Written by Salary.com Staff
March 28, 2024
Creating a fair system for deciding who gets merit raises is crucial for companies of all sizes. With many employees, it becomes hard for every manager to be an expert in compensation. That is where a structured framework comes in handy. It helps both employees and managers understand the process of making compensation decisions.
This article explores different types of merit recommendation structures. It discusses their advantages, disadvantages, and when each type is most useful.
In deciding who gets merit raises, companies use different methods to be fair and clear. Here are three common ones:
The Flat Recommendation gives every employee the same percentage increase suggested by the People team, no matter their performance. Managers have the freedom to adjust this based on their knowledge of each employee.
Pros:
Cons:
This method is often used in situations where companies prefer simplicity and want managers to have control over compensation decisions.
Instead of following strict guidelines based on performance, managers have the flexibility to evenly distribute raises among the team or give more to top performers based on their judgment.
In the Standard Merit Matrix method, it links merit increases to how well an employee performs in their job. For example, when someone meets expectations, they may get a 2-4% raise, but when they exceed expectations, they can get up to 4-6% raise.
Pros:
Cons:
The Standard Merit Matrix offers a balanced approach that is easy to understand. It helps managers make fair decisions about compensation in a structured way.
The Multivariable Merit Matrix is a bit more complex. It looks at different factors such as performance and where an employee falls within their pay range. For instance, someone doing well but paid less than average may get a bigger raise than someone in the same performance category but is already being paid more.
Pros:
Cons:
This is often seen when companies aim to stick closely to their compensation philosophy. When a team wants to avoid big differences in pay for employees in similar roles, this system considers both performance and pay bands.
Beyond the three main types, some companies may incorporate other considerations such as performance into their merit recommendation structures:
These variations show how these systems can change to fit each organization's special needs.
To make workplaces successful, it is important to choose the right method to decide who gets merit raises. There are different structures for this, each with their own good and bad points. The best choice depends on the company's size, culture, and goals. Understanding these structures helps both employers and employees talk about fair pay in a meaningful way.
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