When the economy falters, employers struggle to determine how to manage merit budgets. They must use the money they have carefully, and consider how to most effectively and efficiently reward for performance and communicate those plans to employees.
One of the first challenges, of course, is funding levels. At first, before full statistics are available after an economic drop, merit budgets might not show much change. During the economic downturn of 2008 and 2009, for example, many published surveys regarding merit budget planning included data collected, compiled and analyzed before concerns about inflation surfaced. As a result, most studies indicated planned merit budgets for 2009 would remain consistent with previous years’ budgets—averaging around the 3.5 percent mark.