Life at Work
The Bonus Question
Sunday, November 13, 2005
The season of bonuses and raises used to bring hand-wringing over decisions about who gets what. These days, though, in many cases co-workers receive the same bump in salary, even when increases are supposed to be based on merit.
In 2006, the average employee base pay increase is expected to be 3.7 percent, the same as the 2005 increase. Although those raises are most often supposed to be based on merit and parceled out to the people who really deserve them, managers often find it a challenge to give anyone less than that 3 percent, according to Jim Kochanski, senior vice president with Sibson Consulting.
Too many companies don't make sure merit increases reflect an employee's performance or productivity, Kochanski said: "With 3.5 to 4 percent to work with, it's difficult to make any meaningful differential between high and low performers."
According to the Society for Human Resource Management (SHRM), 84 percent of all companies offer some monetary or non-monetary reward program. (I won't get into the companies that don't routinely provide annual pay raises or bonuses. Let's save that for a more heated column.)
Meanwhile, SHRM said 69 percent of all human resource professionals said their organizations offer incentive compensation programs, or a raise or bonus based on an employee's performance.
The biggest problem, Kochanski said, is that companies' pay increase budgets have remained stagnant -- and low -- for several years. "My main message is that companies shouldn't throw up their hands and say there's nothing they can do because they have a small budget for pay increases," he said. Because the rate is so low, he said, companies often feel they have to give everyone the same raise.
Some companies have managed to preserve the difference between regular increases and incentive or merit increases.
Mark Dumas, founder of Spatial Data Analytics Corp. in Tysons Corner, has a system of raises and bonuses that does, he is confident, reward the right people with the correct amount of dough.
His method -- akin to the compensation machine operating at many companies -- features several forms of general incentives, including the annual raise, bonuses and spot bonuses.
The annual salary review is performed at the same time of year for everyone, so Dumas can analyze everyone at the same time and "normalize" salaries based on what everyone contributed throughout the year. Dumas said he feels obliged to give at least a 3.5 percent raise every year "because that's just inflation."
"Anything less than that probably would not do well for employee retention," he said. If the company did well, and the market is right, he will try to provide at least a 5 percent raise. And he has given as much as a 10 percent raise, but that was for underpaid workers . "It's more of a correction," he said. "I'm just applying principles I [as an employee] would have wanted."
Obviously, that bodes well for his retention rate. He has about 35 employees now, and was recently named a Deloitte and Touche Rising Star, an award given to companies that are less than five years old.
He believes his raise and bonus program is important for the company, not just the individuals. If he did not pay enough or reward employees for hard work, he said, the employees might look for other jobs and force the company to react. ("Um, don't leave. We'll pay you more.") That, he said, is detrimental. "You've already lost your loyalty" if that happens. "We try to be proactive."
The spot bonus is also a nice little incentive, whereby if an employee does something above and beyond (say, work an all-nighter to make sure a project is ready), Dumas throws $1,000 or so into his or her next paycheck. People also get bonuses if they generate new business. But the year-end bonus is more built-in: Everyone gets one, but the amount will differ from person to person, depending on each employee's review.
There is no question the reward system is subjective, Dumas said. But he does what he can to make sure every reward is based on as much knowledge as possible.
Employees are reviewed every six months. They do a 360-degree review, where peers, as well as supervisors and a few subordinates, review each individual. The employee also does a self-assessment. Then that information compiled together, along with real math -- how many hours they billed, how much time they put in -- results in what Dumas thinks is a very strong method behind rewards.
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