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Hi Chuck ---- I've been involved in these situations and they're not fun. The toughest part is explaining to his/her co-workers why you met the counteroffer.

I must say that I have 'given up' on trying to allocate base pay for 'performance'. It is hard to do and becoming increasingly unpopular. Instead we have been suggesting that base pay adjustments be granted only for measured improvements in essential skill and competency over time. People then become 'more expensive' only when they have and apply more essential skill. For 'performance' I have come to believe variable pay that does not 'plow' into fixed pay cost works best. If you don't do a great job on variable pay metrics you 'get your moeny back' to try again next performance period. It is not a 'gift that keeps on giving'.

I know it is 'written' someplace that base pay changes need to be for differences in performance. However, it seems to me that variable pay works best. And it causes people to seek metrics that are more objective and related to business goals for some reason. I honestly believe that 'merit pay' is 'old fashioned' and dying at last. Or is that just wishful thinking?

Derek, precisely BECAUSE you are a total rewards person rather than a "compensation" guy, you get these tales of woe. Each example you cited was a classic case of bad total reward practice, in my humble opinion: (1) It only takes one broken promise to destroy trust forever; (2) Arbitrary pay range "limits" should be checkpoints rather than ceilings; (3) Punishing promotees is highly destructive. Those are all dumb policies, guaranteed to undercut the effectiveness of merit pay.

While I'm not quite as disillusioned as Jay, I certainly admit that good performance management is like good child-rearing: easy to mess up and difficult to do well. Those suffering from bad pay programs are frequently tempted to give up as they seek superior options. It takes a balance between cash and non-cash methods to succeed; and even both variable cash rewards and recognition plans can suffer from "merit" challenges.

I'm basically with Jay on this one. In my view, base pay is - or ought to be - a return on firm-specific and non-firm-specific Human Capital.

In an era of 2.x% merit budgets, attempts to performance differentiate merit pay are as laughable as they are pointless. In my experience, applying an arbitrary performance distribution schema to an organization in the primary labor market adds insult to injury and is a recipe for both management and employee demotivation and cynicism.

As long as your performance management system will remediate or remove poor performers, and subject of course to ability to pay, a much better approach is to make annual increases essentially across-the-board COLAs.

As long as you can identify and define meaningful and objective business goals (and yes, the devil is most definitely in the details), THAT is the place to reward performance; and as Jay correctly points out, by doing so you don't annuitize it.

I think Jay is on the right track. Compensation systems need to change with the times, and new schemes of reward, cash and otherwise, should be developed. Base pay adjustments should occur only when skills are added or enhanced, or when more/different responsibilities are assigned. Specific performance rewards should be handled through variable means, where employees could be recognized multiple times per year.

Also, Derek is being too kind when he suggests that the solution to the poor management practices outlined in his example are management training. I'd throw the bums out, starting with the CHRO, and bring in people with intelligence and competence.

I think we need more 'new ideas' in our profession and replacing 'merit base pay' would be a good start. Few organizations do a good job on performance management unfortunately. And at least we have the opportunity to 'get our money back' if we don't do a good performance job if only a 'lump sum' or 'variable pay award' is involved. Our profession (in my opinion) does not enjoy the attention it deserves and received a decade ago. And I believe that is because we have become so 'ho hum' that nearly anyone armed with some survey data can do the job as it is currently defined. We just need to 're-juice' our profession and that starts with people who watch this super blog.

Sounds great in theory but only for a few select firms. I think the same thing when people talk up unlimited vacation or work anywhere, even on a beach.

When you have the majority of your workforce as non-exempt employees - FLSA play a part in variable pay and OT. Depending on the industry very few non-exempt employees get to see or affect the big picture. Yes, reducing waste can be a target, but managers do prefer robots who don't question to people (thinking of the 7 trends).

Lisa - I'll have to brush up on my FLSA knowledge, but I don't recall seeing any barriers to offering variable/bonus pay to non-exempt employees. Insofar as this population seeing or affecting the 'big picture', all employees, regardless of FLSA status, should be respected for the contribution they make. Relegating this segment of the employee population to mushroom management under the assumption that they 'just won't get it' shows a level of ignorance and arrogance that prompted FLSA legislation in the first place.

Now, you'll have to excuse me; I need to apply some suntan lotion before I take a dip in the ocean.

How can a company compensate and remunerate its employee secretly that other employees don’t get to know? Please advise.

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