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Compensation  >>   Incorporating TDC in Merit Pay Increase Decisions Search Discussion Posts
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Incorporating TDC in Merit Pay Increase Decisions  
Posted: 07/28/2011 02:51pm   172 Views

Our company is looking to shift the focus of base pay increase decisions from % of range in the salary grade via the salary structure and performance rating to how the individual compares to market data from a Total Direct Comp perspective and performance rating.  Has anyone had any experience with this?  If so, should the TDC be factored into the merit matrix or in place of the matrix for bonus-level positions?   Any information you can provide would be much appreciated...


Incorporating TDC in Merit Pay Increase Decisions  
Posted: 07/29/2011 11:45am  
   (1 rating)

Yours is not an easy question to answer because a full response would require a chapter of information at least. 

Base pay is far easier to track than TC or even TDC, so most matrix systems focus on the base metrics.  While base pay may be reliable and seniority-related, extra incentive or bonus pay should be variable and range from zero to lifestyle-changing amounts.  Once you factor in contingent non-guaranteed compensation, the "individual merit performance" variable grows exponentially in significance, because you can have two people in jobs of roughly equal base pay value where (disregarding past personal pay progressions) one has a great year and the other a mediocre one.  The superior performer will get a much larger bonus and will deservedly move "ahead of the pack" in TDC, all else being equal.  Your frame of reference for both internal and external comparisons now shifts from base pay to total compensation, where base pay amounts should not prejudice performance bonuses.  Take care to assure that accumulated personal base pay does not become a proxy for the bonus distribution, because it is very wrong to assume that only the most highly paid incumbents have the best current-year results.  A matrix distribution founded on base salaries may have no relationship to the proper desired distribution of bonus sums.  They are apples and oranges.


Incorporating TDC in Merit Pay Increase Decisions  
Posted: 08/09/2011 03:29am   Revised: 08/09/2011 03:30am  

with switch from base pay to TDC perspective you risk one thing. As VAR COMP is volatile, the basis to which you will compare your employees(market data), will be volatile too. Business results and overall ecomnomic situation in industry might change dramatically YtY and as the data you have from market are already some months old, you risk, that with setting up your strategy on these volatile data, you will not catch up what's currently happening on the market. E.g. last year was bad, sales incentives were low, so also TDC is low. You setup your compensation approach on these data, but this year, sales are growing, so are incentives, but your increases of TDC will probably not reflect this. In my opinion it's better to set base compensation on market data separately, and keep more flexibility in VAR COMP.


Incorporating TDC in Merit Pay Increase Decisions  
Posted: 08/09/2011 03:51am  

I've never had experience with this.  It would seem like if you were going to use TDC v. the Market as your basis for base pay increases, that a standard 2x2 matrix would include performance and TDC market ratio.  Or, if you didn't want to do this on a job by job basis, you could probably come up with some TDC ranges instead of base pay ranges and still use some type of range penetration.  Just some ideas. 

I can think of lots of challenges, but I'll spare you all those concerns since it sounds like you all have already made your decision.  Good luck.  If you get time, reply back to this post in the future and let us know how it goes.

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