The 2015 Hays Asia Salary Guide that was released a couple of years ago revealed a ton on insights.
At the same time, Jobstreet released their salary increment survey of Malaysian companies.
Some of the highlights were that 71% of employees received a pay raise between zero and 6%. For 2015 it was going to be the same.
But about 2x as many employees expect to receive an increase of more than 10% as that budgeted by the employers. This is a huge disconnect. This is evident in both the Hays and Jobstreet surveys.
What juggled my brain was what drives employees expectations that are out of sync with the management's.
Are employees' expectations driven by a false sense of entitlement to annual pay raise? Do they think that because their organization surpasses the objectives, they are entitled to an increment?
According to the Hays survey, about 11% of employers have contractual bonus policy, meaning whether you perform or not, you are guaranteed money.
Moreover, about 7% of employers pay bonus solely on employee performance and regardless of whether the company achieves its objectives.
Performance Management System
My thoughts on these issues are that companies can manage unrealistic employee expectations on pay raise and bonus by being transparent and revealing the bonus and salary increment rates by performance ranges.
I would recommend these steps in order to build a reliable and just performance management system.
Step 1 - KPI-based
This means companies need a robust performance system for each and every employee. You may object that it's not possible to have KPIs for every employee, especially those whose performance is difficult to measure.
But I've managed to implement a strictly KPI-based performance management system for all employees, from sales reps to secretaries and marketing managers to supply chain execs. This eliminated any false expectations.
I've also helped clients to implement a 100% measurable KPI system for all their critical staff. However, I believe that a KPI system that has 70% of objectives with measurable metrics and 30% subjective meaures seem to be more effective especially when the subjective portions are tied to developing behaviors that reflect the corporate values.
But the key problem is too many companies don't have Corporate Values although they have may a Vision and Missions.
Step 2 - Beginning of fiscal year
Such a KPI-based system has to be implemented at the beginning of the year so that everyone is clear of their respective objectives.
I've worked at several universities which don't even have a performance management system although their programme modules include Strategic Human Resource Management.
Step 3 - Biannual reviews
It's imperative that performance reviews be done at least twice a year - mid-year and year-end. Some companies go to the extent of doing it quarterly. Quarterly reviews require lots of time commitment.
Mid-year reviews help employees buck up by giving them sufficient notice and also help the high performers exceed their objectives even.
Step 4 - Line management function
Performance reviews that are conducted by the line managers are more effective as opposed to those conducted by HR. HR could oversee the process but the responsibility should be that of the line managers.
After all performance management and coaching go hand-in-hand and it's the line managers who perform the coaching and not HR.
Step 5 - Transparency
All performance reviews should be done in the presence of the employee. Many companies have the dirty habit of concealing either the mid-year or all reviews. That begs the question - why the hell do a performance review if you don't want your staff to know where and how to improve.
A transparent system also means that the staff should sign off each review. This is where HR's counter review will prevent any unfair practices by line managers.
Transparency also means you disclose from the beginning what levels of performance will be eligible for which rates of increment and bonus. So everyone is clear that if they don't perform they don't receive anything. This is performance based reward system in its pure form.
Step 6 - Coaching
Very few line managers coach their staff. The whole purpose of a performance management system is to develop performance and performance development can't be just left to provision of tools but also improving their skills, which is where coaching comes in.
One major reason most managers don't coach their staff, is that either they've not been trained to coach effectively and so avoid the stress that comes with poor coaching techniques or they feel that coaching is not their job.
Step 7 - Pay according to performance
The easiest step in this whole process, for the employer anyway. Payout the bonus and/or increment according to the performance.
Employees who haven't performed should be put on notice.
My experience in creating such a performance development system in my previous job role as well as with clients affirms that when companies have effective performance management systems that are KPI-based which are used to determine the pay raise and bonus, the productivity of the company surges.
Employees are more motivated and retention increases.
Everyone comes out a winner.