Should pay increase be linked to performance?

With the annual salary revision cycle around the corner and many HR / compensation consultants issuing their studies and predictions about that the increase is expected to look like in 2025, it’s only human to think about what “my” increase should be.

A lot many people have some idea as to what drives the pay increase. As someone who has been asked this question many times, let me break it down for you. There are 3 large factors that have a say in the increase:

1.       Macroeconomic factors – this includes such as country’s growth, sector’s growth, and inflation. These are very important and differ largely from one country to the next and one sector to the next

2.       Organization & peer market performance – this narrower set of factors includes your organization’s performance, your competitor group’s performance, any trends prevalent in the industry or in your area of work

3.       Individual inputs – this looks at individual performance, pay comparisons (vis-à-vis benchmark data), and any changes in role

The final output you see is influenced by all of the above factors. Some of the most common queries I have heard are listed below (with my responses).

a.       Is X% the right increase if most of it is due to inflation? Inflation isn’t a static figure, if you simply google inflation for your country, you will see that it varies significantly each month and you only see the most recent inflation indicator. Further, if your hike is above the inflation % then the net value you receive from the organization is increasing

b.       Our competitor gave increases of 1.5X to 2X of what we got. Why have we gotten such low increases? This data is anecdotal and not verified. Comparing one individual’s hike to another individual’s does not reflect the organization average increase. As always there are many factors that go into a particular individual’s increase and hence comparing that is not accurate

c.       Why did my peer (in the same organization) get 1.5X the increase I got? Again, there are many inputs that are factored into the decision, if there is any clarification required, please speak to your manager or your HR business partner who would be able to provide some more clarity on your increase – and not your peers’ (as that is confidential information)