Salary Increase Matrix: An Introduction

Introduction

This is Part 1 of my articles on the Salary Increase Matrix

In Lee Kok Wai’s lecture notes for compensation management (please search on internet), he listed 4 main methods of giving annual salary increments. One of them is the salary increase matrix:

  • Fixed increment system where a fixed dollar increase or fixed percentage increase is given.
  • Variable increment system where a fixed variable is given or a fixed plus (merit increment) is given
  • Flexible increment system where a fixed component plus a flexible component is given
  • Matrix system is used (either salary quadrant or performance matrix)

Salary increase matrix is a tedious tool to use. It is tool that depends a lot on guesswork. In this article, I will explain how tedious it can be.There is a better alternative but I will propose this alternative in another article.

What is in A Name?

The salary increase matrix or salary increment matrix is called by a number of names.

The Salary is also called equity / performance matrix. This term can be found in the article “Using an Compensation Equity / Performance Matrix to Address Salary Compression / Inversion and Performance Pay Issues” written by Peter Richardson and Steven Thomas, Administrative Issues Journal Volume 3, Issue 1, Missouri State University.

Payscale.com called it Merit-Based Performance Matrix or Merit Matrix. In the 1997 book New Strategies for Public Pay: Rethinking Government Compensation Programs, Howard Risher, Charles H. Fay and James L.Perry called it a merit matrix model. The Colorado government website called it a merit pay table. It is also called salary targeting matrix by Payscale Inc. Mathis and Johnson in their book Human Resource Management: Essential Perspectives, calls it a pay adjustment matrix or salary guide chart. Teton County, Idaho calls it merit administration aatrix.

Different Examples of Salary Increase Matrix

Essentially, the salary increase matrix will has 2 axis. On one axis (usually horizontal) are the range quartiles or compa-ratios and on the other axis (usually vertical) are the performance ratings on the other axis.

There are different types of salary increase matrices because different performance appraisal systems use different number of performance ratings, usually from 3 to 6, with 5 the most common.

The following is a salary increase matrix based on a 5 performance ratings (outstanding, above average, average, below average, below average, unsatisfactory.)

salary-matrix-1

Source: The Human Resource Certification Preparation Program (www.hrcp.com)

salary-matrix-2

Source: The Salary Review Process: How It Relates to Performance Review

salary-matrix-3

Source: How to Use An Employee Performance Matrix, Payscale Inc.

Below is another example. The range quartiles or compa-ratios is to identify which quartile does a particular staff’s base salary falls into. They also identify the experience level of the worker.

salary-matrix-4

Source: Washing and Lee University’s Salary Increase Guidelines 2014 to 2015

Principle Behind Pay Salary Increases by Range Quartiles

High performers get more than low performers.

The midpoint salary in a salary range reflects what most people in the job market is being paid for silimilar jobs.

High performers paid low in range should receive the largest salary increases, while lower level performers already paid at or above midpoint should receive smaller or no increases.

People at or above the grade maximum (compa-ratio higher than 1.2) get no increment.

The same level of performance rating results in different percentage of salary increase, depending on where the current base salary in the salary range.

Here is one example.

Position of salary in pay range (compa-ratio)
Lower Third Middle Third Upper Third
Support Staff 80 to 93% of market value 94 to 107% 108 to 120%
Professional Staff 73 to 91% 92 to 110% 111 to 127%
Performance Upper Third Salaries in this area of the matrix would usually experience the largest increases Salaries in this area of the matrix are at a premium. A moderate increase would usually be indicated.
Middle Third Salaries in this area of the matrix are probably about right, usually indicating a median increase
Lower Third Inexperienced performers or new in current position: median or above increase Experienced performers: below median or no increase. Salaries in this area of the matrix would usually receive little or no increase.

Here is another example of how a salary matrix will look like, based on this principle.

PAY INCREASE GUIDE CHART
Position in Range Far Exceeds Requirements Exceeds Requirements Meets Requirements Meet Most Requirements Does Not Meet Requirements
Above Max 3% lump sum 2% lump sum 0% 0% 0%
4th Q (75th to Max) 4% 3% 1% 0% 0%
3rd Q (Avg to 75th) 5% 4% 2% 0% 0%
2nd Q (25th to Avg) 6% 5% 3% 1% 0%
1st Q (Entry to 25th) 7% 6% 4% 2% 0%

Source: HR Networking: Performance Management by Lisa R. Franke

Instead of using percentages for the salary increase, you may want to use multipliers; as in this example. They are the same.

salary-matrix-5

Source: Building a Compensation Plan, Part 3 presented by Stacey Carroll, Payscale Inc.

Variations

The September 2015 of Workspan published an article titled “ Annual Salary Increase: Is the Juice Worth the Squeeze?, written by Juan Pablo Gonzalez, Axiom Consulting Partners. The article carried the following variation of the salary increase matix which it named “Performance Aligned Compensation Matrix.”

salary-matrix-6

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