Scrappy Compensation: Fall Edition
Back in the Summer Edition we covered how to build a compensation structure. Check it out here if you missed it. Now that you have your framework, it’s time to build your compensation budget for next year’s planning cycle.
Why now? Many CFOs kick off annual budgeting in the Fall. Show up without a number in mind, and you won’t get a chance to shape the budget, you’ll just get told the number instead. Most of my clients run their comp cycle in Q1. If yours runs differently, work backward from your CFO’s budgeting calendar instead.
Let’s get started.
Building your compensation budget
Whether you are starting from scratch or optimizing last year’s budget, here’s your scrappy four-step build:
Set the components of your compensation budget.
Run benchmarking analysis.
Build your compensation budget.
Run a sensitivity analysis.
Step 1: Set the Components of your Budget
What types of adjustments to include: Merit only or promotions too? Do you want room for market adjustments to address pay equity? Will some or all employees be bonus-eligible? If you can name a type of compensation increase, you should consider budgeting for it.
Think beyond cash: Consider whether you'll include equity grants in this cycle (e.g. promo or refresh grants).
Keep it simple: If this is your first cycle, a merit and promotion budget is enough to start.
Step 2: Build Your Architecture
Collect your benchmarking data: Pull in market data on projected compensation increases. WorldatWork publishes this annually for the general industry and is usually first to report — they're projecting 3.6 % for 2027. Other sources publish numbers by industry sector; tech usually runs highest.
Check what's actually in the number: Make sure you're comparing apples to apples — is it merit increase only, or total planned spend across merit, market adjustment, general/COLA, promotional, and other adjustments? The WorldatWork number above is “all in.”
Step 3: Build Your Budget Model
Pull your data: Get a full employee download from your HRIS, including date of hire and salary.
Set eligibility: Decide who qualifies for an adjustment this cycle. Most of my clients require at least 6 months of tenure.
Tally total payroll: Sum the salaries of eligible employees.
Calculate your budget: Multiply total payroll by your salary budget % — e.g., a $10M payroll at 3.5% gives you a $350,000 compensation budget.
Step 4: Run a Sensitivity Analysis
Model a range, not a single number: CFOs want options. Run a low and high scenario alongside your target and include all three in your model.
Example: targeting 3.5%? Run a low option at 3.0% and a high at 4.0% to give your CFO a full "what-if" analysis.
Congrats! Now you have a Compensation Budget proposal that you can present to your CFO and to be in a better position to influence the budget outcome.
How to take it to the next level?
To give a true Total Compensation spend picture to your CFO, be sure to include bonus awards and annual equity grants in your budgeting process. You may not know the results of the performance metrics/goals but it is helpful to calculate the cost at target achievement.
Up Next
Get ready for the Winter Season
Now that you have a pay structure and a compensation budget your CFO will approve of, you will be ready for the next important step.
Be on the lookout for the Winter Edition in December where I will cover how to run a scrappy annual compensation planning cycle.
