On Raises: You can have your COLA and Drink it too

Once upon a time in my career I did a lot of business budgeting and planning,  so as I entered the executive ranks and needed to manage a large payroll I was quite familiar with the annual process of setting, and then trying to hit, a “pre-set”  overall payroll increase target.

Typically, these targets were based on the predicted cost of living increase in the areas we served – the “COLA”.

And while my financial side loved the practicality of setting a target that combined economic sensibility and disciplined predictability, my leadership side was never very happy about it,  for a couple of reasons:

• It  limited my ability to truly correspond actual performance to what I considered to be the reward for that performance
• It almost always encouraged everyone who try to “fit” all the raises within the COLA to “regress to the mean”

While I could ultimately get over the first problem, it was the second that continued to vex me as I rose up the ranks.

For the first couple of years, come annual review time, the overwhelming majority of the employees would come back to me with a proposed raise of……… the COLA.

It was all too easy – after all, my reports were meeting the pre-set target, weren’t they?  It’s all good, right?

Wrong.  Way wrong.

We were residing in what I call the “Comfortable Middle” of the employee accountability spectrum, and it was being aided and abetted by the COLA.

Our peak performers were being unrewarded, and our laggards were getting more than they deserved. Underneath the cover of the COLA was a leadership reluctance to make the hard decisions necessary for true operational accountability.

That had to change – and it did.   And we still achieved the COLA target.

How?  It started with a more disciplined annual review process – one that much more clearly delineated differences in performance.  This is absolutely critical, and the leaders that oversee this process must bring to the table a very critical eye – there should not be any “rubber stamping” here.

Once there is a greater “spread” in performance classifications, then the real work begins.   The first big hurdle is convincing front line managers that some people should get no raises.   It’s a really hard thing for this kind of manager to do.

In a lot of cases these employees shouldn’t be around in the first place, but there are and can be instances of “coachable” people that are candidates for “no raise, but you still have a job” status.

Second, there’s getting a good “scatter” of raises between the upper 10% and the lower 10% of the employees, above and below the COLA.    This is where a good financial analyst really comes in handy, who can design a spreadsheet or program that can allow a manager to run many scenarios before the desired results are achieved.

Again, a leader should be making sure that all the hard work to get differentiation in the review process is properly reflected in the spreadsheets.

Lastly, there are the peak performers – we MUST allow space in the COLA pool for them.   In my experience there should be a group of people that earn 2X the COLA.   We can’t afford NOT to do that.

(I would add that establishing a “promotion pool” with your financial people separate and apart from the COLA pool would be an added benefit, if you can get it. And since it is that time of year, try to find a few extra dollars for Holiday bonuses- they are always a great way to reward your key people, for an extra inspirational “kick” into the New Year.)

When all the calculations are done, a leader can satisfy the CFO and deliver the COLA, while at the same time staying out of the Comfortable Middle of operational accountability, thus properly positioning the workforce for greater success, instead of potential middling mediocrity.

It just takes focus, strong leadership, an effective annual review program, some creative spreadsheets, and a lot of hard work.  That’s what it took for me, and I’m sure it will work the same way for you.

Lead well!

(Terry Starbucker has been in the business world for over 28-years, as a manager, leader and executive in the financial and service industries.  He now writes about his multiple success stories and the art of leadership in his popular blog, “TerryStarbucker.com”, and is a co-founder of SOBCon, a biannual conference and one of the best learning forums for small and medium-sized business owners in the US, with its unique “models and masterminds” format)

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