Economic Uncertainty and Balancing Your Compensation Budget

If you are working with a set budget, how do you balance competing demands? Are your budgets ready for what happens next?

Economic Uncertainty

In a volatile economy, only one thing is certain – that circumstances will change. Over the last several months, pundits and leaders have forecasted a mild recession in the US and Canada will arrive in Q2/Q3 2023. Inflation began to level off in early 2023 but continued consumer spending and the potential for rising oil and gas prices may drive higher inflation yet again.

As a leader of your organization, you are accountable for ensuring your budget has the flexibility and resilience required by a volatile and uncertain ecosystem. Plan for positive and negative contingencies and turn to modeling to analyze the budget impact of those possible scenarios.

Balancing Your Budget

Once you have established your business and people needs and translated those insights into your critical total rewards programs, you may need to sharpen your pencils to balance your budget.

Our research shows healthy budgets going into 2023, with approved budget increases above historical norms (typically ranging from 3.5% to 6%). Interestingly, many organizations are not spending their entire budgets on pay increases as part of their merit/annual cycles; we’ve observed that a more than usual number of organizations are reserving a portion of their budget for mid-year, off-cycle, or unexpected compensation needs.

Governance & Influence

We advocate for a diversity of perspectives and expertise; our experience shows this creates stronger plans.

Who will validate your assumptions and/or provide input into the various scenarios under consideration? Thoughtfully pull together your team.

Additionally, it’s important to ensure appropriate governance is in place for managing and balancing your budget. Give thought to what guidelines, policies, or controls are required to manage your budgets. Consider how you will gain buy-in and what change management is required to see the behaviour and results you want from your total rewards budget.

Like this article? These questions, “If you are working with a set budget, how do you balance competing demands?” and “Are your budgets ready for what happens next?” are just 2 of 10 critical questions you need to ask to help you with your 2023 compensation budget. To learn more about the other critical questions and how to address them, you can download our complete and complimentary white-paper here:

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