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08/14/2009

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Amen to your thoughts on making meaningful differences in pay if there are meaningful differences in performance!

May I add another possible pay feature to the equation? With total salary increase budgets becoming so small, some have envisioned a greater mix of lump sum payments (aka, variable pay) to the equation. With lump sum payments in the equation you can make even greater pay differentiation for different performance levels. And there is no compounding of salary costs with lump sum payments.

The July 2009 issue of Workspan Magazine has a good article on this topic called "The Past, Present and Future of Variable Pay" (http://www.worldatwork.org/waw/adimLink?id=33404). I tend to agree with the author's prediction of a continued trend away from fixed cost increases to more variable pay adjustments.

It would be a simple matter to add lump sums into employers' merit matrices. Further, you could provide performance-based lump sum percentages to those who have salaries at or above their salary range - after all, they need to be reinforced for their contributions also.

Paul - Thanks for the comment and for keeping the discussion going.

I agree that variable pay is usually a better vehicle for rewarding performance than base pay increases. It's easier to create a differential in pay, and it doesn't become a guaranteed annuity payment if performance results decrease over time.

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