Base pay is a fixed regular payment made to an employee in exchange for performance of the duties and responsibilities of their role. When an employee receives an increase to their base pay, it is considered a pay increase. There are various reasons and methods for determining an increase, but the common factor is that the increase changes the level of ongoing base pay.
A cost of living increase
• This is an increase offered to employees, regardless of performance, with the intention of increasing base pay for each role on the salary scale by a set percentage in order to account for increases in the cost of living. When this is offered regularly, employees can begin to see it as an entitlement.
• If Cost of living increases are provided, they are generally done on an annual basis, and are given to all employees at a rate recommended by the Executive Director and approved by the Board of Directors and is contingent on the overall financial stability of the agency.
• Many small organizations are moving away from the standard cost of living increase and performing market adjustments instead.
A market adjustment following a compensation review against pre-established criteria
• Market adjustments are typically made following the receipt of market survey data. This data is usually received and evaluated towards the end of either your fiscal or calendar year. Organizations will evaluate their salaries against market data and, if required, adjust base salaries for roles that are below the market. Many organizations have predetermined the percent of market they want to be paying at – i.e. a decision to pay at the median, or 50th percentile.
• If a position in the organization is significantly overpaid compared to market or, some companies will notify employees and not provide an increase to the employee. In this situation, the employee is considered to be “red circled” (unable to qualify for any salary increases until their salary comes in line with market)