The Message in Merit Increases

Communication in the Area of Merit Increases is an Important Part of the Process.

by Thomas J. Roach

Merit increases are part of a communication process that starts with a hiring interview and ends with an exit interview or retirement party. As the process evolves for each employee the company and the employee learn about each other.

If the company learns that the employee is innovative, motivated and productive, then it rewards the employee with raises and promotions. This in turn shows the employee that the company values innovation, motivation and results, and that the company recognizes the employee’s efforts.

Promotions are the most significant form of positive feedback, but are tied often to slow-moving, complex changes in the organization, therefore they cannot be used routinely as a feedback mechanism. Merit raises are the ongoing method for reinforcing good behavior and penalizing bad behavior.

Ongoing Feedback

Feedback from management should be ongoing, and it is always most salient if it comes immediately after employee accomplishments. However, verbal rewards are meaningless if, at the end of the year, they are not backed up with monetary rewards. After all, if managers hold profits as a main objective, then it is hypocritical for them to not recognize salary increases as an appropriate and necessary reward for productive employees.

Two common problems persist with merit increases at most companies. One is the employee review process fails to tie meaningful verbal feedback to the raise. The other is that merit increases often don’t exceed the rise in the cost of living.

The feedback problem is significant. Ideally mangers should meet weekly or monthly with employees and review expectations and accomplishments. A yearly review meeting then functions as the culmination of an ongoing dialogue, and the merit raise or lack thereof validates the company’s recognition of the employee’s effort. Without meaningful feedback, a raise may be interpreted by an employee as routine, as evidence that no one pays attention to their efforts, or even as a mistake.

Employee Review

If the employee review is meaningful and positive, then the merit increase needs to reflect that. It is problematic, however, if the merit increase is at or below the yearly increase in the cost of living. 

Companies that don’t go beyond the cost of living rate are essentially awarding employees with a grading system that goes from F to C+. Anything less than the cost of living increase is negative feedback, and a merit raise at the same level as the cost of living increase is a neutral reward.

For companies dealing with unions this is a nonissue, as raises are subject to a complex negotiation process. If no union is present and the company wants to keep it that way, and if the company wants to incentivize a productive workforce, then the significance of the raise needs to be apparent, and that means above the cost of living number.

National Issue, Local Concern

Corporate leaders should pay attention to the 2016 election process. One of the candidates is pushing an acknowledged socialist agenda and is getting traction. Providing profits for shareholders and not rewarding workers with raises, or awarding raises at or below the cost of living, could shine a negative light on your business.

The quality of products and services becomes increasingly important as electronic media makes reputation more discernible and as comparison-shopping for all levels of buyers becomes more accessible. All quarries have access to raw aggregates, and they can all buy the same equipment. In the long run the most profitable operations will be the ones who produced most efficiently; whose product is the highest quality; whose efforts are most consistent, predictable and reliable; and whose staff is most informed, talented and attentive to the needs of its customers.

Exempt and nonexempt employees are an investment. Good managers need to be recruited, trained and given the tools to communicate meaningful feedback to their employees, and employees need rewards that reinforce the behaviors that make the company successful.

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