Pay for Performance
1. Calculate the 3% merit budget (merit pool is determined by computing 3% of the total salary of your team).
2. Compute each employee’s compa-ratio (current salary divided by the midpoint). This value represents the relative position of the employee’s current salary to the market (low, equal, high) and can be useful in making award decisions.
3. Determine how best to distribute the merit pool based on the principle of “pay for performance”. Merit increases should be expressed both in dollars and as a percent of the employee’s current base pay.
4. Compute the new salary (merit increase + current salary).
5. Compute the participation rate for the department (# of employees receiving merit increases divided by the total # of employees in the department). This value represents the % of employee in the department receiving an increase. Too high a percent infers that there is little performance/reward differentiation; too low a percent infers possibly an unrealistic performance/reward threshold. Both ends of the participation rate continuum could affect morale, performance, and result in turnover.
6. Prepare a statement for each of the 12 employees that affirms your decision to performance award decision. Your message must reference data from the performance evaluation.