What's with pro-rating salary revisions?

I've seen this in a lot of organisations: they 'pro-rate' salary revisions. The latest, of course , was an internal policy about pro-rating increments based on when the employee's anniversary appraisal took place. Here's what it means:

Say the salaries are revised every Decemeber. If I joined in March, and in December the company decides that I should move to a 10% higher salary, I actually get a 7.5% hike. (10%*)9/12.

To me, this makes absolutely no sense. I can see that you would want to do it for bonuses that are linked to company performance, project success and individual performance, because the employee's contribution was limited by the period she was there.

However, for salaries, the same does not apply. After all, what is a salary revision exercise? It is about revising salaries to make sure that they are in-line with your wage bill goals, keeping in mind the following factors:

• market rates, and your company's positioning
• the wage bands for various levels in your organisation ( which would have been redefined by the new hires in the last year)
• review of the employee: past performance, future projections, potential
• the employee's value to the organisation.
• and perhaps, where the employee is currently at.
  

So, a salary revision, in my mind, is not about deciding a percentage hike: it is about deciding a target number. You first get to that number, and then work out the percentage from there.

If you do it that way, which I think is really done everywhere, where's the logic for pro-rating? At any point that you are revising a salary, you revise it to the 'right' number based on the factors listed. The fact that the employee has spent only 9 months with the company, or that he had got a revision only 6 months back, is of no relevance to the number that is 'right' today.

Following a percentage hike approach also results in communicating it the same way to the employees, which has the following problems:

• it fosters and shows a mindset where salary hikes(revisions) are treated as perks/rewards, rather than adjustments.
• it encourages comparisons between employees by employees. People can compare in any case: converting into percentages is easy. However, with the percentage approach, you are inviting them to compare.

There's only argument I've seen in favour of pro-rated revisions. I consider it a weak argument, for reasons outlined below, but even then, it works only in situations where you're on a secular hike path - that is, ALL revisions are hikes. Which is mostly true today, but doesn't make for a good policy because it is a temporary situation.

Here's that argument:
- people who joined or got a hike less than a year back, got the 'advantage' of a revision early, while the other employees wait till the next revision.

And here's my counter:

• How do you know what part of this person's 'higher' salary is due to change in market, and what part is due to his skillset?
  
• The right number today does not change by that fact. Remember that this person would then also be 'below' the right number for a full year. So if you have to pro-rate, the right approach would be to ensure that the 'gain' this person got is dissipated in the next 12 months. If you just pro-rate it, this employee ends up losing over the total period to next year. But doing this kind of math is probably impractical.
• If the salary situation is changing at such a fast clip that you are think pro-rating is needed to balance it, then you should think about doing salary revisions at six monthly intervals rather than annually. ( You probably anyway end up doing that on a ad-hoc basis, for reasons such as managing attrition.)
• If the new person is getting this extra advantage, remember that he is also losing because of the switch - he will need to invest in establishing himself again at a new place, with new people.
  
• Even if you want to pro-rate, don't present it as such. Use that as one more factor when calculating the number, and tell the employee the number along with the various factors.

So, my plea: Don't talk of percentages when revising salaries!