[pkj]

Most companies use a variant of stack ranking. If you agree with the core philosophy that more productivity => better pay, then you need to implement some sort of a differential pay algorithm. Having said that the implementation really sucks. It is not natural and continuous, rather people get pigeonholed into discontinuous buckets.

Let me take a concrete example closely mirroring my experience. There are 4 fixed performance buckets. Top 5%, Next 20%, Next 65%, Bottom 10%. They get hikes of 20%, 8%, 4%, 0% respectively. Again, these are fixed numbers. Let us assume there are 4 people A,B,C,D and out of a hypothetical score of 100, score 95, 90, 87, 85 respectively based on various parameters. You would assume that since D differs in ability with A by 10%, he would get 90% of A's hike. But sorry, due to the stack implementation he gets 0%, while A gets 20% ! Let's say if the scores of A, B, C, D were instead 100, 50, 25, 5, the hikes would have make much more sense.

Summary: Discrete curve of benefits works well only when it closely matches the curve of people productivity. This is rare. So it just ends up being unfair and creates an unhealthy rat race.

[njr123]

I disagree with the whole premise of 'productivity => better pay'. I think it is much better and easier just to pay everyone in the same role the same (maybe with some company wide profit share) and then fire all the bad people as quickly as possible. You avoid all the politics of performance reviews, and the problems of how to rank the relative value of different skillsets. Incidentally, I believe this is the system that netflix uses?

Identifying the bad people usually pretty easy. The problem I find is that most people in software a pretty non-confrontational, so it is hard to get them to fire the bad people, even when they are obviously bad for productivity.