When thinking of the biggest lie in the world of Human Resource, what comes to mind at the end of the year when most companies consider the annual review and the pay increase that’s tied to the yearly performance ritual? If “we believe in pay for performance” comes to mind, Kris Dunn’s article “The Tyranny of the merit matrix” will help you remove that lie as a human resource professional.
As much as human resource professionals would love to see the top performer get a ten percent raise just for their astonishing efforts, it is very unlikely to happen. Based on the result that cost pressure is everywhere you turn. Due to cost pressure, companies must budget for annual salary increases, and then live by the budget to make sure thin margins stay intact. Finally, when the merit matrix is added, it has a strange way of making no one happy.
The merit matrix is designed to take the budgeted number for salary increases companywide and create a grid telling managers what raise is recommended for every employee based on performance and relative position in that worker’s salary band. The principles resulting from the merit matrix occurs everywhere. Due to the necessity of average performers to make the business formula work, managers would rather give the top performer a flat raise rather than telling the average performers they are getting less or nothing. There are a couple ways to break out of the merit matrix process.
It’s difficult to get an exception made to the merit matrix at the end of the year. One way to break out of this process is to realize there are different rules for top performers. When recognizing your top performers don’t wait until the end of year, take care of it before the annual review/merit process starts. If your objective is to give a raise to the top performers the best time to do it is in May rather than December or January. You can do this by raising retention of the performers as a true risk and make a skip-level recommendation on an equity increase to reduce the odds they’ll leave. If you question if the funds are there, they are. Utilize the unfilled positions that take longer to fill than expected. Making that request is your best way to take care of your top performers before the merit matrix process begins.
General Electric CEO Jack Welch was right about forced ranking, even though he went a little too far with his theory. His theory of identifying the lowest performers on the team and treating them differently is technically correct, although his concept of forced ranking goes wrong when you start firing the average employees. The theory of forced ranking works great for merit increase. This is when it’s combined with analytical work regarding when employees are most likely to leave the company. If you study voluntary turnover, you will notice average employees are more likely to leave you between the one to three year marks of tenure. This happens because in the first year, employees still have the new afterglow with the company that’s full of promise. After employees reach the three year mark, they’re likely to churn based on real and perceived benefits of tenure.
Your company may believe in pay for performance, but it’s difficult to get a true separation with the merit budget the company has. This is the disadvantage to the merit matrix; you have limited resources with many mouths to feed. If you mix Welch’s philosophy and turnover trends, your road to a better balance of pay for performance that rewards top performers is to rapidly decelerate increases for average performers with more than three years of tenure. When you take care of your top performers early, and be more strategic about how you distribute merit increases for the rest, you’re more likely to have a better shot at pay for performance in today’s corporate world.
As an employee that dedicates most of my time to my job, whether it’s working twelve hour days, seven days a week or making sure I give 110% effort to my job each and every day, I feel I often go unnoticed or underappreciated at my current job. When good employees feel they are underappreciated at their job, their first instinct is to begin looking for a new company to devote their hard work to. Most top performers realize they can go to another company and ultimately end up with a better raise and more than likely feel more appreciated for their hard work. At a business standpoint, I realize it is very unlikely that you can hand out ten percent raises at the end of the year to each and every employee you feel is going above and beyond for your company. Although as a human resource professional, you should be able to distinguish your top performers from your average performers in your company. Even though you will always need average performers to complete the business formula, I feel human resource professionals should always keep their top performers in mind and give them at least some recognition to make them know they are appreciated for their outstanding work for the company. For example, I had worked for a company that had an outstanding supervisor who was a great role model for the other supervisors in the company as well for the associates under him. During his three years there, his hard work always seemed to go unnoticed, whether it was working longer hours to help with departments or coming up with great ideas managers and engineers never even thought of. This supervisor was never granted any recognition for his outstanding efforts and was only given the flat raises at the end of the year that was also granted to the poor and average performers. He eventually devoted his attention to another company that offered him more pay than what he was getting at his current company. After he left, I felt it had put a poor image on management, since the other supervisors did not step up to follow his outstanding role. Also, the employees, who worked under him, felt a little discouraged as their current supervisor wasn’t as devoted to their employees and company like the previous one. There could be a possibility, if the company devoted a little more time earlier in the year to recognize and appreciate their top performers, as well as the average, that supervisor still may be employed with in the company.