The Unmerited Merited Pay Raise

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I read this article and it really struck a cord with me. Having worked at companies where people (slaggards) automatically received merit pay raises really irritated me. Why- because it was demoralizing to those who worked and tried hard to achieve results, why should they receive the same merit raise as the person who lags?  In a perfect world, the striving employees would receive their raise and the slaggard raise.

This article is from Doug Fleener newsletter who thankfully has given us permission to reprint:

In most companies every employee is eligible for an annual merit raise. Usually the owner or manager goes through some strange process that has nothing to do with either merit or performance but always ends up at an increase of base pay between 3% and 5%.  It makes you wonder if someone is spinning some Wheel of Compensation that only has numbers between three and five on it.

I remember one year meeting with an employee who recommended that all her managers be given a raise of, yes, you guessed it, somewhere between 3% and 5%.  This included two managers that she had had problems with all year.

When I asked why she was recommending that under-performers receive a merit increase she told me that everyone expects a merit increase.

I reached for my dictionary and looked up the word “merit.”

Merit: something that deserves or justifies a reward or commendation; a commendable quality, act, etc.

Did these two employees deserve a raise?  No.  Did their efforts and performance justify being paid more money?  No.  And why were we giving these two employees a raise?  It wasn’t because the employees were expecting it, although they were. It was because the manager didn’t want to deal with the fallout of not giving someone a raise when they expected one.

Universities talk about grade inflation. This is pay inflation.  Pay an under-performing employee more money and all you have is a wealthier under-performing employee.

Merit increases need to be based on past performance.  Period.

This also means that your best people deserve a larger share of the available increases than do the others. Oh wait, we can’t do that because it might upset people!  But isn’t that the same excuse that has us paying under-performing employees when we shouldn’t?

Even worse, we can’t give top-performer Barbara Bucks a large annual increase because she’ll be making more than long time average-performer Sandy Standsaround.  Now that so-called reasoning makes me want to pull out my hair!

Top performers deserve larger raises than do  average performers. If, over time, that adds up to being paid more than other employees, so be it.

Average performers need to be paid more than poor performers, especially since you should be moving poor performers out. Or as my client and friend Todd says, “Promote them to customer.”

It’s not easy to pay on true merit rather than giving everyone an annual increase, but that’s what good leaders do.

It’s never easy to tell an employee they’re not getting a raise, but that’s what good leaders do.

It’s really hard to tell an employee they’re not getting a raise if you’ve not had any of those difficult one-to-one conversations.  Do the right thing and you’ll get those conversations started, and next year the employee can get one of the larger raises!

So let me ask, how will you decide merit increases in 2011?

Doug Fleener blog can be read at Retail Contrarian

Claire Goldsmith MidPage