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Bell-Curved Pay-For-Performance

Posted by Anadi Upadhyaya on September 2, 2011

Yes, it sounds weird, but it’s very present in most of the companies today in some way or the other, thanks to the economy and tight budgets. I don’t have any intention to start a debate on whether it’s good or bad, but to check the readiness of your compensation system to handle this. Does your compensation system have the capability to accommodate a forced bell-curved system? How ready is your compensation system to absorb this if it comes as a shock?

Information that can help your decision-making to be systematic rather than random includes:

  1. Current as well as past performance ratings for all employees.
  2. Ranking (1…N) for all the employees. This will be useful for employees sharing the same performance ratings as well as should you take out one of them out of the compensation round.

People should not confuse ranking with rating. Ranking should be used along with performance rating to meet the assigned x% penetration target for compensation distribution.

Your compensation system should allow managers to rank all employees in their hierarchy along with the capability to use rankings given by managers reporting to them. It will result in a system for higher management where all population is ranked from 1 to N and each ranked employee has associated performance rating information. It will allow applying any formula for compensation distribution as rating and ranking together will best indicate the importance of any selected employee.

Having your compensation system ready with the above-mentioned information will also avoid having to involve all managers when the target % of penetration changes during the compensation distribution cycle for any reason.

To conclude, let me ask you “If only 60% of your workforce could get performance bonus and 80% of your workforce could get salary increase as per published guidelines, how would you handle this?” Would you prefer to use ranking along with performance rating or are you already equipped with something better? Please share your opinion and suggestions.

Thanks for reading.

Photo by c r i s

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