Setting Performance-Based Pay Increases and Handling Raise Requests

William R. Pupkis, CMPE, Healthcare Consultant

Employee-ReviewIn order to retain valuable staff, you need to set a range for salaries and wages that is competitive, yet flexible enough to allow for raises.  Several resources are available to help you compare your pay levels to similar practices in your area.  You can participate in state or local medical management organization surveys and receive blinded results.  Websites such as and can be used to check salaries, bonuses, and total compensation packages.  Searches can be refined by size of company, years of experience, special skills and certificates, latest job performance rating, etc. also provides salary and wage comparisons, as well as many other resources, such as white papers, ebooks, and webinars, to help you manage a variety of compensation issues.

It is best to have a formal compensation policy.  For example, every year on an employee’s anniversary date, schedule a review to discuss his or her performance and salary/wage.  If, however, you do not have a set policy and an employee requests a raise, you do not need to make an immediate decision.  You might respond that you are willing to discuss an increase if the employee is being underpaid.  Suggest you both investigate relevant compensation data and set a follow-up meeting to discuss your findings.

With an established compensation policy, you can determine a yearly budget for wage or salary increases.  I have found a performance evaluation system works best to determine how wage or salary increases are assigned.  A numerical system, such as the example below, can be used to rate every employee.  These numbers can then be used to calculate the percentage of pay increase that each employee will receive.  To keep the system fair, all evaluations should be reviewed by a committee.

Rating Definition
Outstanding     3.5 to 4.0 Performance consistently exceeds expectations in all areas of current job
Excellent         2.7 to 3.4 Performance exceeds present job requirements
Satisfactory     1.2 to 2.6 Performance consistently meets present job requirements satisfactorily
Needs Improvement   0.3 to 1.1 Performance does not consistently meet present job requirements, development is required
Unacceptable   0.0 to 0.2 Performance does not meet present job requirements, significant development is required immediately

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