2. | 37january 2017 workspan
Using a new practice?
Make sure those
carrying it out are
equipped to do the job.
By Alex Bibeau, Halogen Software
their employees about performance, rather
than relying on a performance rating and a
merit matrix approach.
This article will provide an overview
of our transition to this new approach
to performance management, with a
focus on the key lessons learned from
our first ratingless annual salary increase
process as we continue to empower
managers to distribute fair and equitable
merit increases.
3. 38 | workspan january 2017
Changing Management Accountability
Historically, Halogen Software, a Canadian
cloud-based talent management software
provider that employs about 500, used a
merit matrix to determine recommended
salary increases. The matrix was based on
two distinct factors: employee perform
ance rating and positioning within salary
ranges (compa-ratio).
Managers had the opportunity to deviate
from the recommended salary increase. But in
practice, the majority of managers relied on it
since the matrix addressed two key elements
to consider when approaching salary increases.
While the matrix was a guide from which deci-
sions were made, it was also a crutch. Instead
of standing by their decisions, managers often
told employees to talk to human resources if
they didn’t agree with the increases because it
was human resources that created the matrix.
With the elimination of the performance
ratings, the merit matrix approach was not
going to work. This represented an important
shift to increased managerial discretion and
accountability for salary increases. Without a
matrix, managers were asked to recommend
salary increases by taking into consideration
a greater variety of factors. The HR depart-
ment was a key partner in the process, helping
facilitate this change to ensure that the transi-
tion would be as smooth as possible. But this,
nonetheless, represented a significant change.
Impact on Salary Increase Patterns
Pay for performance is an essential part of
Halogen Software’s compensation philosophy.
It is important that the move to a new perform
ance management framework does not hurt
our ability to differentiate salary increases
based on employees’ performance and other
individual factors. This is even more important
considering that the annual salary review is
the primary lever for pay for performance
at Halogen Software, as we do not have a
short- or long-term incentive program based on
individual performance.
After one annual salary increase review
without performance ratings, we have found
that the individual salary increases are
generally clustered more closely around the
budgeted salary increase percentage. In other
words, the standard deviation between the
employees’ salary increase percentages was
reduced when compared to the previous
two years. This seems to support the view
that removing the merit matrix leads to more
uniform salary increase percentages. But it’s
important to stress that this is a small sample
upon which to draw conclusions.
Another factor that may explain our recent
experience is that our new performance
management framework was implemented
toward the end of our 2015 fiscal year. As a
result, our managers had to decide the salary
increases without the merit matrix, having
spent only part of the fiscal year within the
new performance management approach. We
are hopeful that we will see greater individual
differentiation in the 2016 annual salary review.
After all, ongoing performance management
means having several discussions and touch
points with employees throughout the year
regarding their performance, outcomes and
progress. So it is fair to say that this might help
managers to better understand their employees’
overall performance and what they are bringing
to the table, which could in turn lead to greater
salary increase differentiation.
It is important that the move to a new performance
management framework does not hurt our ability to
DIFFERENTIATE SALARY INCREASES ...
4. | 39january 2017 workspan
Efforts to Ensure a Successful Transition
As we reinvented our approach to performance
management, it was necessary for human
resources to educate our managers and ensure
they had the tools and knowledge needed to
recommend appropriate salary increases.
To be successful, our belief is that salary
increases should be based on a variety of
factors, including:
❙❙ Employee’s performance as a whole (outcomes,
competencies, day-to-day responsibilities)
❙❙ Position in range
❙❙ Salary increase history
❙❙ Market pressure
❙❙ Risk/impact of departure
❙❙ Internal relativity.
Halogen’s HR team provided in-person training
sessions to all managers, which included
explanations regarding the recent changes in
philosophy, the different factors to consider
when suggesting salary increases and several
scenarios and examples.
Calibration sessions were also conducted. Our
team of HR business partners facilitated meetings
with groups of managers to review their salary
increase percentages together. Calibration sessions
were conducted prior to our transition to the
new performance management philosophy, but
the objective changed slightly. The prior focus
was on performance ratings, while it is now on
salary increase percentages. We purposely did
not address actual salaries during these sessions
because there are too many factors involved
with assessing salaries within a larger group
of managers (mix of job levels, roles, years of
experience, etc.).
In essence, the objective was to ensure
consistency among large groups of managers
and move strategically where we want to be as
a company, within the guidelines. We want our
managers to come to these sessions prepared
and ready to be flexible to make needed
changes to their recommended salary increase
percentages. Our experience is that most of
the discussions focus on the high and low
performers. It would be too time consuming to
review all salary increase percentages. So we
wanted to ensure that, as a group, we had a
constant approach to pay for performance for
these two segments.
These calibration sessions have been key. Not
only have they ensured consistency, but they
also helped leaders prepare to defend their
recommendations, own their decisions and
get ready for compensation discussions with
their own employees.
Importance of a Performance
Management Framework
As explained earlier, the new performance
management framework at Halogen Software
requires greater accountability and input from
managers when deciding on salary increases.
Because the annual salary increase process
is no longer “an HR thing,” managers also
have greater involvement with communicating
specifics around compensation.
In order for managers to have effective
conversations about compensation and pay
for performance with their employees, they
need a robust performance management and
compensation framework and system that give
them access to a variety of timely information,
such as ongoing performance feedback, goal
achievement, development progress and accurate
compensation data.
This allows managers, for instance, to access
and use data from ongoing performance
Because the annual salary increase process
IS NO LONGER ‘AN HR THING,’ managers also
have greater involvement with COMMUNICATING
SPECIFICS AROUND COMPENSATION.
5. 40 | workspan january 2017
discussions throughout the year. Having several
discussions and touch points with an employee
during the year and having the ability to
access the content of these conversations helps
contribute to a more comprehensive look at
that employee’s performance over the course
of a year — not just what can be remembered
from the past few weeks. After all, employees
don’t like surprises when it comes to how their
performance is evaluated. A study by TriNet and
Wakefield Research found that 62% of employees
surveyed felt blindsided by annual performance
reviews and 59% felt that managers were unpre-
pared to give meaningful feedback.
A robust performance management system
and compensation framework also enable
managers to communicate openly by sharing
compensation history and presenting previous
compensation adjustments when meeting with
the employee. Each employee has a different
narrative, and the salary increase history might
provide some insight. For instance, an employee
might have received generous salary increases
in previous years and recently been promoted
into a stretch role, where there is a significant
learning curve. Another employee could have
received salary increases below the budget
because of his/her performance in the past few
years. Both of these employees might have a
similar compa-ratio (position in range), but their
stories are substantially different.
Empower Managers and Refine
So far, we are encouraged by the response of
our business to managing performance differ-
ently. We also acknowledge the novelty and
impact on managers, especially within the
context of the annual salary review process.
The latest annual salary review results at
Halogen Software indicate that salary increases
were more clustered around the budget, while
we want to ensure greater individual differentia-
tion based on performance and other factors.
This is definitely something that we want
to address, and we will continue to look for
effective ways to support managers through
education and training. We need to empower
managers to be accountable for distributing fair
and equitable merit increases based on a holistic
set of behaviors and specific compensation
circumstances.
Alex Bibeau is compensation and benefits manager at
Halogen Software, based in Ontario, Canada. Contact him
at abibeau@halogensoftware.com.
A study by TriNet and Wakefield Research found that
resources plus
For more information, books and education related to
this topic, log on to worldatwork.org and use any
or all of these keywords:
❙❙ Performance management
❙❙ Compensation
❙❙ Total rewards.
62% of employees surveyed
felt blindsided by
annual performance
reviews and
59% felt that managers
were unprepared
to give meaningful
feedback.
