Naked Budgeting - Padding the Comp Budget vs. Turnover Factors....

Hey!! All you HR pros out there in America... In on the growth phase of your business?  Super...  Snuggled up to the friendly Finance and Accounting pros in your organization?  Great... Here's a little snigglet to make sure you have enough duckets to fund all the hyped pay-for-performance initiatives you are cooking up in the test tube you call a laptop...

The budget model?  It matters. 

Duhhhhh, you say.  You get the budget.  Hold on there, Donald Trump, because I'm not talking about the fact you have all the salaries loaded into the budget.  I'm talking about the FORMULAS the Finance quants are using underneath the names and the numbers. 

The big one you need to be aware of is this - Does your comp budget model have a Turnover Factor, or do the funds vacated by positions that are vacant remain in the comp budget, available for proper use?

It matters a lot.  A turnover factor projects the amount of turnover a company/division/department is going to have during the budget year, then automatically reduces payroll by the appropriate amount.  The logic used when putting a turnover factor in the budget is that those funds should be unavailable in the budget since there won't actually be PEOPLE in those jobs (for that time period).

Details, details....

The effect of the Turnover Factor?  Your compensation budget gets a lot tighter, and you'll have a lot more variances to explain month to month.  And that kind of stinks... But it's actually the right way to do it from a business perspective...

Additionally, the Turnover Factor puts a LOT of pressure on the pay-for-performance system.  Have a lot of managers who have a hard time telling low-performing employees they're not doing that hot with no raise or a limited increase?  A turnover factor means you are dealing with a truly zero-sum game.  For every dollar your manager gives to a low performer, he won't be able to give that dollar to the star. 

Especially if you have a Turnover Factor - because there's no built in slush fund.  Budget 4% for increases?  With a Turnover Factor in play, that's exactly what you have - with your active employees.  Without the TF in play, you've got some wiggle room from a budget perspective.

So give your Finance pro a pound today and learn more.  As your company grows, the Turnover Factor is a way of life, but maybe you can delay it a little bit longer.  Remember - you're doing it for the PEOPLE - and who could blame you for that?

Comments

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