Separating Raises from Performance Reviews: But Then What?

Reading through Inc. earlier this week, an article on why employees hate the performance review caught my eye. I’m sure that some people are sick of the amount of attention that this trend has been receiving, but I remain curious about how all of this will eventually work itself out and which solution (or solutions) will rise to the top.

The article in question doesn’t necessarily have a groundbreaking perspective to offer, but does spend a little more time than most on the need to separate performance discussions from pay discussions. I actually wrote about this very topic in a Cafe post from last July that covered more of the performance or development side. In that post, I left readers with a question that I wanted to revisit today from the pay side of things: “what’s a better way to determine those deserving of increases?”

In contrast to much of the thought that has gone into developing better performance reviews, I rarely see as much attention being paid to the pay discussions that I expect may become a distinct entity. Worst case scenario, they become as burdensome a process as the performance reviews before them, and simply repeat the mistakes of an “obstacle course of hoops to jump through, hurdles to clear, and a raise as a reward at the end” mentality.

To keep that from happening, it will be important to think through what form pay discussions take, starting with a couple of these types of questions:

1. Should pay discussions continue to rely on performance? Perhaps an odd thought at first, but a serious one in light of growing concerns around the judgment and decision-making that has historically fed into performance reviews. At one extreme, some companies have even done away with individual increases, replacing them with broader local market increases. Where companies eventually fall on the spectrum will be interesting as performance reviews themselves evolve.
2. How can pay discussions be linked to performance? Assuming the answer above is affirmative, the next step lies in determining the types of performance information that can and should be used for deciding salary increases and other compensation. Much of this will again be dependent on the eventual form that performance reviews take, the data that is created from that process, and ultimately transparency around developmental versus administrative uses of that data.
3. When or how do pay discussions take place? At a high level, discussions around pay may not need to happen with as much frequency as performance discussions, but do need to happen often enough to reflect increases in performance, abilities, or responsibilities. As such, frequency and even the structure of these discussions remain important questions to consider. 
   
4. How can pay discussions be structured to avoid “gaming” the system? As the article cited at the outset notes, discussing raises during performance reviews can encourage employees to take fewer risks, set objectives that are easily met, and avoid critical feedback. A valid question is whether a system or process can be developed to avoid these potential pitfalls. One hope is that more frequent feedback and check-ins provide a robust record of overall performance, such that development and growth are emphasized over achievement.

It is clear that this area is very much in flux, but I do think it is worth asking ourselves these questions to help improve the process through which pay discussions occur.

What additional questions come to mind for you that would help to improve these kinds of pay discussions?

As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Comments

[Jacque Vilet]

Agree Derek it will be interesting how this plays out. Instead of trying to continue giving pay increases based on performance, Lear adjusts pay only according to changing local markets. In addition they pay a bonus annually to employees based on company profits. Other companies are using profit sharing plans too.

[E. James (Jim) Brennan]

The solution demands correcting the mismanagement of supervisors. Undirected unguided untrained bosses who are both unable and unwilling to properly communicate honestly continually sabotages pay for performance. The concurrent failure of senior management to adopt and implement systems and procedures that truly treat people as their most valuable resource further undercuts the effectiveness of the few dedicated performance managers. Solutions are in http://www.amazon.com/Performance-Management-Workbook-James-Brennan/dp/0136586341.

This old issue is only currently hot because pay budgets have languished for so long. Almost all workers are dissatisfied with their tiny incremental income growth rather than the usual half unhappy with their performance reviews. Granting peanut-butter increases or using bonuses just evades the core issue: Supervisors don't manage performance effectively.

Distribution of wealth will remain an issue as long a people remain human. No matter what element is used (cash, base, prizes, perks, equity) or how it is divided (via P4P, totem poles, automatic, steps, profit-sharing, incentive plans, general, COLA, seniority, contracts, special KSA formulae, etc.), the "fairness" of every method will be challenged.

What else would you propose to reward besides "performance"? Even membership implies maintenance of an acceptable level of productivity.