The value of merit increases

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Workplace attitudes are shifting, and employee compensation programs should follow suit. Job-hopping from one position to the next used to be highly discouraged, but in a somewhat unstable economy, workers are becoming less afraid to leave one company to pursue their careers at another. In order to retain hard-working employees, the right compensation plan must be put in place, including merit increases. Make the money count Even in difficult economic times, top companies are making room in their budgets for merit increases to reward hardworking staff members. Many companies now take an approach wherein, even if there is no improvement in budget over the course of a fiscal year, some star performers will still get merit increases. According to the Society for Human Resource Management, under this new mindset, if there is a budget increase over a year, some employees still may not get an increase, while others will receive significant ones. This method makes clear to employees that performance will be valued above all else - by rewarding top performers even in times of economic stress, company loyalty will stay intact. Find out who really means business The best applicants and workers are often attracted to pay-for-performance positions. For those who are looking to coast through an office job, these programs may prompt them to evaluate whether they really want the job in the first place, or if there might be a better company for them somewhere else. Many managers and HR officials are wary to lose even low-performing employees, due to the potential costs of turnover. Ken Abosch, compensation practice leader at Aon Hewitt, disagrees. "Studies have shown that below-average performers contributed less than 10 percent of the value of average performers to an organization," Abosch said, "and above-average performers contribute almost twice the value of average performers to an organization." In other words, merit increases help retain high achievers, weed out low-performers, and streamline companies from top to bottom.

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