You can only avoid the question for so long and eventually you’re going to have to deal with it. Here’s our evaluation of some potential answers.
- ANSWER 1 – “No.”
- ANSWER 2 – “I’m afraid you’re on the same rate as everyone else for this role and a rise isn’t on the cards – I’d have to increase everyone’s earnings & I can’t afford to do that.”
- ANSWER 3 – “On the whole I’m satisfied with how you perform your role, but there are some aspects you could improve – and if you did, I would be happy to look at an increase – providing the improvement is sustained. Let’s talk about those areas…..”
- ANSWER 4 – “On the whole I’m satisfied with how you perform your role, but there are some additional duties you could pick up, and if you did, that would increase the value we get from your role.”
The first answer will do nothing for the employee’s motivation, so I’m afraid we’re going to have to be a little more creative. Answer number 2 is fine if it’s true, and indeed standard pay rates are very handy for defending Equal Pay claims (ensuring women are not paid less than men for the same work,) but they don’t help reward the strong performers (see ‘alternatives to the pay rise’ below.)
Answers 3 & 4 may suit a number of occasions. In my old days, when I was responsible for negotiating pay deals in Coca-Cola’s UK factories, the Company was pretty clear with me; “we don’t give pay rises for free.” So as a negotiator I had to always ensure that in return for a pay increase, we got some tangible benefits back from the workforce. Normally that either meant the union negotiators conceding certain benefits (often old fashioned ‘hardship’ bonuses given to the teams for doing historically particularly dirty or unpopular jobs) or, once we’d hoovered all of those up, efficiency gains or greater responsibility. Our goal was to tie reward to performance, even for the line teams.
Tying pay to performance or responsibility makes a great deal of sense. These things are very much in the interests of the business and you will certainly not be giving a pay rise for free. To a large extent extra responsibility is the easier of the two – ‘performance’ can be less tangible, more open to interpretation….and argument. And, what happens if the employee temporarily increases their effectiveness to secure a pay rise, and then slides back to previous levels of performance?
Alternatives to the pay rise.
The problem with pay increases is that they stick for ever – irrespective of the current performance of the employee. An alternative (providing you pay more than the minimum wage of course) is a performance related bonus – say 5% for meeting expectations, 10% for smashing them (and a few gradients in the middle and below.) This incentivises employees to keep it up, not just save high performance for pay review time! To run a performance pay system though, it’s essential to have written performance definitions and to tie these to objectives, with these being as measurable as possible. If you’re not the only people manager in your business, it’s also necessary to make sure that other people managers are trained and that performance ratings are checked for consistency.
Performance reviews should take place regularly but the bonus itself may only be payable once per annum. A quarterly review gives employees decent feedback on whether they’re meeting the standards of performance necessary to generate a payment and, if so, what sort of bonus they might be in for if they keep things as they are. If they’re off the pace it gives them a chance to pull things back too, whereas just one annual review won’t offer these opportunities.
If you want to implement a performance system, the golden rule is to keep it simple and relevant to what the business needs and ensure the whole thing is transparent and well communicated.
In Coca-Cola we negotiated a performance bonus system for Europe’s largest soft drinks factory, which happened to be in my patch in the UK. The system, which was agreed partly in lieu of a pay increase, consisted of a weighted approach to any combination of 10 different performance measures, all designed to increase efficiency through decreasing waste and downtime. It was down to each team to decide how to make improvements, and they were given time and resources to do that. We agreed that half of the net financial savings generated would be shared with the line teams, but we also agreed that the measures would change from time to time to suit the business needs, and the targets would evolve as the business did. The result was the increase of average line efficiency from 50 – 60% typically, to over 80%, in some cases more than 90%. It wasn’t a one-off fix, and it took a great deal of monitoring, but it worked for both the Company and the teams, who enjoyed far higher earnings for that period than a standard pay rise would have given.
Bill Larke was HR Director for UK Operations for Coca-Cola Enterprises. Today he and Catherine Larke (former Head of HR RHM) run myHRdept, an independent supplier of HR services to smaller organisations who, in the main, don’t have their own HR department.