While pay raises in 2008 are expected to again average around 3.9%, according to a Towers Perrin survey reported in today's Wall Street Journal, a growing portion of that money is expected to be put at risk and tied to specific performance metrics.

This trend opens up organizations to the proverbial two-edged sword.  On the one hand, companies only pay out extra money when performance warrants it.  However, if employees are not given realistic goals and metrics, the explosion of negative morale could cripple an organization.

When employee raises are tied to performance metrics, the key ingredient must be that employees can control their destiny.  Said differently, their efforts must directly corrolate to the measurement.  More importantly, performance levels need to be established so that a person knows if they produce this defined output, they will earn this review score, and that review score means this level of incentive payout.

Performance metrics must also be tied to each person's core business responsibilities.  While everyone should be supporting cost control and increased sales, each person does not directly influence tose areas. The mail clerk, for example, does not directly influence sales--but the marketing folks do. 

Establish meaningful measurements for each person and team--then the program will work.  Otherwise, your organization will save money in performance payouts, but lose in the battle for organizational strength and health.