Out-of-the-box thinking for designing merit matrices

Are you using a merit matrix for deciding salary increases for the employees in your company ?

Then you are already familiar with the traditional “bands” or “ranges” of comparatio (basic pay compared to midpoint of the salary range associated with the grade of the employee – the position of the employee in the pay range) that are used as one of the axes of the matrix. The other one is employee performance rating.

In many cases, the salary range is built something like :

• Basis : midpoint (tied to target position in the market) = 100
• Minimum salary = 80
• Maximum salary = 120

(or you may say : + or – 20% around the midpoint).

Often, the salary range is split in 4 equal comparatio bands : the quartiles. Q1 goes from 80 to 90 in comparatio, Q2 is 90 – 100, Q3 is 100 – 110 and Q4 is 110 -120.

Sometimes, the salary range may be split in 3 even comparatio bands, also known as terciles. Say you have two employees whose pay is right around the market value, for example one has a comparatio of 99% and the other one, 101%. For the vast majority of employees, a 2% difference on basic pay is a very small amount in absolute Dirhams, Dollars or Euros so it may not make sense to differentiate their salary increase because of an arbitrary position around the midpoint. Terciles are a good way to handle this situation – especially useful if a good number of your staff is paid around target market value /midpoint.

Overall, we rarely question these facts : 3 or 4, uniformly spread comparatio bands.

But who said this should always be applicable ?

The number of columns in your merit matrix is not set in stone. You can have more comparatio bands if needed, for example if your salary ranges are quite wide.

And what if a large majority are paid similar salaries or are in the same comparatio band ? How would you differentiate them in terms of salary increase ? In that case, the “merit matrix” really just is, for the bulk of your employees, only based on individual rating, and not really on their comparatio too. It’s not a matrix, it’s a simple increase linked to performance rating. And given that most of your employees are rated as solid contributors /at target / 3, then you are really not creating a culture of pay for performance and differentiation, but simply perpetuating the status quo. Hummm… all of a sudden the traditional banding of comparatios does not seem as useful, does it ?

You may also look at the distribution of headcount by comparatio to identify if you need to create special bands in order to create an appropriate differentiation.

Or maybe you want to create a “safe” zone with lower retention risk around employees who are paid around the midpoint of their salary range, for example with a comparatio band of 90 – 105. Because, yes, who also said that your comparatio bands have to be symmetrical and anchored around the midpoint ?

My point is, don’t get stuck into the “it’s always been like that” and the “well, everyone else is doing it this way“. Think about what is right for your organisation, and do it. Good luck !

Related posts :

• The best order in which to apply salary increases in any organisation
• Merit increase or bonus, how do you reward performance ?
• Are you using comparatios without thinking ?
• Updating salary ranges… or not ?

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