Converting to annual evaluation and merit increases

The majority of our employees are currently evaluated on their anniversay date.  However, we have a handfull that are on a set salary for the first 5 years of employment.  We want to change to an annual eval/merit increase date and I don't know where to begin having never done this before.  Any suggestions where to begin, or resources I can use to help the process along?


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  • The big issue, of course, is how to reconcile the different lapses since last merit increase between people.  The calendar year method makes budgeting increases much, much easier and it's a good plan to go to.  The only versions I've seen of this, big company or small, is to prorate the bump based on time served (er, I mean, tenure).  So a person who worked 9 months gets .75x their regular increase and a person who worked 3 months get .25x, etc.

    Some people will get a second raise in short succession but at, for example, 1/12th value, it's pretty insubstantial.  Nevertheless, this causes some drama.  Alternatively, some people get a reasonably decent raise in under a year (e.g., 10/12ths value of a good merit increase), which also causes some drama.  Typically, you can't mess with the money of every person in your company and not get some drama but at least this is mathematically fair.

  • I agree with TXHRGuy. This is always the way I have seen it done in the past.  That is, the amount prorated based how long it has been since the last increase.   Some companies do this by offering the small increases to those that have gotten one recently.  In this method the budget takes the hit currently.

    Taken one step further, I have also seen companies freeze increases from a certain date until the chosen annual date (say you freeze today for annual increases on 1/1) and then at the annual date, take into account time since last increase. This avoids the situation with either a small bump or two bumps in a short period.  Obviously about 1/2 of the employees would get more than 1 times the annual increase.  But they have had to wait longer to get it, so you have a little more time to get the increases into the budget although they are larger.  However, sometimes this is harder on the morale because generally it affects more employees.



  • You could also prorate by days worked within the year, but whole month proration is easier to explain. As you grow, I would think it’s best to move to a common review platform. Annual increases create consistency and ensures no one gets forgotten. You can also control your budget much better.

    There are also some companies that also prorate to the last promo date (the same as tenure). To reduce drama, it seems to help saying to an impacted employee that you are giving them a raise earlier versus saying that they are only get X% due to a recent hire or promo date. But there is always drama…[:S]

  • Anytime you make a change there is likely to be drama, but when it comes to money there always seems to be drama!!

    I have done reviews both ways - on anniversary date and all together annually.  I think there are pros and cons to both. 

    Anniversary date - mgr doesn't have to do a whole bunch of reviews at one time (but then sometimes you lose the consistency with doing them all at the same time), you don't have to outlay a bunch of money all at once (but you need to be good at budgeting the money in each month that you think you will be giving as an increase)

    Annually - all done at one time so no one is missed (many mgrs hate having to write so many at one time, especially if they have a lot of employees that report to them), easier to budget (although it is a big hit all at once)

  • Prorating the % of merit increase is the fair and explainable way, in my opinion. The real and very defensible advantage of a common review date is that all are evaluated on the same performance period. It is also good from an HR view to look at how different managers evaluated and also to go to the top executive with all the people in effect "lined up and ranked by evaluation rating." When done at the same time for the same period, you can examine for equity, fairness and see what jumps out at you! 
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