Low Performers Take Hit as Economy Forces Salary Increase Discipline

Reduced salary increase budgets are forcing some tough decisions this year, and new research suggests that low performers are taking the brunt of the hit.

The chart below, which features data from Watson Wyatt's newly released Advance Highlights to the 2009/2010 Strategic Rewards Report, shows how performance differentiation in merit increases has been affected by the drop in available salary increase dollars from 2008 to 2009.  While all performers are receiving less this year, note that the increases awarded to employees rated "partially meeting expectations" (i.e. the low performers) have been cut back the most. 

 

To some extent, the small size of the numbers masks what's going on here - so try this for some additional perspective:  

The average increase awarded to a "partially met" performer in 2008 was 46% (nearly half) of that given to a "met expectations" performer that year. 

In 2009, however, the "partially met" performer got 8% of the increase given to the "met expectations" performer, on average. 

That's quite a shift.

Perhaps we are finally getting serious about merit pay.

Comments

[Paul Hebert]

I hate to say it but I'm lovin' this shift. It finally shows that not meeting expectations is worth "Nothing". I would have hoped that "exceeds" would have actually increased over last year - taking all the money from the bottom and moving it to the top. Nothing would send a better message to the top performers than - "we can't accept below expectations performance and we're not rewarding it. But if you exceed - we will."

It's about time we quit worrying about those that don't meet expectations. Too often I've had conversations about not giving someone a raise and the response was "but they'll quit." My response - good for us and good for those that work hard.

[Ann Bares]

Paul:

I almost hate to say it, too - but I'm with you. I also agree that, in the end, it may be better for all if we stop sending mixed messages to those that aren't meeting expectations. If they aren't willing or able to do what it takes to meet the bar, then they may be better served by either finding a way to change their attitude or skill-set ... or finding a job opportunity better suited to their strengths. And we are better delivering our limited salary increase dollars to those who are making the right things happen.

Thanks!!

[E James (Jim) Brennan]

Paul hit the nail right on the head, as did your earlier post, Ann, about tough times bring new opportunities to get tough (well, I've said it, and know you agree). It's all about acceptance. Today, we can't afford to passively enable "slow boats" to endanger our convoys in wolfpack-infested waters.

If it takes the prospect of impending disaster to stiffen spines, let's make the most of it. Lay off the non-performers, if they don't quit first or sit up and suddenly take notice that they are in the crosshairs and start changing. This is simple and clear proof of the positive power of negative consequence, on both sides.

[Wally Bock]

I hope your perspective is right, Ann. But history is whispering in my ear that's what's going on here is a reduced pool of money to award and a barely concealed terror that the good people will bolt for the exits when times get better.

[Ann Bares]

Jim:

Couldn't agree more. It's unfortunate that it takes the so-called burning platform to get people serious about merit pay, but I guess that's our nature.

Wally:

Actually, I think what history is whispering in your ear is e-x-a-c-t-l-y what's going on. Apparently it takes a reduced pool of money and a barely concealed terror that good people will bolt to make us serious about differentiating pay based on performance. Nothing short of that has seemed to make the difference.

[E James (Jim) Brennan]

P4P is unpopular in good times because it's essentially inequitable and thus termed unfair during a period when placating the mass of empoyess is considered vital. Merit pay is required in bad times because economic survival demands inequitable allocations to retain your key performers and the disapproval of the jealous others is disregarded. There is a Maslovian pyamid-level shift.