Employers in India are abandoning the traditional practice of across-the-board annual raises to more targeted compensation strategies in which employees are increasingly expected to earn their raises through high performance or professional development, Saumya Bhattacharya reports at the Economic Times:
Last month, when Aon India Consulting announced the findings of its salary increase survey for 2017-18, average increment was estimated to be 9.4% for the year, almost the same as last year. From 2014 to 2018 (projections), average salary increment has declined from 10.4% to 9.4% — with the focus on performance becoming sharper each year. With the ability to learn new skills getting added to the high-performance matrix, the definition of top performers is also set to change.
Top performers, according to the new definition, would get an average salary increase of 15.4%, about 1.9 times that of an average performer, said the survey. … Experts say the phase of a large chunk of employees getting 14-15% increments is over. Ten years ago, you would have 20% of the organisation categorised as high performers. This has shrunk to 7.5% of the population in a company, they add.
Recent surveys of US organizations on their 2018 salary budgets show that more of them are moving toward an increasingly differentiated compensation strategy, with high performers getting rewarded with variable incentive pay and bonuses, while average and low performers receive smaller annual raises, or sometimes none at all. Employers like these more targeted pay schemes because research, including our work at CEB (now Gartner) shows that they tend to be more effective at motivating performance than routine raises for everyone.
The other reason for the increasing popularity of variable pay is that it gives employers more flexibility in their compensation budgets from year to year. It is practically impossible to take back across-the-board raises, or decline to give them when employees have come to expect them each year, without incurring a huge hit to employee morale. Variable raises and particularly bonuses tied to individual performance are more malleable: Giving an employee a substantial bonus for the great work they did this year this does not obligate you to give them that bonus again next year.
While beneficial to employers, and arguably good news for top performers, this change does have a downside for employees, making their incomes less predictable and leaving them more vulnerable to macroeconomic shifts. The other challenge here is that focusing raises exclusively on top performers can leave less room to differentiate rewards between average and low performers. As our own Brian Kropp tells NBC News’s Martha C. White, this carries its own set of risks for employee engagement:
The latest salary planning survey from Aon Hewitt finds that most US organizations plan to keep wages relatively flat for most employees in 2018, with base pay increases averaging 3 percent and spending on bonuses and other variable pay declining to 12.5 percent of salary budgets, the lowest since 2013.
“The economic outlook for most industries continues to improve with increased demand for goods and services and stronger job creation, but companies remain under pressure to increase productivity and minimize costs,” Ken Abosch, broad-based compensation leader at Aon, said in a press release. “As a result, we continue to see relatively flat salary increase budgets across employee groups, with most organizations continuing to tie the majority of their compensation budgets to pay incentives that reward for performance and business results.”
Two-thirds of organizations are increasing the differentiation of their merit pay in 2018, Aon finds. Among those employers, 40 percent are reducing or even eliminating raises for low performers, 18 percent are using a more highly leveraged merit increase grid, and 15 percent are setting more aggressive performance targets.
Surveys of salary budget projections for 2018 show that US employers are planning to hand out raises of 3 percent on average, similar to the previous few years. The latest survey from Willis Towers Watson concurs in this regard, Bloomberg’s Rebecca Greenfield reports, finding that 98 percent of employers plan to raise salaries this year, with most employees getting a raise of around 3 percent. However, WTW also found that top performers are getting a bit more than the rest:
Employers are cautious about giving raises, and even as some complain of trouble hiring as the job market tightens, few feel pressure to pay their employees more, said Sandra McLellan, a researcher at Willis Towers Watson. A sliver of employees will, however, see a bigger bump on their pay stubs this year. So-called star performers, those who score highest in performance ratings, can expect, on average, a 4.5 percent salary bump.
Alex Fradera at the British Psychological Society’s Research Digest flags a new study looking at the impact of cooperative workplaces on high-performing employees, which found that “in more cooperative climates, hotshots are actually more likely to get a raw deal”:
Elizabeth Campbell and her colleagues surveyed 350 hair stylists, mainly women, working within a chain of Taiwanese salons. The researchers were interested in how the most successful stylists were treated by their peers: they identified hotshots by asking managers for performance ratings, and then they surveyed all the staff to find out the benefits and threats they saw in each other, and how much criticism and support they received. They also asked stylists about their salon’s working climate by asking them how much they agreed with statements like “there is a high level of cooperation between stylists”. …
The researchers found that hotshots experienced more negative treatment in the form of belittling and criticism when they were surrounded by co-workers who felt threatened. In contrast, hotshots received more help and support if their colleagues saw them as a benefit. The typical high performer had a mixed bag: compared to the typical stylist, they were criticised more, but also received more support. But that support was lacking within salons with more cooperative climates.
This is not the first study to suggest that cooperative workplaces can have a negative impact on standout employees. Last year, management scholars Rob Cross, Reb Rebele, and Adam Grant found that high-performing, highly networked employees tend to get overwhelmed with demands for collaboration, which can ultimately hurt their performance by spreading them too thin.
At the New Yorker last week, Maria Konnikova considered the question in light of the latest research into the origins of exceptional human performance and found that the answer may not be that simple:
In a 2014 meta-analysis that looked specifically at the relationship between deliberate practice and performance in music, games like chess, sports, education, and other professions, [psychologist Zach] Hambrick and his team found a relationship that was even more complex than they had expected. For some things, like games, practice explained about a quarter of variance in expertise. For music and sports, the explanatory power accounted for about a fifth. But for education and professions like computer science, military-aircraft piloting, and sales, the effect ranged from small to tiny. For all of these professions, you obviously need to practice, but natural abilities matter more.
What’s more, the explanatory power of practice fell even further when Hambrick took exact level of expertise into account. In sports—one of the areas in which deliberate practice seems to make the most difference—it turned out that the more advanced the athlete, the less of a role practice plays. Training an average athlete for a set number of hours yields far more results than training an élite athlete, which, in turn, yields greater results than training a super-élite athlete. Put differently, someone like me is going to improve a great deal with even a few hundred hours of training. But within an Olympic team tiny differences in performance are unlikely to be the result of training: these athletes train together, with the same coach, day in and day out. Those milliseconds come from somewhere else.
She also spoke with David Lubinski, a professor of psychology at Vanderbilt University who has been studying top math students:
In a recent study of restaurant servers, INSEAD’s Serguei Netessine and Tom Tan of Southern Methodist University explored how the presence of high performers influenced the work of their less competent colleagues. What they found is that competence is indeed “contagious,” at least to an extent:
With algorithmic assistance, it is possible to quantify an individual employee’s innate ability as well as his or her sales performance; but, crucially, stats pertaining to individuals don’t necessarily tell you much about what will be in the till at the end of the night. The critical factor is team performance, which can often be more, or less, than the sum of the parts. …
Having established a baseline skill level for each server, we found that the servers’ sales performance during a given shift would rise or fall depending on who happened to be working with them. Low-skilled servers seemed capable of punching above their weight when the overall skill level of the team was higher. Importantly, this contagion can be charted in an inverted U-shape, meaning that when a shift was stacked too thickly with superstars, the other servers performed below their capacity.