Term for fitting employee compensation to group-based constraints?
July 24, 2022 10:14 AM   Subscribe

I'm hunting for an existing industry term for the following concept: There are a group of employees in an organization whose job performance is evaluated in some way. And that evaluation is a key input into how they will be compensated. But rather than setting the compensation directly from the evaluation, there is an adjustment to either the individual evaluations or compensations such that collectively the group compensation fits certain targets, e.g. the overall compensation doesn't exceed a departmental budget or the top 10% performers get a bonus.

Features of this compensation policy:
* Individual employee compensation is to some extent determined relative to others in their group.
* Can create a competitive culture where employees focus harder on their individual performance than goals of their team or organization.
* Defends against inconsistent evaluations, rating inflation ("easy graders"), and budget overruns.
* There are usually one or more fitting exercises (e.g. "rating calibration") to bring the individual compensations in line with group constraints.

Something like stack ranking fits within this definition as a more specific implementation. But I'm looking for a more general term that would include stack ranking, distribution curves, and other implementations.

It's for a writing project. I don't want to make up a new term and end up confusing or irritating people.

I'm aware that I'm likely asking an "HR 101" type of question that many professionals dealing with compensation would have picked up early in their careers. If my long question is answered by a link to something I should read, I'm happy with that too.
posted by ErikH2000 to Work & Money (7 answers total) 1 user marked this as a favorite
 
“grading on a curve” comes close
posted by meijusa at 11:22 AM on July 24, 2022 [1 favorite]


Best answer: If there is one, my company has never used it outwardly, other than "comp(ensation) planning". We have a very similar compensation system that takes months to get through and every year the employee's "compensation statement" that explains how the employee got the comp they did is very confusing and needs tons of explaining. In the past it wasn't outlined to the individual, but now it is in an effort for transparency. If there was a single specific term, our HR people haven't used it publically in the years I've been working through the process with my teams!
posted by cgg at 11:53 AM on July 24, 2022 [1 favorite]


This is the way that "merit raises" operate where I work. There's a pool of funds, people apply for raises in their unit, and every applicant goes through a performance evaluation. Compensation is doled out by committee based on those evaluations and applications, and we use up but do not exceed the unit budget from the funding pool.
posted by twelve cent archie at 11:59 AM on July 24, 2022


Small UK company, we used the term "bonus pot" for the allocated departmental budget.
posted by one more day at 2:51 PM on July 24, 2022


part of this is called "leveling", at least in the tech sector, which refers to the idea of fitting someone into salary/experience bands that cross specific job titles. you get fit into some grade like L5 based on interviews, past experience and ongoing eval and generally have to meet some specific criteria to move up a grade. the grade comes with both a salary ceiling and floor in most places.
posted by slow graffiti at 3:24 PM on July 24, 2022


I've heard HR call this a "pay-for-performance philosophy" to encompass "each business unit gets a fixed amount of discretionary compensation to allocate amongst our employees that's based on how well we do as a business unit in a given time frame, and fractional amounts of that fixed amount are allocated to individuals by their managers based on their performance". But another company could absolutely use "pay-for-performance philosophy" to mean something entirely different!
posted by potrzebie at 7:42 PM on July 24, 2022


Response by poster: I'd like to thank everyone who replied. While I don't think we've arrived at a common industry term, the fact that a small group of professionals doesn't use the same terminology for similar things is useful in itself. And I was interested in the variations of experience between everyone. Thank you so much!
posted by ErikH2000 at 11:13 AM on July 26, 2022


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