October has been full of fall fun here at the farm! While we love all the spooky festivities that come with this month, there shouldn't be anything scary about prepping for your annual review. It has long been standard practice for companies to tie in their employees performance evaluations with annual salary increases… but should it be?
In my recent conversations with industry HR leaders, it has become increasingly clear that employees are pushing to shut the door on the traditional performance review model and that companies need to update their antiquated practices. Let’s explore how these should and shouldn't be tied together:.
The Traditional Connection: Performance Reviews and Salary Increases
For years, the annual performance review has been closely tied to the determination of annual salary increases. Employees anxiously anticipate their evaluation, as it has acted as the primary means through which a bump in salary happens. However, this traditional approach has its flaws:
Performance vs. Compensation: Annual salary increases are typically seen as a way to reward employees for their contributions versus keeping up with the standard. When performance reviews become primarily about securing a (most of the time, small percentage) raise, the focus shifts from striving for genuine growth to financial gain. This can hinder meaningful conversations about improvement and devalue the review.
Inflationary Pressures: Annual salary increases often follow a fixed pattern, which does not always align with the employee's actual performance, company performance, and market conditions. This can lead to situations where some employees receive raises they didn't earn, while high-performing individuals feel undervalued.
Complex Evaluation: Determining an annual salary increase based on performance is a too subjective and exhaustive process for everyone involved. Employees can struggle with correctly conveying their achievements and managers might struggle to quantify contributions accurately, leading to potential bias or inconsistency in evaluations.
A Shift in Perspective
In recent years organizations that have put focus on being more employee-centric have shifted to separating performance reviews from annual salary increases. Instead, they are focusing on strategies to address each aspect more effectively:
Continuous Feedback: Many companies are moving towards a more continuous feedback model. Regular check-in sessions throughout the year allow employees to receive timely input on their performance, helping them grow and develop. It also takes the pressure off the yearly review if you have been having regular feedback sessions with your team members. An easy way for employees to keep track of this throughout the year is creating a “kudos” folder in your email and anytime a praise or positive outcome comes through, can quickly move it there for later review.
Individualized Compensation: Separating performance reviews from annual salary increases enables organizations to tailor compensation decisions more precisely. In addition to the standard annual increase, if merited, managers can consider factors like market competitiveness, tenure, and individual performance when determining more significant raises.
Clearer Communication: When performance discussions aren't overshadowed by discussions revolving around standard rate increase pay, employees can have more open and honest conversations with their managers. This can lead to better goal-setting, development plans, and career growth.
The traditional link between performance reviews and annual salary increases is undergoing a much needed reevaluation in many organizations. While these have been intertwined for years, there's growing recognition that they serve different purposes and may be more effective when treated separately. It's worth considering whether your company and team should embrace this evolving approach to performance management.
What are your thoughts, is it time for a change? How does your company handle performance reviews, merit raises, and annual salary increases?
As always, peoplezest looks forward to continuing to help you through this season and work with you through executive placements, strategizing services, career counseling and resume needs.