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Dear Workforce How Long Should Someone Need To Be Employed Before Being Eligible For A Prorated Or Full Merit Increase

Dear Giving Merit:

It’s common to have newly hired workers wait up to eighteen months toreceive their first merit increase, for companies that provide for meritincreases tied to annual performance reviews. The reason: a merit increase isintended to recognize the individual’s performance during the requisiteperformance period. In your case, this means employees receive increases inrecognition of their efforts during the time period from January 1 throughDecember 31.

New hires would not typically be eligible for a merit increase until theyhave been employed for a certain period of time. In addition, they must also becontributing to the organization in a meaningful way, which is measured throughparticipation in the performance cycle.

Here’s how it works more specifically. Company pay policies provide thatnew hires must be participants in the current performance cycle for at leastthree months before they are eligible for a prorated merit increase, and areeligible for full merit if they are employed for six to nine months of thecycle. Thus, assuming a calendar-year performance period, an employee hiredOctober 25, 2002 would not be eligible for a merit increase until April 1, 2004.At that time, the person likely would receive 14/12ths of the standard increaseamount (note that the prorated merit increase does not include the time periodfrom January 1, 2004, to April 1, 2004).

One way to mitigate some of the morale problems associated with this practiceis to adjust your salary ranges for new hires in the final quarter of theperformance cycle. Their salaries would be higher, and they would be told that,along with the fact that they must wait 15 to18 months for the next raise.

There are a number of alternatives. Some companies prorate right to the day,and allow anyone hired before the last month of the performance cycle to receivean increase on the next common increase date. Another option is to provide afixed, average increase to all new employees hired within the last three monthsof the year. Some companies prorate by quarter (100 percent, 75 percent, 50percent, 25 percent). Some more innovative companies are beginning to move awayfrom annual raises and performance reviews altogether. Indeed, they stillmeasure performance on whatever planning cycle is appropriate to theorganization. However, high performers tend to receive more frequent increases,poor performers less frequent or no increases, and solidly performing employeesreceive periodic market adjustments to reflect the value of their jobsexternally. This may mean abandoning a common increase date as the focus movestowards rewarding high performance and keeping other employees competitive.

Finally, unless you have a system where performance discussions are purposelyseparated from merit, you may want to consider changing the effective date ofmerit increases to Feburary 15 or March 1 to make it as close as possible to theclose of the performance cycle. The objective here is to tie personalperformance more closely to increases granted.

SOURCE: Robert Fulton, managing director, The Pathfinder’s Group,Inc., anaffiliate of The Chatfield Group, Chicago, Illinois, Sept. 9, 2002.

LEARN MORE: Read Can Pay for Performance ReallyWork?

The information contained in this article is intended to provide usefulinformation on the topic covered, but should not be construed as legal advice ora legal opinion. Also remember that state laws may differ from the federal law.

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