Many employers wait for their year end business results before finalizing the budget available for salary increases and bonuses; usually the bonus is tied directly to the business results. If the fiscal year is also the calendar year, then this is the time that the discussion regarding individual financial rewards will take place.
Pay for Performance Model
No one finds it fair when everyone gets the same salary increase, regardless of doing a great job or a mediocre job. The first step to equity is to ensure that the peformance appraisal itself differentiates between the high performers and the low performers.
Once an accurate performance rating has been determined, then the merit increase budget can be allocated according to performance. (Sample below is for demonstration purposes only)
Some companies also factor in if the base salary is below, at or above the market pay point for the job itself. Employees who are low to market will get slightly more and those that are high to market will get slightly less within their performance rating salary increase range.
For a sample compensation management policy or if you would like to implement a pay for performance system, for more information, please email [email protected].
Bromelin People Practices