How to make sure merit pay actually rewards performance

Many years ago I worked for a mental health clinic that employed a variety of professionals, including two social workers. When annual raises were announced, one of the social workers, Anne, had received a larger raise than the other one, Judy. 

Judy was annoyed at the disparity, so she went to the Medical Director to ask for the reason. Dr. Frank explained that both women were doing a good job with their clients. But in addition to her day work, Anne was very involved in the community, representing the clinic at evening events and serving on some community boards, while Judy was not engaging in those activities. Anne’s visibility and contribution to the community reflected well on the clinic, and so she was rewarded for her commitment. 

I don’t know whether Judy was satisfied with this explanation. But it is to Dr. Frank’s credit that he was willing and able to provide a clear explanation for the difference in the two raises. Too often that is not the case. Too many organizations have a “trust us” approach, where decisions about promotions and raises are made in a “black box” with no clear rationale.

Why you need better decision-making around merit pay

Even when organizations say they use clear criteria for these decisions, the reality is that these judgments are often highly subjective. This is dangerous for a number of reasons. It can be damaging to staff morale. It can put the company in legal jeopardy. And perhaps most important, it can result in rewarding low-performance employees more than high-performance ones. That leads straight to loss of top talent and reduced productivity. 

Most companies say they pay for performance, but many do not have the necessary data collection systems to determine whether that’s actually true. The good news is that sophisticated people analytics tools are available to measure whether a company’s approach to compensation is actually rewarding the right behaviors. Using this data-driven HR approach, business leaders can determine where bias is interfering with good decision-making. They can ensure that employees really are compensated fairly for the value they bring to the company.

I’ve long been a big proponent of people analytics and the clarity they bring to decisions about human capital, like merit pay and screening and evaluating candidates. So I am delighted that Gail Golden Consulting has formed a partnership with an outstanding people analytics provider, PeopleInsight. We are looking forward to combining their powerful analytics tools and insights with our psychological and business expertise to help our clients give the right raises to the right people with fairness and transparency. 

Contact us if we can help you define and design organizational structures that cultivate success.