The Pros and Cons of Focal vs. Anniversary Merit Raises


Shifting merit increases from employee anniversary dates to a focal point system may be an option for companies that want to connect performance with pay. While it can raise concerns for employees initially, there are multiple advantages of changing salary increases to correspond with actual performance metrics. But before you go messing with people’s pay, learn what this change impacts.

The problem with anniversary salary increases is that employees learn to expect a raise rather than earning one. They get antsy when it comes close to another year on the job and they can get attitudes about it. Managing raises like this doesn’t make a lot of sense because employees are not thinking in terms of what they bring to the table – instead they want what’s coming to them whether they’ve met performance goals or not.

Focal salary increases can take place when management conducts regular performance evaluations. This forces them to take a good long look at the actual work of each employee, then assign a percentage that influences the salary increase. Management also gets to see a snapshot of their team, from the highest performing employees to the lowest. In most cases, the salary budget is fixed, meaning there is greater control over how much the company increases salaries across the board. When focal reviews are conducted by year-end, this information can be very useful for determining if employee performance has contributed to company goals and profits.

Another thing to consider when shifting to focal reviews: They are much more scalable in nature. According to Paige Hanley, Payscale’s Sr. Compensation Professional & Team Lead, “Doing anniversary reviews isn’t so bad when you have a small organization but any larger than 40 employees and suddenly it’s a nightmare for HR to manage.”

The only problem with focal point method of raising salaries is the reliance on management to get performance reviews completed on time for every employee. This may take a little hand-holding from human resources the first time around.

But, what about the fairness of focal point vs. anniversary salary increases – don’t employees get short-changed?

This is a common misconception about focal raises. It takes a little mathematics to understand this. A recent World at Work community discussion shared two options that present themselves when switching from anniversary to focal salary increases.

#1 – Provide all employees a proportionate adjustment at the time the focal date is set.

An employee may have already been reviewed prior to transferring over to the focal date method, which happens a lot. No problem. Just reduce the amount of the merit increase by each month. So for example, if the review occurred 2 months ago, give the employee 10/12 of the increase.

#2 – Delay the review for recently reviewed / adjusted employees until the next focal date.

It’s possible to delay the merit increase for all employees until the next focal date, which is the method that many companies opt for. In this case, adjust the amount of the increase on a pro-rata basis, so that they get the annual raise, plus the additional few extra months they waited.

In either case, gauge the reaction of employees and err on the side of good will for the first year of the new policy.

Have more questions about managing employee merit increases, developing better compensation strategies, or updated compensation data? Get the PayScale Compensation Best Practices Report today.

 

 

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2 Comments on "The Pros and Cons of Focal vs. Anniversary Merit Raises"

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David Stelmaszek
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Reducing the merit increase by each month would not be correct, at least not as you stated. Each employee should receive 1/12 of the annual increase for each month since their last adjustment. So in your example they would receive 2/12.

Tess
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David, you are correct in your math – thanks for pointing that error out to me!

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