• About Rory C. Trotter Jr.

Something Different HR

~ Marrying HR, Data and Occasionally Out of Place Personal Anecdotes

Something Different HR

Tag Archives: merit increases

A Few Thoughts on Expectations Around Pay

07 Wednesday Sep 2016

Posted by Rory C. Trotter Jr in Compensation, HR Strategy

≈ 1 Comment

Tags

hr, human resources, merit increases

Unrealistic Expectations

…Okay, so this morning I was reading this great piece from CEB talking about how several employers – led by GE – are rethinking annual raises. And by “re-thinking” I mean “considering replacing with something less cyclical and more centered on moment to moment performance”. Sounds great, right? If organizations are moving away from annual performance conversations and towards continuous feedback (and it’s working) then why not have compensation/incentive design reflect this new approach to feedback and performance management? Well, for starters there’s this:

Only 1.2 percent of U.S. companies use a discretionary timescale for increasing base pay, according to this year’s compensation survey by Mercer LLC. About 90 percent of companies have a fixed date when everyone receives their raise, assuming one is granted, while about 5 percent make the change for each employee on the anniversary of their hiring or move to their current job.

^In what is likely a surprise to no one, 95% of employers have an annual review process around comp increases – and most of the 5% that don’t are closer to having nothing at all than a continuous process like the one GE is flirting with.

…But why is that? I mean – if one really thinks about it – most employees are unhappy with the 2%-3% they are getting every year. They expect it, and when they receive it often feel like they are being shortchanged in some way. Whether this phenomena is a product of collective illusory superiority or workers really having a valid beef because wages have not kept up with productivity (maybe a combination of both?), at this point the merit increase is more of a retention strategy than a vehicle to recognize and reward high performance: And the de minimis difference between what top performers and average performers receive at review times just further drives home this reality.

But then how does a company break this cycle? Do away with merit and your average performers (who are collectively every bit as important as your stars) will leave the organization. But if you don’t differentiate performance then you push your top performers out since that’s the best way they can get paid.

^To control for the flaws in the merit system, some companies are offering more spot and performance bonuses, with such dollars making up an increasingly large slice of total payroll. Which is fine… except it doesn’t address the fact that employers are still sinking huge sums of money annually into a benefit that doesn’t improve performance and doesn’t make high performers feel recognized. Merit is just the (very high) cost to retain.

…I am not saying anything new here… but thinking (or writing, I suppose) out loud I find myself considering how expectations are formed (and how they shape behaviors) to begin with. Namely, (1) something happens to us for a while, (2) it is a net positive, (3) we get used to it, and (4) our thoughts around one or more aspects of ongoing happiness become tied to the regularity of that thing.

…But just like an expectation that salary will keep going up (or at minimum stay at the same level), the merit increase expectation can be challenged (and changed), I think. For example, if one day an organization just started rewarding its employee for performance on a non-cyclical basis then at the end of the year there would be people that got small or no increases. Some of those people would be mad and leave, replacing them would be painful… and then new expectations around pay would be set.

…So ultimately this is just a thought stream. I don’t have any empirical evidence that any given company could move away from the merit cycle without suffering terminal retention and/or engagement issues. But I do know that expectations are formed through our experiences within a culture, and that cultures change. Whether an organization can have a strong enough culture to insulate itself from broader market pressures around cyclical pay raises is a different, open matter (maybe GE will answer it for us?)… but I find it interesting that the merit cycle is as entrenched culturally in the U.S. as, say, the 40 hour workweek. Employees don’t like it. Employers don’t like it. Why hasn’t anyone managed to input something different at scale yet?

As always, please share your thoughts in the comments section below.

Happy Wednesday.

Rory

 

Advertisements

Want to Maximize the Business Impact of This Year’s Merit Increase? Messaging is Key…

17 Tuesday Dec 2013

Posted by Rory C. Trotter Jr in Compensation

≈ Leave a comment

Tags

compensation structure, hr, human resources, merit increases, pay for performance, pay structure

Image Credit: <heatseeker.com

Image Credit: <heatseeker.com>

As we enter merit season, organizations are looking at how to allocate merit budgets in a way that maximizes return on investment and drives business success. How much do merit increases drive employee performance, though? For that matter, what is the correlation between total compensation period and business results?

I recently had a conversation with a fellow 1. Long, midly rambling thought stream coming in 3, 2, 1….comp guy about just this topic. 1 We tried to answer the question: Does more pay equal better performance, and if so how consistently can we measure it?

This is just a working hypothesis, but I believe that while pay *does* drive performance… it only does so to the extent that people are unlikely to give their best effort if they don’t feel they’re being paid competitively. Once people feel they’re being paid fairly for what they do, however, additional extrinsic rewards aren’t likely to be strongly correlated with markedly higher performance. As such, when employees are paid competitively total compensation should just be a hygiene factor.

…Of course, in practice this issue is a bit more complex: When people say they want to be paid “fairly” or “competitively”, what they actually mean is that they want their pay to be aligned with their performance, relevant knowledge base, and experience. As such, the notion of pay driving business results is really about making people feel like they’re receiving remuneration in line with their efforts more so than it is about dangling additional carrots to 2. Put another way: A sales person with an uncapped commission doesn’t need unlimited earnings potential because he’ll only be happy if he makes “X” dollars… he needs it to keep score – although as a side *side* note (hah!) once an org uncaps commissions it is difficult to cap them again. So while more pay doesn’t equal higher performance in an absolute sense, if employees don’t feel they’re being fairly compensated over time that will eventually be reflected in the form of diminished effort (and in turn diminished business results).incentivize them to work harder. 2

Okay… so if the above is true then how do we identify high performers and make them feel like their total rewards package is aligned with their impact on business results? For many roles performance is actually very difficult to measure (particularly within staff functions where the value of a job often isn’t fully understood unless or until the person doing it is gone). To this point, manager subjectivity plays a huge role in the performance review process (with that subjective element often making meaningful pay differentiation between top and bottom performers difficult or impossible).

…Perhaps the answer to tackling this challenge can be found in embracing the imperfection of performance measurement. No matter how much time and how many resources we dedicate to analyzing and quantifying performance, there will always be a subjective element. This means that communication and messaging are integral components to ensuring employees feel their pay is aligned with performance.

…To the above point, one of the primary roles of a compensation department should be to effectively generate buy-in across an employee population that the organization is paying competitively/fairly. This requires a delicate balance between pay transparency and maintaining competitive advantage. This balance is often difficult to strike, but when done effectively should get employees less focused on compensation and more focused on driving business results.

…Lastly, I know this is merit season but compensation teams shouldn’t lose sight of non-monetary rewards when thinking about how to attract and retain talent. The right intrinsic rewards are often their own form of remuneration. Most people are very motivated by money, but there are other 3. This is one of the many reasons why I think analytics is going to play such a huge role in maximizing the return on human capital going forward. Organizations that can identify what motivates their people (and how that aligns with their values and business objectives) will have a huge leg up over competitors as it concerns the ability to recruit the right people and retain them.things they find just as valuable. 3

As always, please share your thoughts in the comments section.

Best,

Rory

Recent Posts

  • A Few Thoughts About Good HR
  • Infographic Thursday: Top 10 Workplace Incentives
  • A Few Thoughts on Expectations Around Pay
  • Examining the Impact of Ratingless Reviews and Year-Round Feedback on Employee Performance
  • Which Talent Should Your Organization Be Investing Resources Into? Why? A Few Thoughts…

Archives

  • May 2017
  • December 2016
  • September 2016
  • August 2016
  • April 2016
  • March 2016
  • February 2016
  • December 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • December 2012
  • October 2012

Categories

  • Benefits
  • Change Management
  • Compensation
  • Corporate Governance
  • Employee Engagement
  • Employee Relations
  • General HR
  • General Management
  • HR Management
  • HR Strategy
  • HRIS
  • Infographic Thursday
  • Job Interviewing
  • Labor and Employment Law
  • Learning and Development
  • People Analytics
  • Performance Management
  • Personal Development
  • Quote of the Week
  • Recruiting
  • Social Media
  • Spotlight Friday
  • Sunday Reading
  • Talent Management
  • The Week in HR
  • Training
  • Uncategorized
  • Video
  • Video Saturday

Meta

  • Register
  • Log in
  • Entries RSS
  • Comments RSS
  • WordPress.com

Enter your email address to follow this site and receive notifications of new posts by email.

Join 3,773 other followers

Connect on LinkedIn

View Rory C. Trotter Jr., MBA, MHRIR's profile on LinkedIn

Add me to your Google+ Circles

Google+

Connect on Facebook

Visit Rory Trotter on Facebook

See me on Vizify

Follow on Twitter

Follow @RoryCTrotterJr

My Latest Tweets

  • Thanks to Allyson Edwards and @PeopleGuru4HR for this great HR spotlight! peopleguru.com/rory-helps-his… 1 year ago
  • A Few Thoughts About Good HR rorytrotter.com/2017/05/25/a-f… https://t.co/yef6j4WxRE 1 year ago
  • Infographic Thursday: Top 10 Workplace Incentives rorytrotter.com/2016/12/08/inf… https://t.co/to8ladtlgX 2 years ago
  • So Where Are We on H-1B Visas? bit.ly/2fdld5F @HRExecMag 2 years ago
  • Which Employees Are Exempt from Overtime Pay? bit.ly/2f9N1cw @HRCSuite 2 years ago
  • Facebook and Snapchat are the least of our worries bit.ly/2fe1Nxm @ChinaGorman 2 years ago
  • T3 – Fitbit Group Health – @Fitbit bit.ly/2ejpSFk @TimSackett 2 years ago
  • Write Better Emails and Cover Letters with These 7 Tips bit.ly/2fdlrd3 @careersherpa 2 years ago
  • HR Is Not the Only Profession Redefining Itself bit.ly/2f8a2wu @hrbartender 2 years ago
  • 5 Steps to Nailing the Informational Interview Like a Pro bit.ly/2ehTkM7 @YouTern 2 years ago
Advertisements

Blog at WordPress.com.

Cancel
Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy