The workbook turns a merit matrix, a grid of performance rating by compa-ratio band, into a recommended increase for each employee and scales that increase for people hired during the review period. It then adds up the cost and tells you whether the plan lands inside a merit budget set as a percentage of eligible payroll. The input that decides whether that check means anything is the budget you type into Settings. WorldatWork defines total increase budgets as the sum of merit, general/COLA and other increase budgets, and Mercer describes its total as including promotions and cost-of-living adjustments. Size the matrix against a merit-only figure, because a total pool also pays for things the matrix never touches. The Salary increase budgets 2027 guide lists the published figures by publisher and says what each one measures, so this page does not repeat them.

The sample roster shows why the Budget sheet exists. The 25 cells of the sample matrix average 2.44%, yet the sample plan costs 2.96% of eligible payroll. A simple average counts every cell once, so the two lowest rating rows carry 40% of its weight, while only 3 of the 21 eligible sample employees hold those ratings. Every percentage, range and salary in the file is invented, and none of it is a benchmark.

What is in the workbook

Seven sheets, in the order you use them.

Compa-ratio in the file is base salary divided by the range midpoint. Position in range is salary minus the range minimum, divided by the width of the range. The band limits for each basis are stored separately on Matrix, so you can switch basis on Settings without retyping them.

Eligibility and proration are two separate rules. Eligibility starts with a hire-date cutoff, and anyone hired after it gets nothing. The file also takes out rows marked Exclude and rows rated NR (not rated), plus any row with missing or invalid input, and shows the reason in Roster column Q. Proration then scales the increase percentage for eligible people hired inside the review period, by whole months (Monthly), by days (Daily) or not at all (None). Monthly counts a hire as present for its start month only if the start day is on or before a day you set, and the sample uses the 15th.

Fill it in, then read the bridge

1. Settings: type the merit-only budget, the review period, the eligibility cutoff, the effective date and the proration rule your plan document already states.
2. Ranges: enter minimum, midpoint and maximum for each grade from your current structure.
3. Matrix: choose the band limits and the 25 percentages.
4. Roster: delete the 24 sample rows (select the blue cells in columns A to H and press Delete), then paste yours. Pasting skips the dropdown rules, so Checks counts what breaks them: a plan status other than Include or Exclude marks the row not eligible, and an override that is not a number from 0% to 100% is ignored. A repeated ID or a blank setting that the calculation uses turns a check red, and so does input below row 254.
5. Budget: read the status, then the bridge. The scale factor gives a first guess for how far every matrix cell must move to land on budget. Overrides and the cap do not scale with it, so read the status again after you apply it.
6. Checks: clear every red CHECK, then decide on each amber REVIEW.

The worked example below uses the sample data as shipped. All amounts are invented and in USD, and the 3.00% budget is a placeholder for your own number.

Read the bridge from the top. The matrix alone costs 290 more than the budget amount. Proration and the cap pull the plan under it, and the override pushes the other way. The status reads “Within tolerance” and all 25 checks pass.

Change one input and the answer moves. At a 2.50% budget the budget amount falls to 41,212.50, the status flips to “Over budget”, Checks reports one item to fix, and the scale factor drops to 0.844. With proration set to None, plan cost rises to 50,545, or 3.07% of eligible payroll. That is 1,090 above the budget amount and still “Within tolerance”, because the shipped tolerance is 0.10 percentage points.

Published numbers that feed the workbook

Two inputs come from outside the company. One is the merit budget, and the other is price and wage context for a sanity check on the result. Everything else comes from your HRIS, your range structure and your plan document.

Start with how each publisher separates merit from total, because the Settings cell needs the merit piece.

Three publishers also point to differentiated pay. WTW’s press release says employers are moving away from broad-based increases toward more precise, performance-driven pay strategies. The Conference Board says organizations will need to differentiate investments more deliberately. The Workspan Daily summary of Gallagher’s report describes a shift away from broad-based adjustments toward targeted, performance-driven investments. A matrix is one way to differentiate. Neither the WTW release nor the Conference Board release mentions a merit matrix.

Two US Bureau of Labor Statistics series give context for the plan average on the Budget sheet.

BLS says the Consumer Price Index measures the average change over time in the prices paid by urban consumers, and that the Employment Cost Index measures the change in the hourly labor cost to employers over time. Both are US series, and neither is a merit-only measure, so treat the comparison as a rough sanity check. A plan outside the US needs its own national price and labor cost series. For a US plan, compare your plan average with both before you sign off. A gap in either direction is a conversation to prepare for, so decide in advance how you will explain it to managers. The compensation and benefits trends page carries the wider BLS cost picture for 2027.

Range midpoints, rating distributions, hire dates and the plan’s own rules sit in your files, and the workbook is only as good as they are.

Where the matrix can mislead you

A compa-ratio is only as good as the midpoint under it. If a grade’s midpoint is two years old, every employee in that grade is measured against the wrong yardstick, and the matrix hands the smallest increases to people it wrongly reads as paid high. Refresh the Ranges sheet before you tune any percentage.

Do not read cost off the grid. Averaging the 25 cells to estimate cost is like estimating a dinner bill by averaging the menu. The Budget sheet adds up what each person would receive, so a cell with more people and more payroll counts for more, and that total is the only figure to compare with the budget.

A matrix converts ratings into money without questioning them. In the sample, the 7 employees rated 4 account for 41.5% of plan cost. If one manager’s team rates higher than the rest, the by-rating table is where that shows up as cost. Calibrate ratings before the matrix runs.

Choose the basis on how your ranges are built. Where grades have similar widths, compa-ratio is the simpler measure, since the same ratio then sits at a similar point in each range. Where widths differ a lot, position in range is safer, because a ratio of 1.10 is the top of a range that ends there and well short of the top of one that runs to 1.40. With the sample limits, position in range costs 49,424 against 48,832 on compa-ratio on the same grid, because the limits cut the same people into different bands.

Settle proration before you load data. Monthly proration is easier to explain than Daily. In the sample, Daily turns one hire’s 3.5% cell into 2.45% and Monthly turns it into 2.33%, so a manager gets to defend the decimals either way. Either method lowers the base that every later increase builds on, so a hire who missed a few months of the review period carries that gap into later cycles unless someone corrects it.

Set the budget tolerance to 0.00% if finance treats the merit budget as a ceiling. The sample shows the trap, since the 1,090 overspend with proration off still reads “Within tolerance”.

The cap setting is a policy choice that the file turns into arithmetic. With the cap on, the increase stops at the range maximum and the capped money is simply not paid, which removes 160 in the sample. If your plan pays the excess as a lump sum, model that cost outside this file.

What we could not confirm

• None of the five public budget documents we read for this page mentions a merit matrix or gives typical cell values, so every percentage in the file is a placeholder. The five are the WorldatWork toplines, the Mercer and WTW releases, the Conference Board release and the Workspan Daily article on Gallagher.
• The same five public documents say nothing about how employers prorate for hire dates or where they set eligibility cutoffs.
• Both findings cover public pages only. The Conference Board page says its publication is only available to members, and the WorldatWork PDF is a topline table that points readers to a full Executive Report. The full reports may say more.
• We read Gallagher’s report only through the Workspan Daily summary and did not open Gallagher’s own page.
• WorldatWork’s Fall Update has no published results date. Mercer’s QuickPulse page names only the month, October 2026, for its next installment. Check the budget guide again once either set of results appears.
• The September 2026 Employment Cost Index is due on October 30, 2026, after this page’s review date.
• We did not check matrix design against pay transparency or equal pay rules in any country. For EU member states, the EU pay transparency 2027 country tracker shows where national rules stand.

What to do in your 2027 plan

Start with the budget definition, because every later number depends on it. Ask finance whether the pool is merit only or total, and which payroll it is measured on. If you only have a total, take out the promotion and retention money you have already planned, as the Conference Board’s description of the gap suggests. Take out any general or COLA increase too, because WorldatWork counts it in its total.

Then write down the three rules the file asks for: the eligibility cutoff, the proration method and the cap. Decide them before you see anyone’s name, because a rule chosen after the numbers are loaded tends to be the rule that fits the numbers.

Load the roster and work through Checks until nothing is red. Use the bridge as the agenda for the review meeting, since it shows which decision moved the cost: the grid, an override, proration or the cap. Release percentages to managers only after the status is settled. Carry the plan cost into the HR budget template as a percentage of eligible payroll (Budget sheet, 2.96% in the sample), so the merit line there matches the file.

Next step: open Salary increase budgets 2027, pick the merit-only figure for your market, enter it on the Settings sheet and read the status on the Budget sheet.

Written and reviewed by the HR Riant Editorial Team. General information, not legal advice.