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While a 4.0% salary increase for a high performer versus a 2.7% salary increase for a middle performer doesn't look like meaningful pay differentiation, I'd like to offer two thoughts to provide a more complete picture.

First, over time a 1.3% difference has a much greater impact since a salary increase is the "gift that keeps on giving." For two people at $50,000 consistently performing at "high" versus "middle" performance over 5 years, the difference in salary increases will total about $10,000.

Second, WorldatWork also reported the average 2011 median variable pay (lump sum) program payments for non-exempt hourly (4.5%), non-exempt salaried (5.0%), exempt salaried (11.6%), and officers/executives (35.0%). Assuming that the maximum award possible under these programs is double those percentages, there appears to be quite a broad potential for organizations to make meaningful pay for performance distinctions.

So when combined, organizations making performance distinctions with both merit and variable pay have plenty of room for differentiating pay based on performance.

Thanks, Paul - very helpful in providing a more complete picture!

We use five performance ratings, as do the majority of companies, and I'm not sure how this applies to us. Generally, our raises follow this pattern and no one complains. Perhaps, our supervisors are not willing to put the money where their mouth is and don't believe the larger ratings are deserved or support more money.

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About The Author

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    Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.

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