Pay Salary Increase Using Forced Distribution

Salary increases are made for 2 main reasons – to adjust the basic salary or wage rate for inflation and to provide merit increment as a form of motivation for achieving an agreed upon criteria such as efficiency or performance.

There are 5 factors determining the quantum of salary increase or wage rate increase – ability and willingness of the employer to pay, what is the employee’s current pay, what is the market rate and the ability to meet or exceed this rate, the make-up of the employee’s total compensation package.

Different employers have different ways of arriving at the quantum of payouts

a)    Pay every one of the same job grade the same quantum

b)    Pay each employee according to what the employer is a reasonable amount

c)    Pay each employee based on results of performance appraisal.

d)    Pay each employee based on the results of performance appraisal but moderate those performance ratings according to a normal distribution curve.

e)    Pay each employee based on the results of performance appraisal but moderate those performance ratings according to a normal distribution curve (bell shape curve) as well as the person’s current basic salary with reference to the midpoint salary.

To add to the complexity, some businesses only have a hierarchical job title structure, but no job grade structure and no salary structure.

What we want to do here is to look at an example of how to moderate the performance ratings of a group of 7 employees according to a bell shape curve, as represented by the threshold percentage. The following method works with a performance appraisal system using a 5 points rating scale.

Performance

Rating

Threshold

%

Original

%

Moderated

%

Threshold Number

Original Number

Moderated

Number

Variations from Threshold

1

5

0

0

0.35

0

0

0

2

25

29

29

1.75

2

2

0

3

40

71

42

2.80

5

3

(2)

4

25

0

29

1.75

0

2

2

5

5

0

0

0.35

0

0

0

Total

100

100

100

7

7

7

0

The practical problems with  this technique are:

a)    All performance appraisals are subjective to bias.

b)    Observing the threshold means deliberately re-grading someone undeservingly up or down the score.

c)    Entailing efforts and facing conflicts with line managers who disagree to make any change to the ratings they gave.

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