The Merit Matrix Chronicles: Intro to the Most Popular Pay Tool

I've spent a lot of time lately developing, revising and discussing merit matrices (I know what you're thinking ... FUN!  Where do I get her job?).  This has prompted the idea of doing a series of posts - chronicles - on the merit matrix.  Starting with this introductory attempt, which features illustrations designed to keep you from completely nodding off.

The merit matrix, by way of background, is a pay-for-performance tool used to determine the appropriate salary increase for an individual based on two variables:  the individual's performance rating and position within their assigned salary range.

A very basic example of a merit matrix is presented below. 

The particular look of the matrix varies, naturally, based on the number of performance ratings used and how an organization chooses to divide its salary ranges (other popular choices include "quartiles" and "quintiles", but I favor the simplicity of thirds ... "tri-tiles"?).

The merit matrix is probably the most ubiquitous pay-for-performance tool in use today, despite the constraints that the smaller merit budgets put on its ability to have real impact.  It will probably remain so until variable or incentive pay truly becomes universal.  Why?  Because salary still represents the lion's share of compensation for most employees, and this two-dimensional approach (when thoughtfully designed, the topic of a future post) allows us to pursue salary management objectives with some degree of precision, controlling the speed with which employees progress through their salary ranges.

A "classic" merit matrix is typically designed with the broad objectives like the following in mind:

1. To accelerate high performers ("exceeds") through their respective salary ranges, particularly those who are in the lower end of the range
2. To allow satisfactory performers ("meets") to progress into the middle of the range, which presumable represents a competitive market level of salary
3. To hold lower performers ("nearly") in the lower part of their respective salary range until such time as their performance improves

It's supposed to work something like the illustration below, which features the salary range flipped on its side.

Thus we have the fundamentals of the merit matrix.  More on particular design and implementation challenges to be chronicled in future posts.  Comments and questions welcome!

Comments

[Ed Harris]

Ann,

Valuable information for a lot of people. I look forward to more. You have a way of making the driest of topics visually appealing, interesting, and easy to understand.

Frank

[Ann Bares]

Thanks, Frank! At least you and I are still awake, eh?

[Shane]

Hi Ann,

I'm trying to broaden my HR knowledge (currently overspecialized in employee benefits). So, I've bookmarked your blog. Thanks also to Kris over at www.hrcapitalist.com for the referral.

[Ann Bares]

Shane:

I understand overspecialization! I'm glad that you've found the blog - via Kris - and look forward to having you as a reader. I do cover the occasional benefit issue - would love to have your comments and perspectives on those posts!

Thanks!