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Agree 100% Chuck. Reward key employees first. If anything left over reward average performers but you can afford to lose them if you have nothing left over.

Unfortunately the engrained mindset is to "give something to everyone". HR needs to differentiate like Marketing has learned to do.

Chuck - Without addressing it's other failures, you've made an excellent financial case for reinventing the performance management system that is based upon annual performance reviews. Back in the day when merit budgets approached 10% differentiation between performance categories to allow for meaningful recognition at the high end was a doable exercise. At a 3% or 4% level it's an impossible task, unless you are willing to to give 0% increases to a good portion of your average performers. Even then its a stretch.

I'm sure you know that meaningful recognition, while always important, has taken on a new criticality as the workforce demographic evolves. Compensation professional need to help their organizations figure it out, as the consequences can be severe.

Not all Average Joes are clock-watchers.
Every organization needs employees to conduct the every-day work, which isn't always (and mostly never) glamorous. And don't be fooled, 'Average Joe' is not stupid just because he's in the middle of the bell curve.

When the job market changes and labor is once again more scarce, we may find that Average Joe has a long memory.

The term "clock watcher" was used to make a visual point between higher and lower performers. Yes, "Joe Averages" are valuable, the mortar that holds the brick of an organization together. But in a business (vs. social setting) not everyone can be a winner when only limited reward funds are available. Tough choices have to be made. If you restrict rewards for your higher performers to make sure that the every day workers receive an "average" increase, you run a big risk. Because the high performers can easily be poached away; Joe Averages, not so much.

Then again, some companies try to make everyone happy. It's nice if you have that much money available.


I always enjoy reading your insightful articles. Of course you limited the scope of this article, but I think the other side of this problem is that managers do not do their job during performance appraisal. I maintain that often managers do the opposite; they take from their top performers to pay their bottom performers. I know this sounds counter intuitive but it is often true. They are given a fixed budget to distribute among their employees and often guidelines based on performance and range penetration. However, they are not willing to make the tough calls when it comes to performance grading and do not want to have the hard conversations that follow a lower performance rating. Therefore, on a 5 point scale, they know they should give employee Joe a 2 rating, but instead they say, well, he’s really a low 3, thus slightly over grading performance. Then, when it comes to assigning money, they have to give a bit more given the 3 rating. If the budget is fixed and you slightly overpay low performers it means you have less money to pay your top performers.

When budgets are low as they have been for years, we as compensation professionals need to get more creative and find alternative reward methods. For some that may be offering conferences or educational opportunities to keep them current in their field, while an incentive plan may be able to really differentiate top performers in other areas. But that would be a topic for another article.

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