Increment-Growth Linked to Competencies/Potential
It is the leadership competencies which determine the vertical growth and increments. These are differentiated from increase in increase in incentive pay-outs which are primarily given for meeting or exceeding the achievement in short term goals.
While variable pay often refers to incentives which are designed for driving performance in the current performance period, it is the leadership competencies which play an important role in determining the vertical growth and fixed increments for an employee. Incentives are a form of variable pay which are required to be re-earned in every performance period. Fixed increments are permanent increases in the basic compensation given to the employee. Besides being a fixed payout, these increments also represent the increased amount of trust and reliance which the organization is exhibiting in the employee. To earn and deserve this trust, an employee must truly acquire and demonstrate the requisite leadership competencies (besides delivering the required performance for achieving the mandatory levels of goals). Hence, while the achievement in goals only can suffice to warrant incentive payout, it is the leadership competencies which warrant fixed increments and vertical growth. At progressively higher levels in the organizational hierarchy, the goal of achieving performance excellence and developing higher execution-quotient of the team is achieved largely due to the well-developed leadership competencies.