Good or bad, Salary Increments always cause a heartburn among employees

Mahesh Ranade

17 Dec 2020

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Isn’t it ironical that every year organizations increase their wage bill by millions of dollars, spend several weeks, at times months, in going through the process of linking pay to performance in as objective a manner as possible, and yet end up making a large number of employees unhappy with the outcome! At least for some people involved with the whole exercise it is quite disheartening. The sincerity of the management doesn’t quite seem to be reciprocated.

Why does this happen?

Well, for one, there are always years in the economic cycle where the organization can’t afford a high increase in the salaries. In these years the employees, no matter the economic imperative, obviously do not like a low increase. Especially when they have no control over the larger economy, they feel helpless and dejected. In fact whether the company has done well or not itself is a relative factor and most employees find it difficult to understand. There are occasions where a whole sector in the economy fares poorly. Conversely, there are times when a particular company in a given sector does badly for no fault of its employees, but possibly due to bad calls taken by the management. In both these scenarios, the employees find it hard to accept a low/ no pay increase. The most disappointing outcome for the management is when, even though they have given a good increase (as opposed to other companies in the sector, or better than some other sectors) there are carping employees around! Why? Because comparing what one has got with others is a vagary of the human nature. So in most of these cases, an employee, who is otherwise quite happy with her increase turns bitter the moment she hears that a colleague has got 5% more! Soon completely unnecessary negativity spreads. (And to expect that salary increments will remain confidential is being unreal. It just doesn’t work that way.) For the Management this is a “damned if you do, damned if you don’t!” situation.

An alternative model?

I was once working in a conservatively-managed, but financially sound, company of about a thousand employees spread over 25 sales offices and a factory. The amazing part was that this company had no annual performance appraisal system. The owner of the Performance Management System (PMS) was each line manager. The director in-charge would ensure that each employee got reviewed and recompensed every year on the date of her joining the organization. So an employee who has joined the company on 1st February, will, every year, get a compensation review, based on performance, on every 1st February. This method had its merits. One, it divided the workforce into 365 review cycles. So there is no ONE, BIG event of salary increments. Two, the employee relates the compensation to her own performance a lot better. Someone joining in November would see his performance in the context of the 12 months ending October-not December or March when the company’s books may be getting closed. There is no perceived aftermath of a Bell Curve! The employee sees the outcome as directly related to himself rather than how others have impacted his rating. The ownership of the reporting boss increases instead of the HR being seen as “orchestrating” (or even influencing) the outcome. I saw hardly any heartburn during my eleven years with the company. For HR and the rest of the organization, PMS became a dayto-day job instead of a concentrated, year-end activity disturbing the continuous rhythm of work. Are you willing to try this out?