My company recently moved from a performance review system that ranked employees to one that focuses on individual coaching and feedback.
Needless to say that it has transformed the performance review process into a far more positive and productive experience for everyone.
The only thing that the ranking system made easier was pay raises - higher rank = bigger pay raise. While everyone hated the system, there were no suprises at the end of the year.
The new system provides no obvious clues to who should get what pay hike %.
We are in a developing country with significant wage inflation (last year our average pay raise was 12% with a range from 0%-18% based on rank.). We also have a lot of positions for which we can't easily compare salary to other companies or get industry data on salaries.
I'd love to know how other companies approach pay raises?