Is It Fair to Grade a Good Performer Lower for a Smaller Salary Increase?

A good performer, but the position and salary are not commensurate. The salary is higher in the position category within the company. In this case, if his performance is rated as C (good), can he be classified as D (average) because his increment should only be 5%? Hence, graded as D, as the increment percentage is linked to grading. Is this correct, and if not, what should be the process?

The question is a bit confusing, but let me make some comments for clarification:

Performance Rating vs. Job Rating

"Performance Rating" is not the same as "Job Rating," which is normally done in Job Evaluation (JE) Programs and related to the Job Grades of a company's Salary Structure (in the Job Grading Methodology vs. India's concept of salary structure which speaks about salary components like PF, etc.).

Salary grades are generally determined by a JE methodology and would determine the size and classification of jobs (vs. other jobs) and the compensation rate range that it is entitled to as per the company structure.

A "Performance Rating" is the supposed rating that an employee gets after an appraisal is made. The scores and ratings depend on the policy or guideline that governs the appraisal tool used. Generally, the scores and ratings are given equivalents relative to the reward or sanction that they are entitled to. The equivalents are normally expressed in terms of fixed amounts or a percentage of an employee's existing salary. However, it has nothing to do with the Job Grade of the employee.

Hope this helps.

Regards,
Ed Llarena, Jr.
Managing Partner
Emilla International Consulting Services
Tel: [Phone Number Removed For Privacy Reasons] / [Phone Number Removed For Privacy Reasons]

Thanks for the clarification. I would like to elaborate. My present grade is GM, and my salary is Rs 3.2 million INR per annum. The salary for persons in the same grade (GM) in my organization is Rs 2.5 million per annum. My performance was rated 4 out of 5, where 5 is the highest rating. The increment rate for Rating 4 is 15% of the Basic Pay in my organization. They wanted to give an increment of only 5% and hence changed the rating to 2, where the increment rate is 5% for rating 2. As my salary is high for GM in my organization, they wanted to give only 5%. I wanted to know if this is the right approach and if it is the current best practice followed in the industry.

Clarification on Performance and Job Ratings

The question is a bit confusing, but let me make some comments/clarifications: "Performance Rating" is not the same as "Job Rating," which is normally done in Job Evaluation (JE) Programs and related to the Job Grades of a company's Salary Structure (in the Job Grading Methodology vs. India's concept of salary structure, which speaks about salary components like PF, etc). Salary grades are generally determined by a JE methodology and would determine the size & classification of jobs (vs. other jobs) and the compensation rate range that it is entitled to as per the company structure. A "Performance Rating" is the supposed rating that an employee gets after an appraisal is made. The scores and ratings depend on the policy or guideline that governs the appraisal tool used. Generally, the scores and ratings are given equivalents relative to the reward or sanction that it is entitled. The equivalents are normally expressed in terms of fixed amounts or a % of an employee's existing salary. But it has nothing to do at all with the Job Grade of the employee.

Hope this helps.

Regards,
Ed Llarena, Jr. Managing Partner Emilla International Consulting Services Manila, Philippines [Phone Number Removed For Privacy Reasons]

If your understanding and interpretation of your company's performance policy is correct, then you seem to have the right to raise the question that you shared with us here. The best approach and action for you is to discuss and clarify the matter with your top management, as this is a matter of policy interpretation.

Offhand, I could see a problem with the way the policy (as you say it) must have been formulated. Indeed, I have seen some companies adopt similar policies, and I have always advised them on the disadvantages/implications of providing fixed entitlements to performance ratings.

As we all know, the financial performance of business organizations fluctuates year on year. Some years are good, while some are bad—or even very bad. But regardless of its financial performance, the company must conduct the annual appraisal and provide rewards to those that performed well. However, in a year where a company's financial performance is poor, it may not be in a position to provide a big budget for the appraisal reward. That's why compensation managers are supposed to be properly guided by the 3rd and 4th basic compensation principles of "affordability" and "sustainability." Fixing the entitlement increment of 15% to a GM's salary for a rating of 4 (year on year) will compromise top management's decision-making prerogative and discretion—aside from the fact that it has a tremendous impact on a company's salary structure and financial bottom line!

As such, policies should be properly formulated and should be based on lots of foresight, experience, and analysis of its possible future implications, especially when it comes to salaries and financial rewards. The compensation principles are excellent guides in formulating good policies for an organization.

Regards,
Ed Llarena, Jr.
Managing Partner
Emilla International Consulting Services

Thank you for the clarifications, and I appreciate them. In my opinion, performance evaluation and increments should not be directly linked.

In the scenario mentioned, a 5% increment was given based on the performance of the company and the fact that my salary is already high. Even if the performance is rated as a 4, the increment can still be 5%.

However, in this case, the increment bracket is tied to the performance rating. Despite being rated as a 4, it was adjusted down to a 2 to fit the 5% increment bracket. This can demoralize the individual and inaccurately portray their performance as poor.

While I am not against receiving a 5% increment, I find it difficult to accept a rating of 2 when it was actually a 4, as this misrepresents my performance.

I would like to understand if this approach is appropriate.

Thank you.

Understanding Calibration in Appraisal Systems

It looks like your company's appraisal system is using a concept called "calibration," which is a management technique associated with the forced ranking appraisal methodology.

As we all know, in the forced ranking appraisal method, there is a "calibration committee" that reviews all appraisal ratings (within departments and company-wide) to create the "performance curve" as per the company's appraisal policy. Under this scheme, any given rating is considered "tentative" and can be changed by the committee (with a majority or consensual vote of the members) to arrive at the company's predetermined "ideal" or desired curve (performance ratio).

Hence, maybe your rating of "4" was the original rating that your immediate superior gave you. But upon review (and in comparison with others) by the calibration committee, they decided that you only deserve a rating of 2 (and its equivalent of a 5% increment). You were never informed by your immediate superior about your rating because keeping the result confidential is the nature of the scheme. It is also possible that your immediate superior is not aware of it because he was not a member of the committee.

I have participated in calibration committees and have seen how the system works. We had one classic example where a supervisor was given an "outstanding" (5) rating by his immediate supervisor, but during the calibration process, he got a rating of "unsatisfactory" (2). As per company policy, those who were rated excellent were supposed to get a one-time bonus equivalent to their 2 months' basic salary, while those who were rated unsatisfactory were only entitled to a bonus of 50% of their monthly basic. Because he was shown his original rating, the supervisor expected to receive a bonus equivalent to 2 months. When payroll time came, he was shocked to see that only 50% of his monthly basic was credited to his account. The guy complained, and it shocked the entire company as the secret workings of the calibration committee were revealed.

The above matter is my biggest objection to the forced ranking appraisal methodology. That's why I decided to develop a PMS that is objective, fair, and very transparent.

Hope this clarifies the matter more.

Best regards,

Ed Llarena, Jr.

Managing Partner

Emilla International Consulting Services