had on their base salary programs.

Mercer’s 2010 Dollars and Sense Survey, which includes responses from some 550 employers in the United States and Canada, examines best practices for designing and administering pay programs that ensure competitive base salaries, manage salary increases and control fixed costs.

According to Anna Orgera, a principal with Mercer’s Human Capital consulting business, employers are carefully flicking the frost from their company money tree, and just as carefully are pruning the leaves — keeping an eye toward sustainability, affordability and competitiveness.

"Base salary is often the largest component of an employee’s rewards and a significant organizational expense," Orgera says. "While employees want to know that it’s fair and competitive, employers want to ensure that budgets allocated for base salaries are affordable, sustainable and supportive of business objectives."

The most common salary program design is the traditional salary structure — one that includes a midpoint of 50% of pay, a minimum of 80% of midpoint and a maximum of 120% of midpoint — used by almost two-thirds (61%) of organizations.

More than half (56%) of employers have two or more salary programs with employee group/job level as the biggest differentiator between programs, followed by job family or function and geographic differentials.

To evaluate a job position and determine its salary grade/level/band, 37% of organizations apply some form of job evaluation such as job levelling/classification, point factor or whole-job ranking.

Leading factors for determining the approach are objectivity and fairness (91%), fit with business model and organization structure (86%), simplicity in administration (63%) and ease of communication (62%).

Moreover, Mercer’s research shows that the most common reward elements linked to salary grade/level/band are annual incentive target and participation, used by 60% and 49% of organizations, respectively.

I, for one, had no idea that salary-setting was such a scientific enterprise. Interesting.

Obviously, I don’t expect you to start blabbing your company’s strategy for setting base salaries and determining raises. So, here’s my ask for the day: Have you started to re-evaluate your pay strategy in preparation for a thaw in the economy? Or, are your salaries/rewards still firmly frozen?

Share your stories in the comments.

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