Yearly raises tend to be virtually identical across all levels in most companies, and they tend to hover around the 3 percent mark.
But research suggests deviating from the norm with respect to raise percentages. By focusing raises on the best employees, companies can keep those employees happier and retain them longer.
Pay Better Employees More
Tom McMullen of the Hay Group analyzed pay data for the Fortune magazine “most admired” companies and found that the spread between the average-performing employees’ raises and top performers’ raises is greater at the best companies.
At average companies, the top performers’ raises tend to be no more than double that of the ho-hum worker (say, 6 percent vs. 3 percent). But at top-performing companies, the spread is often as high as 200 percent.
Supervisors that spread their salary increase budgets evenly do so, McMullen believes, to avoid conflict and follow the path of least resistance. But that approach can deaden the motivational impact of raises, he warns.
“Supervisors who say, ‘I wanted to give you a bigger raise but the human resources manager wouldn’t let me’ just make themselves look weak,” he says.
Instead, the occasion of announcing a change in salary “is the best opportunity to reinforce key performance messages,” whether it’s praise – or the opposite.