A Little Bit More Makes A Difference

You just received an above average performance rating from your boss, which naturally put a large smile on your face.  But which was subsequently wiped away when you heard that for your annual salary adjustment you'd 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. 

Now you know Joe, or his type.  He's the disengaged clock watcher whose most notable accomplishment has been keeping his chair warm.  Doesn't do enough to either get fired or stand out above the crowd.  However he's the standard, and so receives an "average" merit award.

One percent more, they say?  For delivering what your boss described as 110% effort for the entire performance period.  Not worth it, you say?  Some studies have suggested that, if the differential between performance levels isn't at least 2%, then you'd be better off with a general adjustment.

Why does this happen?

When assessing the dynamics of employees and their work ethic, it's generally agreed that performance that is rewarded is often performance that will be 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, and is certainly not pleased by the company action, does the company gain or lose when that desirable performance is not repeated in the next performance cycle? 

Perhaps your performance reward system isn't as effective as you would like.

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

A manager needs to manage

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 those who do the most for the organization?  Then whatever is left can be carved out among lesser performers.  That will protect your "stars" and walk-the-talk about pay-for-performance.

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's 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.

Unless you exercise greater discipline over rewards than most managers do.

I don't personally believe in reward for tenure, but I do advocate increasing levels of reward for higher levels of 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.

That won't make you a bad person, but perhaps a more effective manager.

Which is what you should be rated on.

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 clowder of cats.

Creative Commons image, Cathead by mightyhorse

Comments

[jacque.vilet@yahoo.com]

Agree that rating scales of 7 and even 5 are "splitting hairs". All you need to know are who the top and bottom performers are ---- all the rest are the middle.

[Jeff Haynes]

Excellent post Chuck. Differentiation (and segmentation) are certainly hot right now as organizations attempt to reward their critical skill sets and high performers. Here is an article that says you really need to increase pay by 7% to get the employee to recognize the connection between the higher performance and the increase. Good Stuff. Mitra, Gupta, and Jenkins 1997 http://onlinelibrary.wiley.com/doi/10.1002/(SICI)1099-1379(199703)18:2%3C117::AID-JOB790%3E3.0.CO;2-1/abstract

[Trevor Norcross]

Can I ask if you look at rewards holistically? With the existing limited merit budgets do you really think this is the best/only place to reward performance? Are you comfortable decreasing your successful performers pay in relative terms? Your successful employees are not just “clock watchers” wasting space as you seem to think. If their increases are not keeping up with labor inflation you are actually decreasing their pay in relative terms. What do you think of the cost of disengagement and/or attrition that this can lead to?
Might it be more appropriate to differentiate rewards to a greater degree when it comes to recognition, incentive, and equity (were appropriate)? We are likely to be living with reduced merit budgets for some time, differentiating merit increases is easier when you are working with 5% budgets but everything is relative.
Top and hyper performers are very important and there are many other ways to reward them for their results. I’d prefer to create programs that are less likely to result in a zero-sum game. Here’s a post I wrote recently. http://integrated-rewards.com/2014/02/rewarding-hyper-performers/