Who Deserves A Raise?

You just received an above average performance rating from your manager, which naturally put a big grin on your face.  Which was subsequently wiped away when you heard that for your annual salary adjustment you would receive what amounted to one percent (1%) more of a salary increase than "Joe Average" down the hall.  Tight budget this year, you're told. 

You know Joe, or his type.  He's the disengaged clock watcher whose most notable accomplishment is keeping his chair warm.  Doesn't do enough to either get fired or stand above the crowd.  However, his level of performance is considered the standard in a bell-shaped curve, and so receives an "average" award.

One percent more than the clock watcher.  For delivering what your boss described as your terrific effort for the entire performance period.  Was it worth it?  Some studies have suggested that, if the differential between performance levels isn't at least 2% (which sounds better than the actual dollars involved), then you'd be better off with a general adjustment.

How does this happen?

When assessing the dynamics of employees and their work ethic, it's generally agreed that performance rewarded is often performance that is repeated.  Like the Pavlov experiments of so long ago, we tend to repeat that activity which previously gave us pleasure or reward.  We want more of it.  However, if the performer doesn't feel rewarded, or is not pleased by the company's reaction to their performance, does the company gain or lose when that desirable performance is no longer repeated? 

Perhaps your performance reward system is not as effective as you would like.

So the question becomes, how much of a reward differential between the best and just OK is enough to keep your better performers motivated and feeling appreciated?  A good guess is that it's not 1%.

As a manager, can you balance the need to reward your better performers against the reality of tight budgets?  If you want to retain the high performers, you'd better find a way.  So then, what if you started by figuring out how much reward to provide?  Then whatever is left can be carved out among lesser performers.  That will protect your "stars."

Ahh, but that won't make you popular among the masses, will it?  And for many managers being liked is a key element of self-worth.  But how high up the priority list should popularity as a manager be marked?  Will you be assessed for popularity when your performance review is due?  I don't think so.  Likely it won't be in the top three of what senior leadership is expecting from you.

Your job description probably doesn't even list this characteristic, and it is certainly not a factor in job evaluation.  So perhaps there are other criteria for a successful manager that should receive more attention.

If you're concerned about differentials another consideration is the number of ratings you have in your performance appraisal system.  For example, with a seven scale system the need to provide percentages for at least five makes the division of reward opportunity a bit tight.  And if you try to maintain a two percentage point differential between performance levels, the numbers might become higher than what's deemed affordable.

I don't believe in reward for tenure, but I do believe in reward for outstanding job performance.  If the merit spend budget doesn't have enough monies to recognize and reward everybody, each in turn for their contribution, then I'd suggest that you take care of your better performers first.

You can afford to disappoint "Joe Average," but not "Bob the Superstar."

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats.

Creative Commons image courtesy of bfshadow

Comments

[jacque.vilet@yahoo.com]

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.

[John Bushfield]

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.

[Shawn Miller]

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.

[Chuck Csizmar]

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.

[Larry Mendelson]

Chuck,

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.