During my first eight years in the workplace, I received an annual salary increase. While that was terrific, my raise percentage was the same as every other person in the business school. A new dean arrived and changed the model. In the following five years at that same business school, raises were given each year, but the percentages varied based on performance.
Some organizations today follow the ‘across-the-board’ increase model. For example, there are large firms that hire many college graduates every summer at the same salary (and the only variances across the country are due to cost of living considerations). So perhaps they hire everyone in the Atlanta office at a salary of $50,000. All new hires are trained and do, more or less, the same job. After a year, everyone gets the same pay increase. Performance has nothing to do with how the raises are determined. Some firms have used this model for years.
I read something on LinkedIn recently about a young man who had been a star performer his first year in the firm. Let’s call him David. Managers across the firm were impressed with David’s work ethic, creativity, productivity, and willingness to go the extra mile. He had a ready smile and was a team player. He received a lot of recognition that first year. David felt important to the organization.
After about 15 months there, however, managers begin noticing that David had essentially backed off. He wasn’t working the extra hours. He wasn’t willing to volunteer to help team members who needed an extra hand. He didn’t smile as readily.
His supervisor asked to have a conversation with him. The supervisor praised David for the amazing work he had done his first year, but questioned why it seemed as if he wasn’t as committed to his work as he had been just a few short months before.
David said, “Well, when I learned that I received the same raise as everyone else in the organization, I wondered why I was working so hard. I received no more money than those I worked with who weren’t very good at their jobs or weren’t as committed. So I’m not going to do more than I have to. Why bother?”
There is a lot of research about the importance of salary in the workplace. It’s not the No. 1 reason people work in particular organizations, but salary is a signal.
Many people are motivated by intrinsic factors. They have an internal drive to do their best, regardless of salary. But when a highly motivated person learns that, regardless of how hard he works, it won’t matter to his bottom line, he gets frustrated. That’s what happened with David.
It’s the same reason the dean in my first job changed the salary model. Those faculty who had checked out were receiving the same percentage pay increases as the most productive faculty in the school. And that dean wanted people to be recognized for the work they were doing.
So while the previous dean would take the pool of money and give, let’s say, a 3 percent raise to everyone, the new dean considered what the faculty members had achieved the previous year and varied the percentages. While some faculty got no increase, the really productive ones might get a 7–10 percent raise. Talk about a game changer for the productive ones—they loved it!
But what about those receiving either no raise or a much smaller percentage than the stars? While this new model didn’t motivate each of those faculty to perform at higher levels, it did work for some of them. And that was part of the goal.
Something different seems to happen to the large firms’ employees that get the same raises. The star performers tend to leave the organization after a couple years as they get discouraged when their pay is the same as everyone else. And the large organizations start over every year.
How does your outfit handle annual pay increases? Is the model working effectively?
Lynne Richardson is the dean of the College of Business at the University of Mary Washington.
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