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Published: 4 month

How to raise your salary?

Wage increases of 10% on average are expected in Hungary, but this in itself means nothing. Corporate decisions on wages are much more complex. What are the phases? How much is inflation a factor? How should we differentiate as managers? Fanni Kadocsa, Managing Partner at Hybridge Consulting, answers the key questions. Ákos Jagudits, HR Manager at Astotec Automotive Hungary.

Fizetés béremelés Kadocsa Fanni-

- What are the stages in the decision on a pay rise?

Fanni Kadocsa: The first step is the market analysis. This ensures that salaries are competitive. If the market signal is that the pay bands are reaching the market median, then there is no obligation to raise salaries unless the goal is a higher market position. The next step is to model the financial impact of the planned wage increase. The cover for the pay increase must be on the revenue side. Sometimes the coverage is not sufficient for the planned salary increase. This is the basis for finalising the financial plan, approving the budget for the wage increase and establishing the new salary scales. The next step is the performance appraisal, which takes place at individual, group and company level. The individual performance appraisal is used as a basis for differentiating salary increases, the rules for which must be laid down in advance. The approved budget for the salary increase is then spent according to the differentiation rules.

- When and under what circumstances will the decision be taken?

The timing varies from company to company. There are some companies that link the financial year to the calendar year, but there are many companies where the first day of the financial year is delayed by 3 or 6 months. This is mainly related to the seasonality of sales in the sector and also to the timing of performance-related bonuses.

- How much bargaining power does the employee have?

If the employee has been involved in high potential or special projects and has overperformed, then we will look at where their salary is, where they are within the pay range. It is very important not to go outside the pay band. If he is performing better than the others, if he is in a talent programme, in a talent programme, in a development plan, you can consider that he earns more than the others. Here, as everywhere else in compensation, good communication is key. If expectations are managed well, and decisions are put in context, the employee is more likely to accept the decision. Importantly, these are always data-driven and not discretionary, individualised decisions. Pay bands represent the principle of equal pay for equal work. And individual bargains go against this, which would set a precedent and system that is unreliable. So we recommend that this be avoided.


Kadocsa Fanni

- Can a leader differentiate within his team?

A leader can not only differentiate, but must differentiate. The basic mistake is usually that differentiation is not based on real performance. The basic rule is that better performers should receive greater merit recognition, which means higher bonus pay. The reason I mention bonus and not salary is that if someone is a high performer and is already at the top of the pay band, this does not necessarily mean a pay rise. After all, if you go outside the pay band, you have overridden our own rule. In other words, we differentiate not necessarily in terms of salary increase, but in terms of bonus (pay for performance) and other non-monetary recognition. This could be, for example, inclusion in a talent programme.

Bonus differentiation also requires a pre-established bonus target, a reference point. The target bonus should also be known to the employee so that he or she knows whether he or she is actually getting less or more. Typical mistake: not giving as much bonus as last year. The criterion is not how much you received last year, but how you performed in a given financial year.

In terms of salaries, the important thing is to always put high performers in the third or fourth quartile in terms of salary. But once they're here, I don't increase their salary any further even if they've
performed well. There are cases, for example in support areas, where it is typical that someone is at the top of the pay band and has performed well, but the overall company result does not allow them to get a bonus, they will still get all the pay increases on an exception basis. The rationale behind this is that the cost of losing talent is greater than the cost of hiring it.

Not all jobs are of equal value, hot skill jobs or jobs that are in high demand in the market are always positioned higher so that we can hire and retain the workforce. Pay equity should never be forgotten despite all the differentiation rules.

- What base wage increases are expected this year?

According to European Commission data, nominal wage increases are expected to average around 5% in the EU's central and eastern European member states and real wage increases are expected in all member states, averaging 1.6% overall. In Hungary, nominal wage increases are expected to be around 10% on average, which corresponds to a real wage increase of around 4.8%. Last year, real wages in Hungary fell by 1.5% on average. At the industry level, higher wage increases are expected in the technology sector and in technology jobs. Within this, higher increases are expected for shortage occupations, which are on the rise. Minimum wages are rising faster than the European average, with a 15% increase in Hungary. And the guaranteed minimum wage will increase by 10% in 2024. This could lead to wage displacement in the lower wage bands, which could justify higher than average nominal wage increases in the lower wage bands.

- How much does inflation matter in wage increase decisions?

Wage increases depend largely on the following factors: the business environment - i.e. the financial performance of the company, the available budget, macroeconomic indicators such as inflation, and market trends.

In addition to these factors, it is worth considering whether there are challenges to retaining and recruiting staff. If so, some groups of workers may need to be
spent more on. Inflation, as can be seen from the list above, is only one factor. Importantly, inflation does not equal the wage growth trend in a given sector or market. However, if inflation is high - for example, double digits - then it is worth considering so-called inflation-tracking wage increases, which should start with low-paid jobs in particular, as they are the ones who feel the money pinch the most. Many are also introducing half-yearly pay reviews because of high inflation, i.e. they don't look at wages more than once.

- If not a basic wage increase, what options do employers have?

The key is communicating the value of the total compensation package, total deal in the jargon. This includes benefits other than salary and bonus. There are a number of tax-advantaged or tax-free benefits that are worth considering. Examples of such cost-effective benefits include wellbeing programmes such as online yoga classes or even fruit in the office every Friday, or flexible working options. Employee recognition schemes are not necessarily expensive either, because it is not about how much you give, but about the public recognition of the employee. They are also good for the employee brand. These opportunities are particularly important for employers who do not have the financial resources to offer competitive salary increases.

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