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.
The “Tax Cuts and Jobs Act” passed by the US Congress last month, which lowered taxes on corporate profits and most employees’ salaries, has a number of implications for employers, affecting payroll withholding as well as the tax treatment of executive pay and some employee benefits. One of the arguments the Trump administration and Congressional Republicans advanced for the tax cuts, which were historically unpopular among the American public, was that lowering the corporate tax rate would incentivize companies to use their tax savings to invest in their workforce, giving millions of employees a much-needed raise.
While several large employers announced plans to issue bonuses to employees, raise wages, or make other business investments after the tax reform bill was passed, most companies have indicated in earnings calls and surveys that they plan to parlay most of their tax cuts into debt repayment, dividends, and stock buybacks. Corporate America, Solutionomics founder Chris Macke argued in an op-ed at the Hill in December, was already sitting on large piles of cash and not prioritizing business investment due to insufficient demand. Companies, he wrote, need more customers more than they need more cash.
Whether or not US companies decide to invest more of their tax savings in growing their business (which they may still face public pressure to do), Bloomberg’s Rebecca Greenfield notes that these investments probably won’t come in the form of across-the-board raises. For most workers, the 3 percent annual raise, which has been standard for five years, will likely remain the norm in 2018:
Peter Cappelli suspects that it is. At HRE, the Wharton professor interprets the recent wave of organizations radically overhauling or even abolishing their performance review processes as a sign of a more fundamental transformation in the nature of this relationship:
By the 1990s, … [t]he growing interest in maximizing shareholder value and the increasing presence of financial thinking in the operation of big companies fueled the idea that employment is really an economic relationship: If you don’t give employees a financial incentive to work hard, they won’t do it. In that context, merit pay became the linchpin of the relationship with employees, and the purpose of performance appraisals was to determine merit pay. The goal was to measure past performance, document that measure and then hand out rewards based on it. …
Dropping performance appraisals — as so many leading companies seem to be doing now — cuts right at the heart of the idea that employment is an economic relationship and the notion that supervision is really just an accounting function: Total up the points and pass out the money. It’s taking us back to an earlier idea that employees actually need to be managed and that the supervisor should be helping them improve their performance and develop their skills. Merit pay still has its place, but that role is simply to encourage the main goal of improving job performance and skills.
Cappelli’s idea that the ongoing trend is not about performance appraisals per se, but rather the broader change in thinking that it represents, is an interesting way to look at the issue. To a certain extent, however, our research disagrees with the notion that “employees actually need to be managed and that the supervisor should be helping them improve their performance and develop their skills.” This describes a heavily top-down way of managing employees.
Instead, we would argue that professional relationships are indeed changing, but rather than reverting to a bygone era of performance management, the emerging management style is more collaborative, with performance and development becoming the shared responsibility of manager and employee. This change is also reflected in recent changes to performance management that focus on more frequent, informal, two-way conversations.