Bloomberg Case in the News Say Goodbye to the Annual Pay Raise no or in a given
ID: 325399 • Letter: B
Question
Bloomberg Case in the News Say Goodbye to the Annual Pay Raise no or in a given year between their cation of how well someone did the remember how people performed all Esen. "It gives year long. and they admit to rating to really make am pay increase Plus, it's rarely an inds able to directly see nd they the om leaving for a with the sub-par workers the same as stand to their top per drec- out employees. Workers also complain well and the tradbonal raise does neither those things very wel you're getting this bonns that hearing about ther flaws once a harder to cut peogle anit a company has a bad year the Society Human Resource Management year When the economy is decent, annual and change ment year gives them no chance to respond compensa for Many companies, including Adobe PLC. and centage point or 2 percentage points Systems Inc. ahead of iniation for a given year. That Gap Inc, have areadya doesnT go fac Employees expect to the annual performanc employers can give bonuses ew for have to give out bonuses. On abandoned granular level, an e exact reasons. These organi-more has a bad year might not get a those exact reasons ment, and a measly 2 percent increase zations have ongoing review pro- in pay doesnt do much to encourage cesses that, in theory, more accurately get at least the cost of living adjust that year, either. Comp or change employee behavlor At best. reflect someone's output on the job. them as sticks or carrots, as the most ting a 5 percent raise, only slightlyso should raises. "If we have perfor the changing nature of more than their average colleagues, mance reviews all the time, we're not tion. Whatever happens to the who in 2016 can expect a 31 percent going to have annual increases, said will become more granular and The bonus is just one version gf stellar employees are get- As reviews become more frequent bump-if hat. In the end, it's too smallEsen. As of now, 90 percent of com- lar Companies are trying to panies give everyone raises on the Historicaly. the best way to receve same day, once a year, according to an annual compensation survey by away from this old-school annual increase." said an increase to make a difference said Esen. "Nobody really values that increase that because it's usually not that high a significant raise is to either get a compensation survey promotion or jump to a new com- Mercer. That is already changing pany. With the job market tighten- ing for certain white collar workers in moved away from the annual reviSuree competitive and growing industries, is considering scrapping annual comUsed with permission of companies have started rethinking Source Greenield, Rebecca, "Say Goodbye to Bloomberg. Copyige pensation hikes. "We uncovered an2016. Al rights reserved compensation packages to keep peo- opportunity to improve the way we ple around. That hes not only resuited reward people for their contributions. Questions for Discussion in a perks and benefits arms race but Janice Semper, GE's head of execu- in new ways of thinking about pay tive development, told Bloomberg increases. The yearly ritual of doling GE declined to elaborate on what its out incremental and somewhat disap new system might look like, but Sem- pointing salary increases is quietly dis- per cited the vague goals of "being 1. From a managerial perspect what are some potential disadvantages of ongoing informal performance reviews appearing. "The conventional process flexible and rethinking how we define 2. From an of giving an annual increase is being rewards studlied, reviewed-under siege, you ther organizations are achieving might say." said Steve Gross, a senior such flexibility via bonuses. Variable partner at human resources consulting pay has become an increasingly large you think replacing small annual increases with bonuses based performance is equitable? Why o part of pay packages, making up a A once-a-year payment schedule record 12.7 percent of compensation signals how good (or not) someone is at their job. But, it's impossible to is too infrequent to change some according to an Aon Hewitt survey 3. What can managers do to prepare their employees for a shift away from annual reviews and annual salary increases? e effec- tive way to tell people they did a good job. "With bonuses, you're specificallyExplanation / Answer
3. As annual reviews seem unfair for the employees and organizations are planning to shift from this system towards a bonus system that will be applicable based on performance, the task of managers become difficult as they need to make the employees aware about the new system and prepare them for it. The basic change that will happen in the system is that the review will now be more stringent and managers need to develop the goals and objectives in a more concise and calculated way so that they are achievable and effective for evaluating the employee performance. Depending on the period on which employees will receive bonus, the method and stratgey for the managers will differ. For example if the bonus is payable quarterly then the measures that the managers need to define has to be concise and stringent so that effectively the performance of the employees are evaluated. The shorter the time period the tough it becomes for the manager as they have to have clear objectives and expectations defined for the employees.
The employees also need to be more effective as now they will have a packed schedule where free time to relax will not be available in abundance. They need to be ready their performance and what they have achieved in this period so that they receive a better bonus.