How To Boost Employee Morale With Transparent Metrics and Performance-Based Raises

According to Ravio, nearly 86% of companies include performance-based adjustments for pay reviews, making performance-based raises an established bedrock of compensation models. However, while companies trust this framework, employees have valid concerns about it. These include pay equity, unrealistic expectations, favoritism, increased stress, and sometimes questioning whether they’ll receive the promised increase even if they reach their goals. 

For companies, concerns about this model incentivizing “busy work” over profit-generating work are also valid, especially without the right tools to measure compensation metrics.

Drawbacks of Merit Increases: Subjectivity and Transparency

A top HR consultancy, Mercer, argues that the merit increase models’ biggest failure points are subjectivity and transparency. Personal biases against the employee can weigh heavily, especially when they are coming from the loudest leaders. In the case of transparency, if the employee does not have a clear pathway to understanding the metrics behind salary increases, they lose trust in the process and don’t know exactly what to do to reach their goals. 

Mercer points out that improperly designed merit increase programs arise from bad performance management, which lacks transparency and includes too much subjectivity. Companies have to work hard to remove nearly all subjectivity from the framework. Obviously, you have to adjust for bad personalities who may be poisoning morale. Still, someone who is consistently off-putting to co-workers and managers will inevitably have issues that bleed into their work, which will show up in metrics. 

More subtly, someone who is extremely likable may be given too many passes and earn a pay raise simply based on personality, while their colleagues who keep their heads down work twice as hard and don’t see the same increase. 

Nearly all concerns about performance-based raises can be addressed if a transparent system is in place to measure employee productivity effectively. Our employee productivity monitoring solution, Prodoscore, is a vital component, but other software, like human resource management (HRM) solutions, can also help. 

It is also essential to limit any last-minute clawbacks to performance-based raises because someone in upper management doesn’t like the line-item increase. This will completely torpedo employee engagement and ruin company morale. Budget for increases in advance so they don’t come as a surprise to upper management.

Defining the Right Metrics for Performance-Based Pay Increases

We dig into performance-based metrics in this article, but in summary, you’ll be measuring three productivity levels:

• Organization (Entire Company) 
• Departments
• Individuals

This will allow you to see how an individual performs relative to peers in their department and the organization as a whole. Our guide also lists exactly what metrics should be used for each department. 

Including company revenue in performance-based compensation is tempting, but this has to be executed with a measured approach. If an employee consistently smashes their productivity goals, but the company has taken a loss due to unforeseen circumstances outside of the employee’s control, the employee should still receive their merit increase. In an outlier case like this, performance-based raises should simply be adjusted slightly down for the next fiscal quarter or year to account for the overall loss in revenue.

Using Prodoscore to Measure Employee Performance

Prodoscore can inform performance-based raises by providing data-driven employee productivity and engagement insights. It measures internal collaboration and outlines what a workday looks like for your top performers, which you can use as a template for the rest of your team. Employees get access to their individual data to learn and drive their own development, including being assigned a productivity score or Prodoscore. 

Using Prodoscore can lead to: 

Objectivity in evaluations: The platform moves companies from subjective performance reviews to an objective, data-based system. This can be especially useful for remote and hybrid teams, where managers have less visibility into daily activities.

Linking productivity to results: By measuring daily activity across tools like email, CRM, and collaboration apps, Prodoscore insights can be correlated with tangible outcomes. For example, one customer found that for every point increase in an individual's Prodoscore, sales quota attainment increased by 7.6%. This kind of data can justify higher compensation for top performers.

Increased transparency: When your employees can see how they contribute, they can judge their achievements and gauge whether they’re deserving of an increase. Once you have transparent metrics in place that employees can track regularly, you increase employee trust and improve culture.