“If I’m so good, why don’t I get a bigger raise?”

By BLR Founder and Publisher Bob Brady

Regular readers of this column may have figured out that I’m a big fan of Jack Welch. One of his key tenets is “differentiation.” In his view, this is a straightforward (and fairly ruthless) “survival of the fittest” approach.

He advises every organization to line its people up, figure out who is “superior,” who is “average,” and who is “poor.” Then, reward the top people the most, encourage the middle group to grow and develop, and take steps to remove the worst.

Jack Welch’s advice sounds heartless at first blush, but he defends it eloquently in both of his books, and he has convinced me that it is a wise approach. People at the bottom of the spectrum are not happy with the organization or themselves. In my experience, they are happier, in the long run, after termination, because most go on to jobs and careers for which they are better suited, and there is no doubt that the organization and their co-workers are better off. The only mistake, and we’ve made it again and again, is not acting decisively enough, which usually means waiting around and hoping the person will quit.

What a mistake! That’s because the problem just hangs around, sapping morale and productivity. I could write a whole column about the folly of this management technique—in fact, I will, some other time.

The other side of the equation is harder. How—particularly in tough times of budget restraints—do you reward superior performers?

If we are facing salary increase mandates and we issue strict orders limiting raises to x percent, how can managers give their “stars” the raises needed to retain and motivate? The culture of many organizations does not encourage this kind of differentiation. While we pay lip service to treating the “best” people better, in fact many managers—faced with the tough decision—decide that all their people are great and opt to spread increases for their entire team, pretty much without differentiation.

I wish we could say that at BLR we’ve always gotten this “right.” Wishing won’t help, though, because we haven’t.

When we were small and knew everyone’s skills and strengths, it was easier to make mental calculations of who was growing and taking on more responsibility, and vice versa. Rewards followed with reasonable logic. As we got larger, it got tougher and we veered from extremes of “everybody gets the same percentage” to “well, it’s a sunny day, so you get a big raise.” (A little ironic for a company peddling HR advice, I know, but it’s a case of the “cobbler’s children going shoeless.”)

Finally, a consultant named Rick Flath helped us bring some order to the decisions.

He taught us a simple matrix that has “Position within Salary Grade” on one axis and “Performance Level” on the other. Then raise percentages are put in each cell, with the lowest percentage (usually zero) in the cell representing high position and low performance rating, and the highest raise for a person low in grade and high in performance. (Actual percentages would depend on your budget, goals, etc.) It might look like this:

There is no magic here; the matrix is widely used in compensation consulting. It is a practical tool that: 1) can be easily understood by employees and managers; 2) allows HR and management to look across the organization and normalize; and 3) creates differentiation in a way that communicates effectively to employees and employers alike.

BLR has a sample matrix that can be viewed on our Compensation.BLR.com website. The full version allows you to put in your high and low percentages, and estimate the workforce distribution in the different cells. It then calculates a prediction of the total budgetary impact.

It is an easy way to start on the road toward intelligent differentiation. Try it and let me know what you think at Rbrady@blr.com.

Have a great HR week!