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Annual Review & Pay Increase Timing Change

At our company (25-30 employees), for the past 15 years automatically has given pay increases and cost of living increases when the annual budget was approved by our board-every July, regardless of when you were hired. Our company is looking to change it to reviews and raises on the employee's anniversary date. Has anyone experienced this type of change, and how was it handled? Especially since everyone is expecting the pay increase in July, but may need to wait until their anniversary date which could be up to 10 months later in some cases. Can any share their experience, good or bad and what would you have done to make it better?

Answers

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

We had the opposite situation going from anniversary reviews to once year reviews. I created a grid starting with the targeted increase of 2.5% in our case. Everyone gaining from the change was penalized 1/6th for each month they were getting their raise early and everyone who losing out due to the change was rewarded with a premium of 1/6th for each month they were delayed. So assuming a mid range standard performer who otherwise would receive the standard 2.5%. If they were 3 months early their base increase might be 2.1% and if they were 3 months later it might be 2.9 %. The grid was shared with employees when their review was discussed.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Your company has already created its own monster with automatic, annual pay increases. COLAs are a joke. The market should set pay scales. Not some government inflation index.

The expectation of the employees for pay increases in July is proof of my assertion. It's only going to get worse as you move forward. No matter when the dates are changed to.

I would suggest developing market based pay scales for the positions you have, publishing them and sticking to them with occasional reviews of their accuracy. Don't set up employee expectations that can only lead to an entitlement mentality and dashed expectations when you can no longer afford to do so.

Anonymous
(CFO) |

"The market should set pay scales." << In a totally free market....sure! Manipulation and influence by special interest groups (anti-labor) on policy/market has much to do with income inequality and lower payscales....that disguise as "market".

Pierre Triquet
Title: HR Consultant
Company: R&DRH
(HR Consultant, R&DRH) |

Usually the change is the opposite as it is easier to manage the process and control salary budget with a single date, at least for individual (merit) pay increases. In that case, companies exclude the late comers from the review.
My first advice is to possibly anticipate some additional costs as it is very rare in compensation management that change is made at no cost, if you wish to avoid employee unsatisfaction and look for a better and more fair solution for all. Of course you will know exactly when you will have defined your model for change.

Then your fist choice (if not already made) is to define the starting date.
Intuitively, I would suggest starting in July, thinking about 3 populations:
1 - those hired within the last 12 months will have their "normal" anniversary date (ex. hired August 2015 will be reviewed Aug 2016, Nov 15 --> nov 16, etc)
2 - for the others (the majority), you could use lump sums to compensate the delay, with a possible differentiation between those from the first 6 months who will have to wait 6 to 11 additional months (immediate payment) and those from the 6 months to come who will wait less (lump sum at review date)
Hope this helps

Michael Salmon
Title: Director of Finance and Accounting
Company: Tahoe Donner Association
(Director of Finance and Accounting, Tahoe Donner Association) |

Anniversary date is not the best practice and very difficult to budget and manage. I recommend you discuss NOT making said change with your senior management team. That said, to implement would be a simple proration formula, based on # days (if down to hire date) or # of months (if monthly) since last rate of pay change.
Other comments: Performance reviews can be similar timing as rate of pay changes, but should be separate cycle/process. Drop COLA and go 100% Merit based, and capped overall by what the company can afford based on the strategic forecast/plans of the company.

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