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Handling Wage Increases Effectively

Managing Talent

Tips for managing pay raises even when current structure is less than ideal

Published on: May 3, 2013

I had a question from last week's blog, Pay Raise, Please: "If waiting for an employee to ask for money is not the way to manage wages, what's the best practice?"

If it's been over two years since this employee's compensation has been reviewed, it's time. My suggestion would be to make it an annual event; chose a month and mark the calendar. Ideally, review salaries during the same time as one of your bi-annual performance reviews.

In a picture perfect world, pay would be based upon three factors: the position the employee is in, their performance and external market compensation data.

Let me get fancy for a few lines and if you hang with me, I will simplify.

In the corporate world most jobs are assigned to a pay grade, a range for the position with a minimum, mid and max salary.  For example, when hiring someone new into a role they might come in at the minimum; after they have gained experienced and performed well they would start to move up within that grade. It's also a company's way to be fairer across the board, setting standards.

Pay grades are often adjusted annually or bi-annually for inflation.

For most farms a fully established performance review process and pay grades might not be in the picture today. But we can still accomplish an annual review with a scaled back version.

Start by holding a year-end conversation with each employee. Review three items, what they did well, what they could improve upon and any additional job expectations and/or training you would like them to focus on for the upcoming year.

To have a more meaningful conversation, have the employee give feedback on those areas ahead of time as well. At the end of the meeting have the discussion about the employee's current and future wages. If performance is average and they are in the same role you may want to give them a smaller cost-of-living increase of around 1.5- 2%. If they have taken on new roles/responsibilities or increased performance greatly, you may want to consider something closer to a 3 to 5% increase.

According to SHRM (Society for Human Resource Management), the average pay increase across all industries for 2012 was 2.7%. Lower performers were around 1.3% and higher performers were around 4.7%.

To ensure you are competitive, see if you can dig around to see what other nearby companies are compensating for similar jobs. You could hire a company to do this for you, but for most farms that is not necessary. You could also search the internet for job openings in your areas to see what they are listing for. You do not want or need to be the highest, but certainly do not want to be the lowest and run the risk of losing high performers.