Bob,

I don't know if you have ever worked in the public sector, but the culture of an "expected" 3-4% annual pay rise is pretty entrenched there.

This is separate from any pay rises to cover CPI or cost-of-living increases, and is meant to reflect your growing skills and corporate knowledge as an employee, even if you continue to work in the same role from year to year.

If the person who raised the original point doesn't work for the public sector, I'd guess they are in a large, bureaucratic, private sector org (telco? bank?) that replicates a lot of these characteristics.

You have to perform pretty badly to miss out on a pay rise in most of these organisations -- it's generally a tick-and-flick exercise. So being passed over is a big deal -- it's a serious slight on your competence.

To try and lessen this blow, some orgs I've worked for withhold the increment for 6 months as part of a performance improvement program.

If you pull up your socks and get up to scratch, the increment is approved 6 months later (and can have your pay increase back-dated). This avoids the problems raised above by returning the employee to the same "increment level" next time performance reviews come around.

The problem, of course, is that this system rarely has any way to reward high performers. So in these orgs the incentive to perform above "average" is generally minimal unless you're gunning for a promotion (cf. the Peter Principle).

Proceed with caution before applying any if this to the public sector or to a "large, bureaucratic, private sector org". You can end up creating an "incentive system" that is much worse than useless.

I've been in public organizations that tried to implement a bonus/incentive pay system and it ended up functioning very similar to what was described above. Bonuses "might" have been better, but I have doubts. The annual/one year focus was also a problem.

People in such an organizations often lack opportunities to gain market, increase revenue, or secure promostions, except at the cost of their colleagues. That can set "team" members in competition for a fixed pot of incentive money. The result being that the competing employees may find it both easier and more productive to work on undermining their competing co-workers than on distinguishing themselves.

The result I observed was lots of work on undermining others and not much work on building up the organization. It did serve to clean out some weak links, and pointless middle management overhead. But, in other respects it did more damage than good and directed a great deal of human energy at driving down both personal and overall organization performance.

Yuck!

*sigh*
As long as you perform adequately here, you get 3.5%. Even if you only perform marginally, you get 3.5%. You have to be on the brink of getting fired not to get the raise (I'd tell you exactly how bad that is, but I haven't found it yet). There is no incentive to do any better than necessary to keep your job. There is no reward - none - for going above and beyond.

At my last position they tried to mitigate the situation by tying raises to the performance review. But they required a "thorough written explanation of a specific instance which illustrates this skill" for a manager to rate someone either poor or exceptional - which merely encouraged the managers to rate everyone some flavor of "acceptable". Then they set the performance review so that if you were rated exceptional at something in one review, exceptional became your new norm - so you were either getting exponentially MORE exceptional at your job, or you were just performing adequately (at the new expected level). That means you could consistently be the best possible employee, but you would only be patted on the back once for it.

When did it become acceptable to insist on hiring the best and then train them in mediocrity?