A Pyramid approach to decide salary hikes
In this blog, I will talk about the approach that managers can take while deciding the salary hikes for their team.
When managers have to decide the salary hikes for their team, not everyone know what is the best way to do it.
There are so many things to consider while deciding hikes. But often some managers makes the decision based on gut.
When it was my first time to decide the hikes for the team, I struggled a lot. When I asked my peers, my supervisor and HR for suggestion on the right approach for deciding the hikes fairly, none of them had an idea.
All of them told me to check each individual performance and decide. This is very vague and does not really help.
In this blog, I will talk about the approach that has helped me to decide little better and without using my gut.
The situation
All managers have challenges during annual hikes. If they don’t do it fairly then, there are chances of losing good members from the team.
There will be always limited budget to give annual hikes, so effectively using it becomes at-most important.
All managers know that there are team members who deserve a pay rise and some don’t. But there is always a challenge to correctly quantify and be fair to everyone.
For few managers, there is a higher problem of not having any visibility on what hikes will be provided as their supervisor makes all the decision.
In all of the above situations, if managers have a framework which can be used to decide and negotiate the salary hikes, then managers can avoid attrition in the team and also keep the morale high within the team.
The salary hike is something all of us look forward in some form or the other. It indicates our growth financially, appreciation for our overall work. So it becomes important for managers to be fair while making the decision of hikes for the team members.
The pyramid approach
The goals which is the basis for performance evaluation varies from member to member. Hence, it will be difficult to evaluate every team member from the same reference point.
In my experience, if managers look at the value-add each team member brings to the team or organisation will make things fairer.
So, creating a value-pyramid for the team gives managers ability to evaluate each team member from the same reference point.
The value-pyramid has 5-levels. Each level defines the percentage of amount of hike should be provided.
A Manager can identify the level for each team member based on the value-add.
Let me give an example. One of my senior team member had to work on a project using a new tool. And, I had requested the team member to come out with best practices, troubleshooting guides etc.
The senior team member completed the project on-time using a new tool with acceptable delays. But didn’t come out with the things that I had requested.
In the traditional approach, which is based on gut or performance, this senior team member would have got the highest salary hike. Because completing a project with a new tool, indicates fantastic performance.
But if you look at it from value-pyramid perspective, the salary hike will be minimum. Because the value addition to the team in the form of guides was not done. The team member completed the project as he is expected to do so.
Let’s assume another team member in the same project was able to create one guide, say, troubleshooting guide. This is a kind of value-addition to the team, as it will make things little easier for other team members.
As managers, we want our team members to contribute back to the team and organisation. The completion of project is a kind of contribution, but each of them are hired to do so with an agreement of certain amount of salary.
Hence, a minimum salary hike for completing the project on time or with acceptable delays makes it fair. And giving slightly higher salary hikes to those team members for their extra contributions becomes justifiable.
So, deciding salary hikes based on value-addition by each team member, makes it a fair and clean approach.
Keep in mind
The value-pyramid assumes that as a Manager you have made sure there is enough opportunity for each team member to add value. Without this, it will end up being a gut-feel or performance based approach.
If there are too many members falling in one of the levels then you should re-evaluate on how you are using the value-pyramid.
In case there are nobody at the top level of the value-pyramid, then as a Manager retrospect on why no team member is able to such an contribution and take necessary steps or create such opportunities.
As a Manager, you must go through a mindset change before using the value-pyramid. You need to adjust on how you will guide and create opportunities for the team members to show the extra contributions.
Final thoughts
For a Manager, deciding annual salary hikes is an important step in the year. So, making the decision fairly becomes important.
By bringing all team members to the same reference point of value-addition, helps you to evaluate the team members correctly.
As a manager, being fair while deciding salary hikes will help you to explain your decisions better. And also makes sure the right members are appreciated.
Since the most deserved team members will get higher salary hikes, there will be no ambiguity in members mind. This will remove any doubts in team members mind, about your fairness.
By being fair, makes the team members to trust you more. And, this trust in-turn helps you to build a strong bonding with the team members.
Happy management!
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Let me know your thoughts on the value-pyramid approach. And also, let me know what approach you follow as a Manager while deciding salary hikes fairly.
