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i Dear Workforce-i Change Merit Increases So Employees Aren’t Cheated

The first stage is to unwind the current plan. The second stage involves educating employees to the new date and other plan changes.
November 14, 2002
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Changing a merit adjustment from an anniversary-date schedule to acommon-date schedule takes some time and planning. Many organizations make themistake of assuming that they can just "flip the switch" and it will happenautomatically.

Companies need to approach this in two stages. The first stage is to unwindthe current plan. This can be done one of two ways. You could pick the commondate, and then give a prorated increase for the total number of months since thelast increase. Thus, if someone did not receive an increase for 15 months, theywould be entitled to a 15/12ths payment on the new increase date. If they wereentitled to a 4 percent increase, the 15/12ths calculation would make it a 5percent increase.

If the distribution of dates is such that the extra time would cause an undueburden on employees, then you could give the regular merit increase on theanniversary date and then a smaller merit on the new common date to bringeveryone up to the same date. Using the same example as above, this would meangiving them 4 percent on the anniversary date and then 1 percent on the newcommon date. In both cases, the employee is not "losing out" on anythingthey would have earned. Either approach is acceptable. To find the best route,analyze the distribution of anniversary dates within your company. Surprisingly,many companies think they are fairly spread out throughout the year and come todiscover that they cluster around the spring and fall -- two key hiring periods.

The second stage involves educating your employees about the new date and anyother plan changes. Even if this is only a date change, it is important todiscuss the new rules and procedures with employees, rather than assuming theywill understand that the only thing that has changed is the date. Employees getset in their ways, and it is important to let them know that the new procedurewill continue from this point forward. This is also a good time to make anyother changes to the review process, performance management system, criteria,etc., that you may be contemplating. Do it all at once vs. doing it with aseries of changes.

As with any such change, communication is essential. Employees need to beprepared for the change, shown how they will be treated, and shown how they willnot have "lost anything." Remember, in today’s economy, employees will beinherently suspicious of any such change and it is critical to prepare them forthe move. Despite all we say about avoiding an entitlement mentality, peoplewill have been counting on that merit adjustment at the old time. The earlierthe communications can begin, the better to help them anticipate and plan forit.

SOURCE: David A. Hofrichter, Ph.D., Principal and NationalCompensation Practice Leader, Buck Consultants,Inc., Chicago, Illinois, June12, 2002.

LEARN MORE: See, "Tie Merit Increases to Goal-Setting andEmployer Objectives"

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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