Salary Increase Matrix - Impact of Uncertain Performance Appraisal Results - People Centre

9/29/23, 11:51 PM Salary Increase Matrix: Impact of Uncertain Performance Appraisal Results | People Centre
People Centre
Salary Increase Matrix: Impact of Uncertain

Performance Appraisal Results
DECEMBER 18, 2016

Introduction
This is Part 3 of my articles on the Salary Increase Matrix
As we cannot accurately predict the final results of a performance appraisal exercise, we cannot
predetermine the salary increase percentage going into each cell of the salary increase matrix so that we
can cap our salary increase costs within our budget.
If the results of the performance appraisal exercise assume a normal distribution, the graph will look
something like this.
Source: Lesson 4 Measures of Tendency, Miracosta.edu website
Like the example below, the number of people with the highest performance ratings appear on the right
and the number of people with the poorest performance ratings appear on the left.
https://peoplecentre.wordpress.com/2016/12/18/salary-increase-matrix-impact-of-uncertain-performance-appraisal-results/ 1/8
Source: Evaluating Performance of Employees: Top 13 Traditional Methods written by Shreyas Kammar
The results of the performance ratings will look something like the extreme right vertical column of table
below.
Quartiles (Q) in Range

Performance (P) 1 2 3 4
0.8 to 0.89 0.90 to 0.99 1.00 to 1.09 1.10 to 1.20
Exceptional 15 persons
Above 35 persons
Expectations
Meets 48 persons
Expectations
Below 2 persons
Expectations
Unsatisfactory Nobody
20 persons 40 persons 25 persons 15 persons 100 persons
The total percentage payout in terms of salary increases is 3.7464% as shown by the following table.

0.8 to 0.89 0.90 to 0.99 1.00 to 1.09 1.10 to 1.20 Total
0.2 0.4 0.25 0.15 1.0
Exceptional 0.15 0.03×6.2% 0.06×5.8% 0.0375×5.4% 0.0225×5% 0.8490%
=0.1860% =0.3480% =0.2025% =0.1125%
Above 0.35 0.07×4.8% 0.14×4.4% 0.0875×4% 0.0525×3.6% 1.4910%

Expectations
=0.3360% =0.6160% =0.3500% =0.1890%
Meets 0.48 0.096×3.4% 0.192×3% 0.12×2.6% 0.072×2.4% 1.3872%

Expectations
=0.3264% =0.5760% =0.3120% =0.1728%
Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Expectations
=0.0800% =0.1120% =0% =0%
Unsatisfactory 0 0 0 0 0 0
Total 1.0 3.7464%
Skewed Bell Curve
When we have a lot more people with better performance ratings, the curve will skew to the left
(positively skewed). In this case, firms worry more about the increased costs in terms of more people
getting higher salary increases.
When we have a lot more people with poor performance ratings, the curve will skew to the right
(negatively skewed). In this case, firms worry more about organizational performance and ability to
compete in the marketplace.
When we have a lot more people with poor performance ratings, the curve will skew to the right.
Assumption
Let us assume the payout salary increase percentages are fixed as follows.

0.8 to 0.89 0.90 to 0.99 1.00 to 1.09 1.10 to 1.20
Exceptional 6.2% 5.8% 5.4% 5.0%
Above 4.8% 4.4% 4.0% 3.6%
Expectations
Meets 3.4% 3.0% 2.6% 2.4%
Expectations
Below 2.0% 1.4% 0.0% 0.0%
Expectations
Unsatisfactory 0 0 0 0
We are now going to examine what the impact is like when the bell is negatively skewed. We are
interested in this rather than a positively skewed bell shape because of the impact on manpower costs.
Example 1
Let us say that the results of this year’s performance appraisal exercise is as follows:
Number of Staff Percentage of Staff Portion of Staff

Exceptional 15 persons 15% 0.15
Above Expectations 48 persons 48% 0.48
Meets Expectations 35 persons 35% 0.35
Below Expectations 2 persons 2% 0.02

Unsatisfactory Nobody Nobody 0
Total 100 persons 100% 1.0
Next, we calculate the payout percentage in terms of salary increases.

Performance 1 2 3 4
(P)
0.8 to 0.89 0.90 to 0.99 1.00 to 1.09 1.10 to 1.20 Total
0.2 0.4 0.25 0.15 1.0
Exceptional 0.15 0.03×6.2% 0.06×5.8% 0.0375×5.4% 0.0225×5% 0.8490%
=0.1860% =0.3480% =0.2025% =0.1125%
Above 0.48 0.096×4.8% 0.192×4.4% 0.12×4% 0.072×3.6% 2.0448%

Expectations
=0.4608% =0.8448% =0.48% =0.2592%
Meets 0.35 0.07×3.4% 0.14×3% 0.0875×2.6% 0.0525×2.4% 1.0115%

Expectations
=0.238% =0.42% =0.2275% =0.126%
Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Expectations
=0.08% =0.1120% =0% =0%
Total 1.0 3.9245%
Example 2

Performance 1 2 3 4
(P)
0.8 to 0.89 0.90 to 0.99 1.00 to 1.09 1.10 to 1.20 Total
0.2 0.4 0.25 0.15 1.0
Exceptional 0.35 0.07×6.2% 0.14×5.8% 0.0875×5.4% 0.0525×5% 1.981%
=0.434% =0.812% =0.4725% =0.2625%
Above 0.48 0.096×4.8% 0.192×4.4% 0.12×4% 0.072×3.6% 2.0448%

Expectations
=0.4608% =0.8448% =0.48% =0.2592%
Meets 0.15 0.03×3.4% 0.06×3% 0.0375×2.6% 0.0225×2.4% 0.4335%

Expectations
=0.102% =0.18% =0.0975% =0.054%
Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Expectations
=0.0800% =0.1120% =0% =0%
Total 1.0 4.4785%
Example 3


Performance 1 2 3 4
(P)
0.8 to 0.89 0.90 to 0.99 1.00 to 1.09 1.10 to 1.20 Total
0.2 0.4 0.25 0.15 1.0
Exceptional 0.48 0.096×6.2% 0.192×5.8% 0.12×5.4% 0.072×5% 2.7168%
=0.5952% =1.1136% =0.648% =0.36%
Above 0.35 0.07×4.8% 0.14×4.4% 0.0875×4% 0.0525×3.6% 1.491%

Expectations
=0.336% =0.616% =0.35% =0.189%
Meets 0.15 0.03×3.4% 0.06×3% 0.0375×2.6% 0.0225×2.4% 0.4335%

Expectations
=0.102% =0.18% =0.0975% =0.054%
Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Expectations
=0.0800% =0.1120% =0% =0%
Total 1.0 4.6605%
Summary of Results and Observations
Performance (P) Normal Example 1 Example 2 Example 3

Distribution
Exceptional 15 0.8490% 15 0.8490% 35 1.981% 48 2.7168%
Above 35 1.4910% 48 2.0448% 48 2.0448% 35 1.491%
Expectations
Meets 48 1.3872% 35 1.0115% 15 0.4335% 15 0.4335%
Expectations
Below 20 0.0192% 20 0.0192% 20 0.0192% 20 0.0192%
Expectations
Unsatisfactory 0 0 0 0 0 0 0 0
Total 3.7464% 3.9245% 4.4785% 4.6605%
It is only logical that when the salary increase percentage throughout the matrix is held constant, but
when the number of staff given better performance ratings (Exceptional, Above Expectations) increases,
the salary increases will consequentially increase. This means that there is an increasing threat of
breaking the budget made for the salary increase.
As the human resource professional, both allowing the performance ratings to be skewed (through no
fault of yours) or breaking the budget can bring serious consequences to your job or your performance
ratings.
This situation is made worst is you are working in an organization where you report to a council or
committee (common organizational structure of not for profit organizations such as clubs, alumini; and
non profit organization such as charities and churches.
Possible Causes
Some of the common causes are:

Managers uses the salary increase as goodwill to win support from their staff.
Managers afraid of offending aggressive staff by confronting them with poor but truthful appraisals.
Managers playing favourites. As the human resource professional, sometimes this person could be
your boss, the general manager.
Discrimination, for example as a male manager bowed over by an attractive female subbordinate.
Another example is racial discrimination, which sometimes can be part of disguised group bullying.
The moderator is not doing his or her job either because it is too much work or being afraid of
confronting
You can see these are not errors, as often described in literature but intentional actions.
The PAS is Failing
If you read the previous section; step back and analyze, would you think that the performance appraisal
system is fair? You may work so hard but either you have a strict boss or your do not like you, and you
are passed off as an average worker. Does it help the business results?
Conclusion
When the distribution of performance ratings becomes positively skewed, the costs from higher salary
increases go up.
this entry was posted in salary structures and tagged forced ranking, moderation of performance
ratings, negative skew, performance appraisal, positive skew, salary increase matrix, salary increase
percentages, salary matrix. bookmark the permalink.
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9/29/23, 11:51 PM Salary Increase Matrix: Impact of Uncertain Performance Appraisal Results | People Centre

Salary Increase Matrix: Impact of Uncertain

DECEMBER 18, 2016

This is Part 3 of my articles on the Salary Increase Matrix

Source: Lesson 4 Measures of Tendency, Miracosta.edu website

Quartiles (Q) in Range

Quartiles (Q) in Range

=0.1860% =0.3480% =0.2025% =0.1125%

Above 0.35 0.07×4.8% 0.14×4.4% 0.0875×4% 0.0525×3.6% 1.4910%

Meets 0.48 0.096×3.4% 0.192×3% 0.12×2.6% 0.072×2.4% 1.3872%

Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Skewed Bell Curve

Source: Lesson 4 Measures of Tendency, Miracosta.edu website

Source: Lesson 4 Measures of Tendency, Miracosta.edu website

Quartiles (Q) in Range

Number of Staff Percentage of Staff Portion of Staff

Below Expectations 2 persons 2% 0.02

Quartiles (Q) in Range

=0.1860% =0.3480% =0.2025% =0.1125%

Above 0.48 0.096×4.8% 0.192×4.4% 0.12×4% 0.072×3.6% 2.0448%

Meets 0.35 0.07×3.4% 0.14×3% 0.0875×2.6% 0.0525×2.4% 1.0115%

Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Number of Staff Percentage of Staff Portion of Staff

Quartiles (Q) in Range

=0.434% =0.812% =0.4725% =0.2625%

Above 0.48 0.096×4.8% 0.192×4.4% 0.12×4% 0.072×3.6% 2.0448%

Meets 0.15 0.03×3.4% 0.06×3% 0.0375×2.6% 0.0225×2.4% 0.4335%

Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Number of Staff Percentage of Staff Portion of Staff

Quartiles (Q) in Range

Exceptional 0.48 0.096×6.2% 0.192×5.8% 0.12×5.4% 0.072×5% 2.7168%

=0.5952% =1.1136% =0.648% =0.36%

Above 0.35 0.07×4.8% 0.14×4.4% 0.0875×4% 0.0525×3.6% 1.491%

Meets 0.15 0.03×3.4% 0.06×3% 0.0375×2.6% 0.0225×2.4% 0.4335%

Below 0.2 0.04×2% 0.08×1.4% 0.05×0% 0.03×0% 0.0192%

Summary of Results and Observations

Performance (P) Normal Example 1 Example 2 Example 3

Some of the common causes are:

The PAS is Failing

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