Do You Base Pay Increases on Merit?

Most organizations give annual or semi-annual pay increases to employees.  Typically, each department receives a merit pool, say three percent of the department’s payroll.

Research clearly shows that top performers produce far more than average producers.  Still, many managers justify keeping merit recommendations fairly equal among employees.

“If I recommend a six-percent increase for one employee, I have to recommend zero for someone else.  That’s not fair.”

“If I get their raises too far out of proportion, it upsets other employees.”

“I think it destroys teamwork to give much higher pay increases to a few.”

“Selecting the top performer is subjective.  I might know who it is but others could disagree with my judgement.”

While these arguments may support the everyone-gets-a-trophy approach, I do not believe higher pay to known producers drives a dark wedge through teamwork.  Successful professional sports teams require both commitment and teamwork from all, yet they pay stars a lot more.

I believe top performers will produce, even if they get only modest pay increases.  I also understand that low producers may get upset if they receive little or no increase.

Then why give big raises to the best?  Because it is the right thing to do.


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