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The Timing of Merit Increases

Common review date or focal point increases means that performance/salary reviews are done for every employee effective on the same date once a year. Anniversary date means reviews are done at each employee’s “anniversary” date of hire.  Many companies have moved to the common review date method but there are still companies using the anniversary date system.  If you are considering one or the other or making a change, below are advantages and disadvantages for each method.

Common Review Date Advantages

  • Simple to administer
  • More consistency in appraisals, communications, and rewards.
  • All increases are based on the same full fiscal-year results.
  • Performance appraisal process gets showcased at the same time throughout the organization.
  • Discourage employees from seeking or expecting increases at other times.
  • If goals are aligned with company goals, performance can be reviewed against company year-end results.
  • On time review completion rates are better
  • Management can look at the entire organization with the top and bottom rated employees

Common Review Date Dis-Advantages

  • Large one-time cash flow cost.
  • Everyone getting increases at the same time makes comparisons easier and can lead to inequity complaints
  • Supervisors may not properly differentiate between employees in fear of comparisons and complaints.
  • Supervisors compare employees against each other rather than against each employee’s own work
  • People promoted or transferred to another department before the common increase date are judged by new bosses who are unaware or unwilling to pay for their performance in another department.
  • Can require a lot of time for managers with a large number of employees in a prescribed period of time
  • Performance ratings are typically tied to a specific salary increase percentage, and the ratings must meet the required distribution to meet budget which can result in a forced distribution ratings.

Anniversary Date Advantages

  • Reviews and rewards are personalized by employee’s anniversary of hire or last increase.
  • More flexible for changing reward intervals for reasons of individual merit, range caps or company finances.
  • Reduces chances of employees comparing increases because they come at different times.
  • Most supervisors are doing performance appraisals several times throughout the year gaining more practice and skill with the process
  • Supervisors doing the performance appraisal for one employee at a time can devote more time to each employee.
  • Less visibility of “forced distribution”, and managers believe they can rate employees more fairly

Anniversary Date Disadvantages

  • Hard to plan, budget and control.
  • Increases allocated from month to month may be biased or inconsistent.
  • Individual performance review periods may not fit fiscal year performance cycles, so individual performance must be judged before all results are in.
  • Managers tend to delay/postpone reviews because they are not being as closely monitored by HR.
  • Retro-active salary increases due to the manager missing the payroll effective date are more prevalent
  • Departments can easily go over budget
  • There is less alignment to corporate goals as reviews occur and goals are set throughout the year

If you do decide to change the timing of your salary/performance system, a thorough and simple employee communication plan and advance management training will be the key to success.  Compensation changes of any kind can be disruptive, so do your homework.

As a company, it is important to utilize benefits survey data, compensation surveys and salary reports. Having this information at hand allows you to plan a budget, including competitive employee salaries and benefits, which will help you to hire and retain a happy, talented team.  WageWatch surveys over 5,000 hotels, resorts and casino properties in the United States and the Caribbean.  WageWatch’s proprietary survey process enables human resources professionals to access the most up-to-date and accurate wage and benefits data and prepare custom reports based on their needs and requirements. Additionally the WageWatch Compensation Consulting Team is available to assist you with all of your compensation needs such as pay structure design and implementation, market competitive analysis, internal equity audits to address employer concerns and add creditability to pay practices and much more. For more information, please contact WageWatch at 480-237-6130 or contact us online.

This entry was posted on Thursday, September 26th, 2013 at 7:05 AM and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.