Salary increases are more than numbers; they’re one of your most powerful tools for retaining top talent, closing pay gaps, and building employee trust. In today’s competitive labor market, every compensation decision signals your company’s values and priorities.
Some companies focus on managing costs and controlling pay growth. Others use compensation to drive performance and long-term growth. Both approaches have merit—the key is aligning your strategy with business goals, organizational maturity, and risk tolerance.
Cost-centric Pay Management
A cost-focused approach starts with a set budget, typically 2% to 3% of total payroll, guided by broad economic indicators like the Consumer Price Index (CPI). Increases are allocated evenly, often with modest differentiation for performance. The goal is consistency and financial control.
Strengths
- Budget predictability. Helps maintain control over financial planning, making it easier to justify decisions across business units
- Administrative simplicity. Requires less analysis, reducing the time and effort spent on the compensation strategy
- Risk management. Protects against overpaying in a volatile labor market
Considerations
- Limited responsiveness. Doesn’t account for shifts in pay equity or market changes
- Flat employee experience. Can weaken the link between pay and performance
- Retention risk. Failure to address pay equity and performance-related differences can drive high performers to competitors
Value-centric Pay Management
This approach begins with a strategic question: Where is compensation falling short, and where will investment have the most impact? Value-based models draw on internal data (e.g., compa-ratios, pay quartiles, performance history, equity gaps), to direct dollars where they matter most.
Strengths
- Data-driven allocation. Prioritizes compensation where it has the most impact
- Strategic retention. Tackles internal pay disparities and competitive challenges
- Employee credibility. Increases trust by making pay decisions based on performance and equity
Considerations
- More complex execution. Requires advanced compensation infrastructure and the ability to analyze data to ensure alignment with business strategy
- Consistency challenges. Needs careful communication to ensure clarity and buy-in
- Budget flexibility needed. May exceed standard budgets in certain cycles
Finding the Right Balance for Your Salary Strategy
Most organizations operate somewhere between these two models. A cost-conscious mindset provides necessary structure, but many businesses are layering value-based thinking to stay competitive and retain top talent. This hybrid approach balances fiscal discipline with deeper insight, helping organizations respond to labor market realities while supporting key talent.
Ready to Rethink Your Compensation Strategy?
- Are your compensation increases aligned with your talent goals or only your budget?
- Are high performers and underpaid employees receiving the adjustments they need?
- Is your organization positioned to attract and retain top performers?
At CBIZ, we help businesses of all sizes evaluate and modernize their compensation strategies to meet today’s workforce expectations. If you’re ready to shift toward a more value-centric compensation strategy, we’re here to help.
Ready to take your compensation strategy to the next level? Connect with our advisors to learn how we can help your organization attract, reward and retain top talent.
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