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Should you base annual salary increases on performance?

by , 04 November 2014
Our labour experts have been getting a lot of questions about salary increases.

After all, for most companies, year-end performance review time means salary increases for employees.

One question that keeps cropping up is whether or not it's a good idea to base annual salary increases on performance.

Read on to find out the answer...

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Yes, you can base annual salary increases on performance if you wish to do so

The Labour Law for Managers Loose Leaf Service says you can implement a performance reward system. This can include salary increases or bonuses. And you can base it on individual and company performance.
This means, you can reward good performance with an annual salary increase or bonus. This way, an employee who doesn't meet a performance standard can't argue he has a right to an increase if you don't give him one.
If you decide to base annual salary increases on performance, the rule is: If you aren't going to give a salary increase because an employee, or the company, didn't meet performance standards, you must tell your employee.
You must give information and reasons to back your decision up. You must show your employee where he didn't make the grade and make sure your evaluation system is fair and objective.
Sound complicated?
Let's say Makelotsomoney (Pty) Ltd has a performance management policy. It says employees who meet a rating of 3.5 for the year will receive an increase at the end of December.
Jane achieves a performance rating of 3.5. But Dave, who does a similar job, only gets 3.4.
Jane receives a salary increase in December and Dave doesn't get one.
Dave isn't entitled to the increase as long as Makelotsomoney consistently and fairly applies the criteria to measure performance. But if a manager assigns those ratings on a subjective basis, the employer may have a problem.
The bottom line: You can base annual salary increases on performance if you wish to do so.
PS: For more information on salaries, check out the Labour Law for Managers Loose Leaf Service.

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