A great quote on the challenges of making merit pay work at large organizations, by Robert Morgan, president of Hudson Talent Management (as featured in their recently released 2007 Compensation and Benefits Report):
Large companies tend to deliver to the middle, under-deliver to the top and over-deliver to the bottom.
Why do so many organizations, particularly large ones, fall into this "path of least resistance" when it comes to (so-called) merit pay? My experience would suggest a number of possible reasons, including:
- A lack of confidence in the underlying performance management program and its results, so that management is hesitant to differentiate pay treatment based on performance assessments.
- An unwilllingness to award smaller (or even "zero") increases to workers at the bottom of the performance ladder, which ultimately takes money from the merit budget which could have bolstered the increases of top performers.
- The lingering presence of a culture and philosophy that dictates treating everyone the same (despite rhetoric about paying for performance).
What's at risk here is the retention of top performers, who may be the most likely to depart for smaller, more entrepreneurial organizations whose pay practices are often more flexible, more results-oriented and less bound by cultural constraints - or for a large company that truly walks its talk in rewarding performance.
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