Is there anything more challenging than how to distribute the salary budget? It sometimes seems there is no 100% "fair" way. And I am positive that everyone is not always satisfied with the outcome. Some organizations have a history of dividing up the bucket equally regardless of performance. When such an organization decides to move to the pay-for-performance model, it can be difficult for employees to understand and accept how rating and salary change decisions are made.
Some of our class participants report their employers use a 1-3 or a 1-5 rating scale with variations of "exceeds, meets or fails to meet requirements." Most people understand these ratings in general. The problem is often that supervisors and managers do not agree on what each means specifically. For instance, some managers refuse to award a 5, stating that, "No one is perfect and we all have room for improvement." This begs the question: why have a 5 on the scale if it is never used? Then there is the issue of people equating a "3" rating with "average" or a "C" versus "meets requirements." No one wants to believe their work is only average. Employees want to know how to move from a 3 rating to a 4 or from a 4 rating to a 5. The answer is not always clear or consistent within a department or division.
Human Resources owns this process and must educate senior leadership on the importance of consistency. Then senior leadership must make sure they are all on the same page by calibrating the system, which can be laborious. Finally, the process requires HR to communicate to managers and supervisors the meanings of the ratings and make certain that they can precisely articulate the performance and behaviors that will earn each rating. It is hard work, but well worth the careful planning and communication required.