[Podcast Manager Tools: salary-discussions-2x2-matrix-tool-part-2](https://www.manager-tools.com/2024/01/salary-discussions-2x2-matrix-tool-part-2) Transcribed with # Salary Discussion's 2x2 Matrix Tool, Part 2. The questions this cast answers are: * how do I decide on raises and bonuses? Should someone get a raise only because of their performance? * How do I tell my directs about their raises? A lot of us probably understood that corporate and individual performance distributors are driven by different parameters. Yes. It's also worth noting, it's within the organization's best interest to separate those who exceed standards from those who meet standards. Yes. We know that, and we, some of us, I would suggest, I think a lot of manager tools listeners are top performers. I think top performers are the people who look for more, look for learning and those kinds of things. So some of us understand that from the perspective of our own work and our own performance. It's worth noting too, for the people whom you manage. Yeah, it's exactly it. To be clear, you can probably infer from these kinds of subtleties that we're making a compromise with the two by two matrix. We make this compromise for simplicity. And some of you may choose to be more granular in your approach and you can create a three by two matrix. where you have three levels of individual performance. Did not meet, met, and exceeded. To get more granular, what you do is you create three rows versus two columns. So three rows of individual performance versus two columns of corporate performance. And in order to get those three rows, in the middle you create a row that has met standards. So there would be. three rows and the top one would be exceeds, the middle one would be met, and the bottom one would be did not meet, and the columns would stay the same. And that's how you could do that, be more granular, adjust a little bit if you'd like to get into the weeds a little bit. Yeah, and some companies do that, right? Yeah. For the record, that is the case in some companies, but it's been our experience that the previous makes it easier for managers to bump it up a level. Yeah, bump everyone up a level. Bump everybody up a level, exactly. Bump everyone up a level. Believe it or not, the fear managers feel for getting caught giving a substandard performer and exceeds rating is perhaps the best, if unappealing reason, to use the two by two versus two by three matrix. I've worked recently with an organization, in fact, the reason... we were asked to come in and work with said organization was one of the managers had been using manager tool stuff. And year over year, compared to peers within the organization, his rankings were below while his results were above all of his peers. Oh, man. And essentially, it was we need to figure out what he's doing. How come your ratings are generally lower, like into what we would think of as an expected range. Sure. While your results are well above everyone else in the organization and their performance measures seem to be higher than while receiving lesser results. It happens. This happens. And I would suggest the thing there was honesty. Yeah. Oh yes. I mean, no one wants to be the bad guy. You start like, yeah. So you inflate all your? Exactly. Yeah, doing an accurate assessment versus everyone else inflating rankings. And it happens in organizations. That's why they use a system with five, right? Five levels. Okay. And this whole process, side note, is made easier, though bureaucratically more difficult, in governmental systems that do not have targets and goals. Okay. And we're aware that some governmental organizations do, and we're glad for it. Most don't. of a governmental system or a system without targets and goals, you have a one by two matrix because there's then no discrimination by the organization in terms of whether or not it met its targets, having had none. Yeah, exactly. Begin with. And I can say from my experience, the influence of this type of thing creeps into organizations that interact heavily governmentally contracted with the government and... If you're in a situation where a large part of the work that your company does has government contracts, just think through the implications there, which I'm sure you know for your own organization, I remember it not fondly. Okay. Yeah. Okay. Good. Yeah. Okay. So now there's also a second permutation, by the way, that we've also seen and thought completely ludicrous. Three dimensional matrix, two by two by two. even three by three by three matrix where company values were also added to the evaluation. Now, cheese and rice. I know. I hope you're not a scientist because your head just exploded. It is dumb scientifically because those values would be far better captured and virtually always are in the composition of the performance judgment made by the manager. And it's dumb process wide. because the permutations make the compensation decision a form of three-dimensional chess for the manager. Not to mention the fact that targets and performance, things are metric-based and values are not. I mean, that's just a similar large brain explosion. Objective, like all in the same measuring system. It doesn't work. Yeah, four of these boxes are numbers and the other two are colors. Colors, yeah. No, no, thank you. So we're gonna retain our, and we suggest you retain, the four block two by two matrix. So our core thread, go back to that. What do the four blocks in the matrix say about how to both determine and communicate future compensation? Now that we understand all these process underpinnings, how do we apply the matrix in our compensation decisions and communications? Exactly. Starting with. the decision and conversation framework. Exactly. Now, what we're gonna do is we're gonna take each of the four blocks of cells, right? And we're gonna provide for you the framework or transcripts of your compensation commentary during the review. You'll know as we suggest possible conversations that there's a component of education in our guidance and it's intentional. Too many managers. think that training is the answer. But in fact, managers have an ongoing daily responsibility, not just to tell, but explain to people. Learn to give your team the why, the background, the politics, the history even, of what you're trying to achieve and why you're trying to achieve it. And they'll get smarter and they'll start making better decisions and they'll make better inferences and they'll be better at predicting in instances that will help them make better decisions right along with you. This goes back to what you were saying earlier, Kate. You being the only person on your team that possesses this knowledge is short-sighted. Why be the only person that knows it when everyone could know it and we'd be all the better for it? Yeah, I had a really great meeting today where we had this kind of like iterative process going on. It was about agendas. It wasn't this kind of thing. It was about a series of agendas. And I... Sometimes, because my profile, my disc profile used to be high I, and so I used to talk a lot more. And not that I'm not constantly talking now compared to Sarah. She feels like I talk a lot. I'm a recovering high I. I used to talk more. Hi, my name is Kate. Yes. And I sometimes felt, because we have a lot of high Ds here, that other people, I perceived other people as thinking that I was pontificating. And that maybe I was sharing things that weren't useful. And we try really hard to keep our meetings on agenda. So sometimes, you know, and all of us have our little cues that we say there's somebody, one of our people, one of our favorite people always says, and this is probably too much information. And then you know, you're in for it. This morning though, I had a meeting and you know, Cassie suggested, what about this? And I said, well, the reason this is important here and not as important here is because, you know, planning or communication or things like that. when I explained the rationale of the difference, why does it matter here at the start of the agenda and not here at the end of the agenda or vice versa, it ended our meeting. We ended up with a much better outcome because then she had changes that were based on that same premise, but she updated her thinking around why we need it to be a certain way. And it was just really, really helpful to have explained this is why it matters here and it matters differently here. And so now, I know that I'm not the only person thinking of it in that way. And it's just really great to be able to share those things. And again, I've been doing it. I'm just pontificating. Okay. So we're going to cover each of the squares. It's counterclockwise, y'all. So just as a heads up there, right, Sarah? It's counterclockwise, isn't it? Because we're starting with B1. Yeah, it is. It's counterclockwise. So we're doing it counterclockwise and we're starting in the upper right corner. Yes. Yeah. Okay. Starting with B1 as opposed to A1, maybe throwing people off, but we're gonna do it this way for a reason. There's a method to this madness. We just wanna, if you're gonna think about it, usually maybe you're in the car and you don't have it drawn or you can't look at the show notes right now. So we'll start with block cell B1, okay? And this is the cell, upper right hand, that the individual exceeds and the corporate meets. Yes, which is the easiest one to have, right? That's the easiest conversation to have. That's where we're starting here. Yeah, folks, exactly. Why not start with the easiest decision and conversation that you as a manager are going to have. Your directors excelled in a year and that in that same year, your corporation, your organization has also met or even exceeded its goals. The stars aligned, right? This is the one, this is those great years. Not only the directs performance has been exceptional, but as has the companies. And this year, there's opportunity for raises, maybe even bonuses this year. Okay, so maybe both, that would be lovely. So if we apply the bucket concept here, let's say with a 3% bucket, you might determine this direct is worthy of a five or even 6% raise. Now, remember that when you do that, this decision means someone else on your team will get less than 5%. And you have to assume that they know the bucket is 5%, meaning- Just assume there. Yeah, assume. Just assume that. It might not be true. It might not be true, but what that means is if they receive less than the 5%, they'll know that they've underperformed. And that might worry you. And it's worried many managers before you to the point again, where the central tendency here is the thinking and performance standards being inflated during the review session. Top performers get underpaid and underperformers don't pay for their ineffectiveness. Everyone hates the system yet again because no one's being rewarded to the degree which they've deserved the rewards. Yeah, and okay, here's a different way of thinking about giving the top performer more than the average bucket. You must be willing to have tough conversations with lower performers to protect the increased compensation you owe your top performers who truly deliver the majority of your team's performance. If you're not willing to reward your top performers differentially and or you're not willing to tell below par performers they're not getting the raises they want due to their performance, you will never become an effective manager. Exactly. You could be a normal manager. Yeah. You could be a regular manager. You will not be a top performer manager. Yeah, exactly. And folks, it'll be much easier to tell your top performers how good they are in earning their notable pay increase. If you're confident, you can tell your lower performers how they did. And that happens because you've done your job throughout the year, giving plenty of behavioral feedback along the way. Again. This goes back to what we said at the beginning. If any of this is a surprise to anybody, it's not gonna resonate nearly as much. Rewarding top performers who have been getting all these positive remarks throughout the year will reinforce that behavior. Your top performers oughtn't be surprised either by this. Yeah. You're afraid that they don't know that they're a low performer because you know you didn't tell them. Yeah. Not because they don't know. Not because they don't know how they did, but because you know You're not afraid of their performance. You're afraid of your lack of communication. Oh yeah, absolutely. This will only solidify the fact that I've not done my job throughout the course of the year. Yeah. So this is B1, right? This is the easy one. Here's how this might sound in the review. Yeah. >Jose, you have had a truly exceptional performance this year. You delivered Project Gemini on time and under budget. You onboarded six new team members and they love you. You increased output while lowering costs because of both smart accounting and great relationships with the team, which is really rare. When people talk to me about how great my team did this year, I tell them to make sure they say, thanks to you. In addition to your own performance, the company and division did well and met its targets. That's important because even if you or others perform well, but the company doesn't, rewards I can share with you aren't nearly as available. Corporate performance is what funds compensation increases for those with great individual performances, like yours. So because of both your performance and the company's achievements, your salary will be increased by 6% next year. What's more, you've earned a performance bonus at level two worth a one-time payment of 3.5% of your base compensation. And I have to tell you, justifying these numbers to my boss and HR was easy because of how much and how well you did this year. Congratulations on a great year, and I look forward to more of the same next year. It'll be fun. Mm-hmm, that's awesome. Love that. It feels nice to give it even to a fake person. I know, right? Even though it's not real, even though you don't know this person, this actually didn't happen. Again, folks, if you're not a licensee, having access to these, I'm going to call them scripts. That's a bit of an exaggeration, but having access to this wording for that one is less important as we go through these other iterations. It's going to be more and more impactful. But again, if you're a licensee, print out the show notes, cross out the name Jose, replace it with your directs name, edit it as needed. so that you can have it written down once. To be clear, being a manager will never rely on your ability to make stuff up on the spot, live in front of other people. It won't. Sit down, write it out, take a previously created script, made by us, for example, and edit it, write it down, read it a couple of times, have it in front of you while you're saying it, so you can glance down and look at it. Be prepared in advance. All right, so that takes us then over to seller block A1. The individual exceeds, but corporation does not meet. This one's trickier. It's much trickier. So now we're in the top left block. Our direct performed about as well as let's say Jose in the previous example did in this past year, which is to say exceptionally well, but the company did not meet its stated targets, or perhaps did meet its targets, but chose not to free up compensation increases because of an unusual market or financial conditions or whatever it may be. So the latter conditions may be truly significant and either well-communicated or widely understood, or there will be retention problems before too long. Yeah, if there's reasons that compensation wasn't freed up. Yeah. that better be pretty clear and people may better understand why that happened. Exactly. And this conversation that we're about to have will be a mixed blessing. ''We're gonna have to praise performance and also deny a raise.'' * A selfish manager blames on the company and often attempts to play the hero by extolling their own failed efforts to get their director big raise. * This kind of like, it's like an in-between failed hero approach is... unprofessional and borderline unethical. * All managers first responsibility is to the organization, not to the direct. * We managers are not between the company and the direct, far from it. We represent the company. We are the company. * We are not an agent for the employee attempting to bargain on their behalf. * We cannot pretend to take our employees side when we are the embodiment of the other side. Yeah, that's exactly it. Okay, so now. The way you might have this conversation with, again, top performer does really well in a year that the company does not do very well. So this is how it might sound. >Perseverance, you had an outstanding year. One of the best performances by someone in your role I think I've ever seen. You increased internal customer satisfaction by the largest amount we've ever seen. You not only retained 100% of your team when the average was as low as 75% in our group, but you hired one new team member. who took a pay cut to come here. And you were named a President Circle performer, one of only seven in the company from operations. And you did it all without your number two, whose maternity leave had to be extended. Your team stepped up because you let them brilliantly, thank you, it was a pleasure to serve you. Unfortunately, the company did not have a great year, as you know. Our target was 9%, EBITDA. improvement year over year and we only improved by 1%, nowhere close to what we needed to do to fund some of the investments that are planned to keep us competitive. And what that means of course is that we don't have the dollars to fund the kind of future compensation that you contributed to on your side of the ledger. It's a cruel reality that takes both individual and divisional or corporate performance to grow salaries. Since we didn't have both, you won't be getting a raise this year. It's not a stretch to guess that neither will anybody else. That said, we recognize your stellar performance and you'll be getting a $5,000 one-time performance bonus. You'll see that in your next paycheck. I look forward to more of the same from you next year, coupled with a better compensation story because everyone steps up. Now, B2, okay, block cell B2. So we said clockwise, in fact, we're kind of zigzagging. So we went from top right to top left. Now we're going to bottom right. Individual fails or meets and corporate meets. In the bottom right block, cell B2, we're now in the bottom row, row two, meaning substandard individual performance. But because we're in the right column, the company overall met its targets. Sometimes in this situation, there's an overall corporate bonus given to everyone, though those are less common than they used to be. Thankfully, these are going away as companies appropriately decentralized some parts of future compensation decisions, though oversight appropriately remains. We've often seen it to be counterproductive that an underperformer gets some amount of bonus or heaven forbid a raise. When companies reward in this way underperformers, they should not be surprised if they get more underperformance. One leads to the other naturally. Yeah. see this often in productivity and satisfaction numbers for government offices, where there's no performance discrimination in compensation. So for this conversation, it might sound like this. >Claire, I'm gonna start by saying that the company had a great year. We achieved our goal of 9% year over year, EBITDA growth, which was a pretty aggressive target. As you know, because I've probably said a hundred times, overall company performance is the first part of compensation discussions. If the company doesn't do well, There isn't money to pay for increased future compensation for anyone. So it is good that the company did well. There's money for raises and bonuses available. The other part of compensation discussions comes from individual performance. You didn't perform well this year, Claire. So you won't be getting a raise or any discretionary bonus. You missed your two key project delivery dates. One of those was by four weeks on a nine week project. Both of those projects were over budget beyond the grace accounting. And you continue to not meet our agreed upon minimums for developments of your three directs. Of course, we talked about all of these instances throughout the year, so this is no surprise. I know it's still tough to hear it again when salary is on the line at the end of the year. And it's probably especially tough this year since overall we did well enough to fund increases for many. I hope you can channel some of the frustration you're no doubt feeling into better performance next year. To that end, I'd like to go over next year's performance next week in an extended one-on-one. We can talk about what you can do better and differently. to lead to the kind of review and compensation discussion we can both be pleased with next time. Mm-hmm, exactly. All right, that takes us then to our last cell. It is cell or block A2. The individual fails to meet their standard, their target, and the corporation or the organization does not meet. And sometimes, unfortunately, all the stars align in the wrong direction. And this is one of those cases. In the last block, the bottom row, left column, cell A2 in spreadsheet speak, neither the company nor employee met expectations. The cynical way to think of this outcome is the employee didn't do well, but it doesn't matter because even if they did, there wouldn't be any money to pay for it anyway. But if any direct gets that idea, they bear reminding that if both the company and they keep it up, racing toward a very ugly ending. It's not a great situation. And you'll note again, in this conversation. Yeah, script, like you mentioned before, if you wanna call it that. You'll note that we're teaching as well as revealing future compensation. Again, giving more information. So, this is how it might sound. >Jack, it was a tough year for you performance wise. You didn't meet our agreed upon goals. Your productivity was down by 4% in a year where the new systems caused overall productivity on tracked tasks to go up by 2%. We talked several times this year about your lagging numbers. Despite your assurances that you would do better, the numbers at the end don't show that you did. And we had to talk three times about your failure to communicate across the team, which was an area of focus from last year's review. What that means is your salary will remain unchanged, nor did you qualify for a bonus. Now, rumors will go around after these review conversations, you may hear that others haven't done as well financially as they may have liked, but I caution you that there will be some that have different reasons than you do because the company did not achieve its targets financially. The company cannot afford much compensation growth, even for those who performed well. It's painful to admit, but if the company had done well, they would have qualified for raises and or bonuses, but your performance this year would not have justified that. I'd really like to get started very soon on getting you to the meets and even exceeds performance level for next year's review. I think next week, we ought to extend our one-on-one by 60 minutes or to 60 minutes and start digging in to setting weekly metrics that will help keep us on track. It may be time for me to start coaching you to get there. I believe in you and I want to help, but it's work you're going to have to do. So that's how you use the salary discussions two by two matrix tool to simplify your thinking about reviews and compensation, to come to decisions about how to portion your buckets and also how to communicate your decision as a leader for the organization. Exactly. Because that's what you are. Don't feel like this time of This time of year, this review conversation puts you in the middle between two objectives. It doesn't. You are the voice of the organization to the people on your team. Behave the voice of the organization. Thoroughly review their performance as well as the organizational's performance over the course of the last year. Draw yourself your little two by two matrix and use the show notes and the scripts that Kate and I gave you today as at least a beginning. for having those conversations, even when those conversations are at times tough. Absolutely. Thank you, Sarah. Thank you, Kate. That's it for this week, y'all. We'll see you back here next week for a new topic.