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The New Rules of Raises

Slackers beware. More pay increases are based on bonuses -- and high achievers are getting your share.

At Whirlpool, everyone is eligible for some sort of bonus -- from the brass to the worker on the factory floor. Salaried workers can earn four times a target-incentive bonus that's a percentage of their base pay if their accomplishments are above and beyond and the company's fortunes reflect it. Where's the money coming from? Out of the pockets of the poor performers, who can expect less in the way of automatic salary increases. "Whirlpool's expenditure on bonuses is far greater than what is spent on merit increases," a spokeswoman says. She adds that it's Whirlpool's philosophy to emphasize pay-for-performance rather than to focus on base salaries, which, she says, can support an "entitlement mentality."

It's getting to be a what-have-you-done-for-me-lately labor market. The days of companies granting across-the-board raises for go-getters and deadwood alike ended long ago. Now, expect even more of your pay from bonuses and one-time rewards that rise and fall with your productivity and value to the company. "Companies desperately want to shift the balance from long-term fixed salary costs toward variable pay," says workplace consultant Bruce Tulgan, of Rainmaker Thinking. "Think of it as applying the idea of piece work to professional services."

For 2007, salaried workers can expect an average increase of 3.7%, a shade over this year's 3.6% increase -- not much when you consider that inflation is expected to be 3%. But wow your boss and chances are you'll get more. Companies surveyed by Hewitt Associates, a human-resources consulting concern, expect to spend 11% of payroll on variable pay and bonuses next year -- about the same amount as this year, which is three times the pool earmarked for salary increases. Eight out of ten companies in the survey have some type of pay-for-performance scheme.

The kinds of individual rewards being offered range from small cash payments and gift certificates to a hefty percentage of base pay in bonuses, to extra paid time off.


You might not have to wait until year-end to get a bonus, either, because performance pay works best as a motivator when it's handed out right away. Rewards will also grow customized. If you've earned a pat on the back, ask for time off or more flexible hours if they're more valuable to you than money.

New-style compensation plans will take getting used to -- on both sides. Employees trade security for more control. Bosses have to get the balance right in terms of the performance measures they use and how they distribute rewards. If you're a manager, think of yourself as a purchasing agent. And if you're a worker, think of yourself as a vendor and the company as your customer. Negotiate expectations in advance and in detail, and know the yardsticks by which you'll be measured.