Time to dust off the Merit Matrix Chronicles (see intro here if you've missed this fascinating series) and release a new installment!
This time of year, at least in a "normal" year, it is tradition in many organizations to sit down and review their salary increase matrix.
In a previous installment of the Chronicles, we talked about finding and setting your anchor. Your anchor should reflect your intended salary increase budget, which - in turn - should reflect your perception of salary increase practices and trends in the market (remember: cost of labor, not cost of living).
Once your anchor is appropriately set, it's time to take a look at all those other boxes and decide whether and how any of them should be adjusted. Let's take a look at an example of a salary increase matrix to help guide our discussion:
And for sake of discussion, let's note our anchor as the box indicated in light blue.
The default for matrix design is to follow a mechanical approach of simply moving up and down in even increments as you move away from your anchor box. The sample matrix above reflects this. It's easy to understand the attraction of this approach. It leaves you with a simple, elegant and symmetrical matrix. (And we compensation pros do love symmetry, don't we?)
The problem is that this lovely, symmetrical matrix may not match the reality of your salary administration needs - delivering salary dollars to the places you most need them and in line with your compensation philosophy. And so, I propose an alternative approach,what I will call the "organic" approach to designing and assessing your matrix.
With this approach, you walk through the matrix box by box, examine the story(ies) of employees who will likely be placed in that box (based on their performance level and position in range), and determine the best salary treatment for that group considering all the factors that come into play (staffing experience and needs, salary budget limitations, the history of special/market adjustments, etc.).
Let's play out a few examples here, starting with the lower/exceeds box (employees in lower third of salary range who exceed expectations). In your organization, let's say that these tend to be recently hired employees who are performing very well on the job, even at this early stage of their tenure. The current recommended increase is 5%, 2% higher than your anchor increase. Sounds good, you say? But wait - you have been experiencing a real turnover problem with employees 12-18 months after their hire. And nearly all of the "special adjustments" which have been granted over the past year have been to top performers with less than 2 years with the company. Perhaps, given this history, it might make sense to bump up the increase level in this box - or create a range (5%-7%) to ensure that we are moving the base salaries of this vulnerable group at a faster pace.
Or, for another example, what about the middle/nearly box (employees in the middle third of their salary range who are not yet - but nearly - meeting expectations. The current recommended increase is 2%, 1% lower than your anchor. Is that appropriate? How is that working? In a tight budget year, perhaps you want to re-think this level of increase to competitively paid (because this is what the middle third typically represents) employees who are not yet performing at the expected level.
You get the drift, I expect. Box by box through the entire matrix. What you end up with, typically, is something less symmetrical but more useful. I have found this approach to be helpful both in one-on-one conversationsand in group roundtable discussions. It can generate solid dialogue and great insights into the workings of the salary program.
Most importantly, it is a good path to a revised (or reaffirmed) salary increase matrix that is firmly grounded in reality.
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