When it's time to link salary increases to performance ratings, the famous "peanut butter" syndrome comes to mind. You know, the one where you give managers a merit budget to allocate . . . and they give the same increase percentage to everyone in their department. It's like spreading peanut butter evenly, a favorite simile in the compensation industry.
Every year you hear, "this will never do," and every year it happens. It's especially common in small companies, but large companies have their pockets of peanut butter lovers, too.
It's worth putting some thought into how you can overcome this predictable predisposition -- if you consider it a problem. BTW, most practitioners do see this behavior as a problem, in that these managers are both rewarding negligent performers and chintzing out on the stars, therefore missing the goals of managing performance by a mile.
The solution needs to be customized to every company, of course, based on your culture and the values of your executive and manager groups. Here are a few perspectives to consider.
Emotional intelligence -- Experience shows that most companies need to grapple with the peanut butter challenge. After all, it's common to find individual managers who are uncomfortable judging their employees' performance and/or managers who believe that differentiation is bound to cause unmanageable bad feelings within the department. These are often the same managers who are paying employees more than range maximum. In other words, they are just not comfortable looking at how their actions affect their employees in anything but the simplest framework. Which leads to the next observation.
Value to department/company -- Some companies ask managers to consider not only employee performance; but also, the individual's long-term value to the company. One approach is to take into account whether the job is critical to the bottom line, to ongoing innovation or to strategy upgrades. Another approach is to project the individual's long term value to the company. Does the individual have the potential to deliver at a noteworthy level that will advance business operations both now and in the future? Experience shows that some managers are more comfortable counting these perspectives into the rating decisions, especially in smaller departments.
HR review -- HR review and sign off of proposed merit increases (before they are communicated to employees) is one way of working with managers. It gives you the chance to coach inexperienced or unwilling managers -- that is, if you put enough time on your end-of-year calendar for one-on-one meetings. Instead of treating each meeting as an administrative checkoff, interview each manager about her/his thinking and increase choices. Your influence will build more consistency into the decision making process, too.
Calibration meetings -- Some companies allocate time for the managers in each Division or function to meet with a facilitator. The managers present their increase proposals and the group works together to ensure that consistent guidelines for decision-making are shared across the group and that the stars are rewarded appropriately, given a shared budget.
Merit matrix -- The classic solution for the peanut butter quandary -- but its value is minimized when a manager gives everyone the same rating!
Remember, some companies have begun to put their differentiation efforts into incentive payments rather than salary increases. Incentive decisions can also be peanut buttered, as I'm sure you've noticed. Build discipline into your reward logic. Differentiation in incentives holds up best when different employees have different incentive goals. If everyone in the company or department is sharing the same performance goal(s), the logic of differentiation doesn't hold up quite as well -- unless you reserve higher increases for jobs that obviously make a direct hit on the bottom line.
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.
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