A company decides to offer an average annual raise of 8%, although the current inflation rate is 10%. Each engineering manager decides on the best way to distribute the salary increases to his or her staff. However, if everyone gets an increase of 8%, there will be no differentiation between strong and weak performers for the previous year. What should you do as an engineering manager?
Every company should separate pay raises/raises for great and bad performers while keeping an overall average in line with their year-end target. The distinction is necessary to keep the top performers motivated and help the bottom performers understand their position and improve in the future year. As an engineering manager, I would evaluate individual and team performance and provide more than the average annual rise for good performers, i.e. 10-12 per cent, 8-10 per cent for moderately strong performers, 7-8 per cent for medium performers, and 5-7 per cent for weak performers. In this manner, the general average remains at 8% while differentiation is preserved.