<i>Dear Workforce</i> How Do We Determine Criteria Tying Performance To Raises

July 29, 2001

Dear Workforce:

I'm trying to determine what criteria to use to connect employee performance appraisals with salary raises. How do I instruct managers to "split the cake" of their salary update budget?

- HR Manager, software/systems, Israel

A Dear Splitting the Cake:

Pay for performance programs are wonderful in concept, but more difficult to execute. Much of the success of these programs depends on the willingness of individual managers to make objective assessments of their employees, and also their willingness to differentiate between performances that meet expectations and those that exceed expectations. Therefore, one of the key elements of performance management is to reinforce with managers their roles in the process.

There are no right or wrong metrics to include in a performance management program. The items that one organization measures may or may not be appropriate for another, and it is not advisable to use generic measures for your company. Many companies are moving towards a competency-based system that measures employee performance against a set of core behaviors that are known to have a positive impact on organizational performance. Examples of these competencies include managerial courage, adaptability, willingness to risk, etc. Be sure what you measure is a key driver of organizational performance. If you do, then rewarding individuals for these metrics is consistent with overall results.

One of the most effective ways to link pay with performance is to create a Salary Increase Matrix that compares an individual's performance with her position in the salary range. Therefore, if two individuals have equal performance, the greater salary increase would go to the individual whose pay is lower in the salary range. This will allow top performers to move through their respective salary ranges more quickly, while lower performers remain in the bottom half of the structure.

SOURCE: Mitch Stern, Deloitte & Touche, human capital group, Los Angeles, Calif., April 4, 2001.

LEARN MORE: See, "Performance Appraisals Should Focus on Performance, Not Personality"

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

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