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Check whether your merit guidelines actually fit the budget before you publish them to managers. Every number on this page is calculated in your browser and never leaves your device.
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How a merit budget gets spread is a decision you defend again every cycle, and last year's split is the first thing you will want. The HRAnalyst™ Workbook is a printable tracker for every calculator on this site, with the formula, the recommended cadence and space for four quarters. Join the list and we will send it, along with new calculators and workforce analytics as they publish.
If the guidelines do not fit and you are not sure which lever to move, that is a compensation structure conversation.
There are only a handful of levers. The guideline percentages, the shape of the rating distribution, the budget itself, or who counts as eligible. Which one you move is a question about what your pay structure is for, and it is a much better question to answer now than in the last week of the cycle.
See Pay Structure DesignA merit budget allocated well against pay positions that are wrong just distributes the error more evenly, and HRAnalyst does not supply the market data those positions are measured against. What It Pays™ has government verified wage data by role and state for checking a single job, and an employer account for organizations that need to check the whole population rather than one job at a time.
Look up a role at What It Pays™Formula used
Budget dollars = eligible payroll × merit budget percent
Allocated per rating = eligible payroll × population percent × guideline increase percent
Total allocated = sum of allocated per rating across all five rows
Variance = budget dollars - total allocated
Effective increase percent = total allocated / eligible payroll × 100
Percentages are converted to decimals before the arithmetic runs, so a 25 percent population share enters the formula as 0.25 and a 4 percent guideline enters as 0.04. A positive variance means the guidelines cost less than the budget. A negative variance means they cost more.
Notice that the population percent appears in the allocation formula. That is the whole point. The effective increase is a population weighted figure, not the average of the guideline column, and the two are almost never the same number.
The effective increase percent is what your guidelines actually cost, and it is rarely the same as the budget you set. If it comes in above budget, the guidelines are unfundable as written and managers will discover that one by one during the cycle.
The average of your guideline percentages is not your effective increase. What matters is how many people sit in each rating, so a generous top band costs little if almost nobody is in it, and a modest middle band costs a great deal because most people are.
This is why the calculator asks for the population shares and not just the guidelines. Move people between ratings without touching a single guideline percentage and the cost changes. Your results panel shows you both numbers side by side so you can see the size of the difference in your own case.
Once a manager has seen a guideline, they have already told someone about it. Pulling it back costs credibility you do not get to spend twice. Run the total first, then publish.
Adding the five guideline percentages and dividing by five treats every rating as if it held the same number of people. It almost never does. The middle band usually holds most of the population, so it drives most of the cost, and the unweighted average will quietly understate or overstate the bill depending on which way your distribution leans.
Promotions, market adjustments and retention increases granted mid year usually come out of the same money. If they are not subtracted from the budget before you run this, the variance you see here is better than the one you will actually have.
The calculators and content on HRAnalyst are provided for informational purposes only and do not constitute legal, tax, or accounting advice. Compensation and compliance obligations vary by jurisdiction. Consult qualified counsel before acting on any result.
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