Sep 11, 2013

You just received an above average performance rating from your manager, which naturally put a big grin on your face.

Which was subsequently wiped away when you heard that for your annual salary adjustment you would receive what amounted to 1 percent more of a salary increase than “Joe Average” down the hall. Tight budget this year, you’re told.

You know Joe, or his type. He’s the disengaged clock watcher whose most notable accomplishment is keeping his chair warm. Doesn’t do enough to either get fired or stand above the crowd. However, his level of performance is considered the standard in a bell-shaped curve, and so receives an “average” award.

A problem with the performance system

Yes, just 1 percent more than the clock watcher, for delivering what your boss described as your terrific effort for the entire performance period. Was it worth it? Some studies have suggested that, if the differential between performance levels isn’t at least 2 percent (which sounds better than the actual dollars involved), then you’d be better off with a general adjustment.

How does this happen?

When assessing the dynamics of employees and their work ethic, it’s generally agreed that performance rewarded is often performance that is repeated. Like the Pavlov experiments of so long ago, we tend to repeat that activity which previously gave us pleasure or reward. We want more of it.

However, if the performer doesn’t feel rewarded, or is not pleased by the company’s reaction to their performance, does the company gain or lose when that desirable performance is no longer repeated?

Perhaps your performance reward system is not as effective as you would like.

What makes a high performer feel appreciated?

So the question becomes this: how much of a reward differential between the best and just OK is enough to keep your better performers motivated and feeling appreciated? A good guess is that it’s not 1 percent.

As a manager, can you balance the need to reward your better performers against the reality of tight budgets? If you want to retain the high performers, you’d better find a way.

So then, what if you started by figuring out how much reward to provide? Then whatever is left can be carved out among lesser performers. That will protect your “stars.”

Ahh, but that won’t make you popular among the masses, will it? And for many managers being liked is a key element of self-worth.

You can’t disappoint your superstars

But how high up the priority list should popularity as a manager be marked? Will you be assessed for popularity when your performance review is due? I don’t think so. Likely it won’t be in the top three of what senior leadership is expecting from you.

Your job description probably doesn’t even list this characteristic, and it is certainly not a factor in job evaluation. So perhaps there are other criteria for a successful manager that should receive more attention.

If you’re concerned about differentials, another consideration is the number of ratings you have in your performance appraisal system. For example, with a seven scale system, the need to provide percentages for at least five makes the division of reward opportunity a bit tight. And if you try to maintain a two percentage point differential between performance levels, the numbers might become higher than what’s deemed affordable.

I don’t believe in reward for tenure, but I do believe in reward for outstanding job performance. If the merit spend budget doesn’t have enough monies to recognize and reward everybody, each in turn for their contribution, then I’d suggest that you take care of your better performers first.

You can afford to disappoint “Joe Average,” but not “Bob the Superstar.”

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

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