Page 231 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 5. Salary 217

Adjustment per 1% % Target Adjustment Maximum

Sales 99 5%
Income 101
Total 4% 6% (0.96) 5.8%
Table 5-36. Adjustment for sales of 99 percent and income of 101 percent of target

Adjustment per 1% % Target Adjustment Maximum
Sales 94 25% (Maximum exceeded)
Income 92 25% (Maximum exceeded)
Total 50% 6% (0.50) 3.0%
Table 5-37. Adjustment for sales of 94 percent and income of 92 percent of target

Adjusting Merit Increase Guidelines
Many companies work very hard to disassociate the size of their merit budget from the
assigned level of inflation. They focus instead on their own ability and willingness to pay as
well as the assumed compensation growth in other companies.
Except in those situations where government controls artificially restrict the average pay
increase for exempt employees, the merit budget, expressed either in dollars or percent of
salaries, while normally at least equal to the annual rate of inflation, provides decreasing
opportunity to reward meritorious performance as inflation increases. This is shown graphi-
cally in Figure 5-23, where the merit budget is a constant 3 percentage points above inflation.

90
80

70
60
Marit as
Percent of 50
Inflation
40
30

20
10
5% 10% 15% 20% 25%

Inflation
Figure 5-23. Merit pay vs. rate of inflation