Is that actually how it works? If everyone in a group does a good job, or if everyone does a great job, they'll get the same raises either way? Furthermore, if management is convinced that one person did a bad job, then that increases the amount available to the rest? The incentives are fascinating. How many people are in the group to which the raise pool applies?
The way it ought to work is the entire team gets a communal raise depending on how well the company is doing. That way, the incentive is to collaborate and solve problems together for the better of the company, as it should be.
It's very unusual that an individual performs significantly (three sigma) above or below the team performance, but in the case of that happening, they could be withheld from the main pool or split a side pot.
But not without first either getting the assistance they need to catch up with the team, or teaching the team in their superior methods.
We don’t have to solve the pool to the last hundred dollars, but this is how it works to a very strong first-order approx, and is definitely how the tooling is setup (we use an SAP module to do it, so I seriously doubt we’re alone here).
In terms of how concentrated the problem is, the overall pool covers 1000+ people, but we use the same general formula to break it down to cover groups of 15-50. That’s enough that if you have one outlier low, you’re probably okay (including just explaining why you propose granting raises over the pool because of this). But if you strategically “hire low”, your whole group suffers. (Which is another reason to not bias your offers low-leading is hard enough, so don’t start out to do it on hard mode.)
To the “if everyone did a great job” concern. If everyone did a great job, the business does better and the share-based comp becomes more valuable automatically; we would also likely make the raise pool and SBC pool larger because the company was out-performing because everyone did a great job.
Quite a few companies I've worked for have raises budgetted by department/business unit/whatever. The average may be 3% over the department, which means only a few people get to have an above average rating. If everyone does an amazing job, everyone gets 3%. Usually I've found that translates to a few people getting a great rating, and other people getting a good rating, because there's only so much to go around.
My last company, only 2 people in the department could get the highest rating, other people were passed over, including myself. I warned my manager about this, but not surprisingly we lost quite a few good people because the market is good for devs and its really easy to get a solid increase in salary. Especially if you get passed over because corporates are going to corporate.
Is that actually how it works? If everyone in a group does a good job, or if everyone does a great job, they'll get the same raises either way? Furthermore, if management is convinced that one person did a bad job, then that increases the amount available to the rest? The incentives are fascinating. How many people are in the group to which the raise pool applies?