Show them the money.

• Author: Richardson, Mary
• Position: Human Resources - Performance related pay

It's a constant battle. How and when do you institute pay-for-performance and discuss merit raises with your employees? How can bonuses fit into a compensation structure that already bases raises on performance? How do you "Show them the money"?

YOU CAN HAVE BONUSES AND MERIT INCREASES

Many organizations find that goals-driven performance sounds a lot like their current bonus program that is based on setting and achieving goals.

There are several ways to manage this apparent conflict in systems:

* Create a two-tiered system in which the performance management goals are within the current job structure and the bonusable goals are project-based.

* Create a bonus benchmark, where exceeding the goal by a certain percent makes the employee eligible for a bonus.

* Create a parallel system--identify ways to score progress toward goals that is both bonusable and part of ongoing job duties. Record metrics created as part of the job duties and identify goals and corresponding rewards before work is performed.

NEGOTIATING BONUSES

With bonus negotiation, it's best to discuss percentages at the get-go. At this year's annual performance review, discuss the bonus system for the coming year.

Make your discussions specific: What is the threshold performance that activates the minimum bonus percentage? What is the target performance for the target bonus percentage? Is there a cap for over-the-top performance? Clarifying these benchmarks up front will help to avoid disagreements later.

DISCUSSING MERIT RAISES

Discuss merit raises after a performance review. By tackling performance first, you clarify with your employees that a salary increase isn't automatic, it's intrinsically linked to performance.

MAKING MERIT RAISES FAIR FOR ALL

A merit-raise matrix can help you communicate your company's compensation strategy. The matrix has two components:

* Place in range, and

* Level of performance.

Range refers to the spread in pay for a job title or category, from the lowest to highest wage.

* Low: The lowest third of a pay range for a job title or category.

* Middle: The middle third of a pay range for a job title or category.

* Upper: The top third of a pay range for a job title or category.

You can use the midpoint of a range to compare between ranges, or to compare one job category internally to the same job category in another company, geographical area or competitive industry.

Resources for calculating pay ranges for a particular job title include: Salary.com...