With tools like Merit-Matrix and other forms of incentives, managers, executives and human resources departments can clean up their pay review act for 2013.
Do you have a New Year’s plan for your business? A good resolution for human resources in 2013 is to clean up your salary review process!
One of the biggest mistakes executives and human resources departments can make during salary review is try to please everyone. Many companies still fail to clearly separate production, engagement and overall efficiency to see who truly deserves a raise.
When companies have a limited budget, there is little room to show something for each employee. Offering raises, even small ones, to less deserving employees can hurt morale and turn off engagement.
Average performers could get something, but individuals that make a difference to your company’s overall performance. Ideally they’re the people who are the key to your success, and should be treated accordingly.
Some human resources experts say that high-performing employees should get a raise at least two to three times raises given to average employees. Human resources departments should include performance as the determining factor when reviewing pay.
According to human resources departments, pay is the number one factor influencing pay decisions this year. The five biggest influences on pay review for 2013 are:
- Keeping pay competitive for the marketplace
- Budget constraints
- Equity in the workplace
- Opportunity and size of the role in the organization
The first two factors in the decision—performance and competitive pay—align closely with organizations where their human resources departments are using the ‘merit-matrix approach.’
The Merit-Matrix Approach
The merit matrix theory is to reward employees with high-performance ratings, but low in their salary range, offering them greater increases.
Illustrated below is a merit matrix.
|Position in Salary Range|
|Performance Rating||Lower Third||Middle Third||Upper Third|
|Consistently Exceeds||8.0 (%)||6.0 (%)||4.0 (%)|
|Meets||6.0 (%)||4.0 (%)||2.0 (%)|
|Needs Improvement||0.0 (%)||0.0 (%)||0.0 (%)|
Individuals that are higher performing, but are lower-to-market, medium-market or below-market median would receive larger increases. This is so that they are rewarded in line with the marketplace while recognizing higher performance.
Organizations use this matrix to evaluate salaries of current individuals, making sure they are in line with other companies of a similar size or industry. The goal is to ensure salary reviews will retain key individuals.
Managers and Human Resources Departments Play Key Role
Performance-based systems depend on the ability of managers to assess performance, especially when they have strong performance measures in place. Opinion is another factor to consider when reviewing performance, and individual managers and human resources departments need to keep in line with business goals.
Pay Flexibility Allows Further Rewards
Variable pay is another method to reward performance, such as incentives or bonuses based on company performance. When budgets are tight, variable pay or incentive programs can reward outstanding performance. This trend is becoming more prevalent within organizations, allowing more flexibility during tough economic times.
No Magic Bullet, At Least When It Comes To Salary Reviews.
Review strategies are not one-size-fits-all. Something working for one company (or in a specific context) won’t necessarily work in another.
During a recession, some organizations with smaller budgets—two-to-three percent—made a clear commitment to only award only employees who earned less than a particular amount.
Capping employee pay is for employees who were earning less than a certain level (say $100,000). These were the only individuals recognized during the salary review.
This strategy only works in some industries, your results may vary. One way for it to work is to analyze your business, judging performing as a whole in terms of numbers and available resources. However, the goal is the same, retaining key individuals.
Predictions: Winners and Losers In 2013
The biggest winners in merit-matrix salary performance, expecting salary increases in the 5-6 percent range, are the workers in:
- Oil and Gas sectors
Those in the retail sector could see the lowest increases (if any), with estimated pay increases of around 3 percent.
The year is still young, so there are plenty of room for surprises. With a reasonable salary review process, 2013 doesn’t have to be surprising to you or employees. Putting performance at the top of the, regardless of what method you use, will keep your best employees around, well into the next 12 months.