How do we link increments to performance in an MSME?
Fix one method before the year starts: eligibility rules first, then a performance review for every person, then a band for each score, then a written letter. The same method applies to everyone. The head of department recommends, the owner approves, and the reasons are told to the person.
In many family-run plants, the increment is decided once a year in the owner's cabin. People come one by one and ask. Those who ask boldly get more. Those who work quietly get less. The owner feels pressed. The quiet performers feel unseen. Both sides feel it is unfair.
The answer is not to give more or less. The answer is to give by a method that everyone can see.
Why "years of service" is not enough
Service counts, because loyalty and experience matter. But when the increment depends only on years, three things happen.
- Good people feel that effort makes no difference.
- Weak performers get the same as strong ones.
- The owner has nothing to show when someone asks, "Why him and not me?"
An increment is best seen as a result of growth. People grow. Discipline improves. Skill increases. Then the increment feels good, and the company is happy to give it. It is not a yearly right that comes with the calendar.
The chain that must exist first
An increment based on performance needs the earlier links in place.
- Job description: what the role is for.
- KRAs and KPIs: the results and numbers, set before the period.
- Monthly talk: a short one-to-one between the person and his head.
- Quarterly review: a written score.
- Yearly review: the quarters come together in one fair summary.
- Increment: the decision.
The head of department must recommend the increment of every person who reports to him. To do that, he must have something to review their work. That something is the performance system. Without it, the recommendation is an opinion.
A fair method, in steps
- Fix the eligibility rule. For example, minimum working days in the year and minimum service. Decide this first, and write it.
- Review every person on a score. Staff use their KRA sheets. Workers use the seven-quality worker review.
- Convert the score to a band. A simple table: higher bands receive a higher increment, the lowest band may receive none or a small one. Each plant sets its own table.
- Check the legal minimum. Make sure no one falls below the minimum wage rules that apply.
- Give the result in writing. The letter should mention the band and the reason in one or two lines.
- Discuss, do not announce. Every person should hear his result from his own head of department.
The important point: the table is set once, with the owner, before the reviews start. Never after. If you change the table after you have seen the scores, people will believe the table was designed for someone.
Fix the rules before the year begins, and the owner is no longer the one who says no. The method is.
The role of the review talk
The review is a conversation between a coach and a player. It is not a judgement.
- Start with what went well.
- Show the data for each result area.
- Ask the person to speak first about his own performance.
- If the person's score and the head's score differ by a lot, do not average them. Sit together again and understand the gap.
- Agree on the skills to be learned next year.
Where the person's own ratings and the head's are far apart, the reason is usually missing information on one side. Meeting again clears this faster than any form.
The chain of respect
The head of department reviews his own people. The owner should not skip the head and rate someone two levels below directly. That weakens the head and confuses the person.
This also connects to Accountability Visibility. When the head recommends, and the owner approves, everyone knows who is accountable for what.
Making daily habits part of the picture
In one plant we worked with, the daily report was not sent regularly. The owner tied a part of the yearly increment to the report being sent on most working days. After a few months the report became a habit, and the link was no longer needed. Use this kind of link only for a habit you want to build, and define clearly what counts as a valid report.
Common mistakes
- A table made after the reviews. Trust is lost.
- Equal increments "to keep peace". It keeps the peace for a year and loses your best people in two.
- Scores without data. Type the actual from the named report. The head may adjust by a small amount, but must write the reason.
- No development plan. Every review should end with what the person will learn next. A person who stops learning will see his skill fall behind his role.
- One system for managers and workers. Use KRA sheets for staff, and the worker review for operators.
How to start in your plant
- Write the eligibility rule and the band table with the owner. Keep them on one page.
- Start with one department. Set KRAs, begin monthly reports and monthly talks.
- After a year, run the full review for that department and give increments by the method.
- Learn from the first round, then extend to other departments.
Key points
- Fix the method, the eligibility and the band table before the year starts.
- The increment follows the performance system: JD, KRA and KPI, monthly talk, quarterly and yearly review.
- The head of department recommends. The owner approves.
- Give every person his result in writing, with a reason.
- Never change the table after seeing the scores.
