Merit Increases—Performance or Place in Range?

Compensation Planning
by Stephen Bruce, PhD, PHR
"Yesterday’s Advisor offered expert Diana Neelman’s tips on eliminating the entitlement mentality; today, her take on range placement and merit increases, plus an introduction to the all-things-compensation-in-one website, Compensation.BLR.com."

Neelman, who is principal and senior consultant with Compensation Resources, Inc., in Upper Saddle River, New Jersey, shared her tips at a recent webinar sponsored by BLR and HR Hero.

Working with Salary Ranges

Neelman’s charts below describe the segments of the range and who is typically in each segment.

Below

Incumbent’s salary falls below the minimum of the grade. Need to explore why this is happening.

Low

Incumbent’s salary falls in approximately the first third or low band (PIR of 0%–29%) of the salary range. Typically represents new employees or those with lower performance.

Middle

Incumbent’s salary falls in the middle portion of the salary range (PIR of 30%–70%). Typically represents the competitive market for the position. Where we expect to find most employees.

High

Incumbent’s salary falls in the upper third of the salary range (PIR of 71%–100%). May include long-service employees, those with high experience levels, or employees with special expertise.

Above

Incumbent’s salary is above the grade maximum (PIR>100%). Often explained by individual circumstances. Long tenure or maxed-out high performers. Typical arrangements call for salary freezing until the range is adjusted upward.


Get ADA compliant job descriptions for your jobs with a Free Market Analysis Report. Also receive guidance on how to use our Compensation Analyzer tool to do market analysis, identify internal and external inequities, and track compensation.


Merit Increase Guidelines

Neelman identifies two main ways to determine merit increases: based strictly on performance or based on a combination of performance and position in range. For example, based only on performance, one might see a structure like this:

Outstanding

Exceeds Expecta-
tions

Meets
Expecta-
tions

Needs Improve-
ment/
Unsatisfactory

5%

4%

3%

0%

Increases can also be based on a combination of performance and range placement. This system provides the opportunity to maintain integrity of market competitiveness and still reward performance.

 

Place in rangeè

Low

Middle

High

 

% in group

25.00%

50.00%

25.00%

 

Performance
ê

 

 

 

% of pie*

5.0%

Outstanding

5.0%

4.5%

4.0%

0.225%

70.0%

Exceeds

4.0%

3.5%

3.0%

2.492%

20.0%

Meets

3.0%

2.5%

2.0%

0.504%

5.0%

Needs Imp/Unsatis- factory

0.0%

0.0%

0.0%

0.000%

 

TOTAL

3.221%

*Estimated. This figure will vary depending on what grades the employees are in. If all the top performers are in the higher grades, they are going take a bigger percentage of the compensation pie—you may have to redistribute, Neelman says.

In a system like this, says Neelman, to get greater differentiation, consider eliminating the “exceeds” category.  

Performance and position in range—comp manager’s daily bread, but just one of the daily challenges. “Maintain internal equity and external competitiveness and control turnover, but still meet management’s demands for lowered costs.” Heard that one before?  

Many of the professionals we serve find helpful answers to all their compensation questions at Compensation.BLR.com, BLR’s comprehensive compensation website.

And there’s great news: The site has just been revamped in two important ways. First, compliance focus information has been updated to include the latest on COBRA, Lilly Ledbetter, and the FMLA. Second, user features are enhanced to make the site even quicker to respond to your particular needs:

  • Topics Navigator—Lets you drill down by topical areas to get to the right data fast.
  • Customizable Homepage—Can be configured to display whatever content you want to see most often.
  • Menu Navigation—Displays all of the main content areas and tools that you need in a simple, easy format.
  • Quick Links—Enables you to quickly navigate to all the new and updated content areas.

The services provided by this unique tool include:

  • Localized Salary Finder. Based on reliable research among thousands of employers, here are pay scales (including 25th, 50th, 75th, and 90th percentiles) for hundreds of commonly held jobs, from line worker to president of the company. The data are customized for your state and metro area, your industry, and your company size, so you can base your salaries on what’s offered in your specific market, not nationally.

Get an ADA compliant job description, grade assignment, rate range for that job, and salary data, all customized for your industry and geography. Better news? It’s FREE. Download Your Free Market Analysis Report.


  • State and Federal Wage-Hour and Other Legal Advice. Plain-English explanations of wage-hour and other compensation and benefits-related law at both federal and state levels. “State” means the laws of your state because the site is customized to your use. (Other states can be added at a modest extra charge.)
  • Job Descriptions. The website provides them by the hundreds, already written, legally reviewed, and compliant with the Americans with Disabilities Act (ADA) mandate that essential job functions be separated from those less critical. All descriptions carry employment grade levels to current norms—another huge time-saver.
  • Merit Increase, Salary, and Benefits Surveys. The service includes the results of three surveys a year. Results for exempt and nonexempt employees are reported separately.
  • Daily Updates. Comp and benefits news updated daily (as is the whole site).
  • "Ask the Experts" Service. E-mail a question to our editors and get a personalized response within 3 business days.

If we sound as if we’re excited about the program, it’s because we are. For about $3 a working day, the help it offers to those with compensation responsibilities is enormous.

This one’s definitely worth a look, which you can get by clicking the links below.

Click here to get more information or start a no-cost trial and get a complimentary special report!

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  1. Barb        
    February 26, 2013 12:33 pm

    How much of the behind-the-scenes computation process should employees be privy to? How transparent are your compensation approaches?

    • Kathleen        http://www.facebook.com/profile.php?id=100003452455399
      January 23, 2014 4:43 pm

      The authors pvirode a nice overview of online teaching, including a lot of important considerations for job seekers (many of which apply equally well to those looking for jobs outside the realm of online education). The advice seems honest, and the authors admit that, unfortunately, there is no single source, website or service that will pvirode you with access to all the job listings/opportunities that are available. I didn’t find anything new among the websites they suggest monitoring for job opportunities, but this doesn’t mean that you won’t it may depend on how much research you’ve already done. Their advice on strategies for making inquiries, even when no opportunities are listed, seems reasonable and should be helpful to many. There was a good deal of emphasis on how to use and maximize current technologies, along with accounts of the authors preferences. I had hoped there would be more focus on the actual online teaching process e.g., tips for addressing common problems students encounter in adapting to discussion forum-based learning, etc. Granted, the advice may help you to be more organized and efficient, and therefore give you more time to think about how to manage e-classroom issues and improve your teaching techniques. Nevertheless, managing relationships with institutions, administrators and other online-teachers is covered reasonably well, but not so extensively for the online student/teacher relationship. I can’t fault the book too much for these issues however, as the title is Make Money Teaching Online, and not How to Teach Online. This brings up another aspect that I found troubling, in the subtitle implication that the book will show you how to earn a six-figure salary from online teaching. Although I don’t doubt that it is possible for those who manage their time exceptionally well, I have my doubts as to whether this is realistic for all but the most committed and hardworking teachers, as well as some others who may likely be precariously overextended and therefore of little utility to their students. The advice in this book may well help online teachers to be more organized and maximize their time, possibly allowing them to take on extra work. However, is it really necessary or advisable to promote online teaching in this way? Overall, the book does makes a pretty nice guide for career exploration, especially for those who already have a little bit of classroom-based teaching experience and are interested in pursuing online opportunities. I wouldn’t recommend going into this field if extremely high earnings are your primary motivator however.