Separate Merit Increases from Performance Reviews

by Sharlyn Lauby on December 17, 2013

As I continue to hear bashing of the performance appraisal process, I become more convinced that the reason everyone hates performance reviews is because the company hasn’t defined them properly. What is the purpose of a performance review in your organization?

  • Tied to my pay increase
  • Documents my performance over the past year
  • Discusses my future goals
  • Something else? 

Most often, I hear that performance reviews are the necessary evil in the merit increase process. I wonder how the performance review process would change if companies separated the review from merit increases. Yes, performance does play a big part in compensation. But it’s not mandatory to talk about performance and pay at the same time. Honestly, it’s not.

performance, review, performance review, appraisal, merit, merit increase

And I know that managers might not want to admit this…but how many times has a manager “finessed” the performance review to align with the pay increase they want to give an employee? I know – it’s shocking! (Please note a small amount of sarcasm in my last sentence.)

Performance reviews should be focused on performance:

Past Actions – I believe this should be a small part of the review conversation. Why? Because it’s the past and both the employee and manager know what happened. If a manager is doing their job and providing regular feedback, spending an hour talking about what everyone already knows makes no sense.

Future Goals – This is where the manager and employee should spend the majority of time. What are the goals of the company and department? How does the employee fit into those goals? Identify the challenges and resources the employee might face. Agree upon what success looks like.

If done right, the company performance management process does not have to suck the life out of the business. That’s really not its intention. But in order for it to be successful, the company must clearly define what the performance process means and focus the time spent solely on accomplishing that mission.

{ 4 comments }

Tim Collins December 17, 2013 at 7:44 am

I call the things that get added on to the performance assessment process “barnacles” because they 1) add weight, 2) little or no value, 3) slow the ship down, and 4) are ugly.

Sharlyn Lauby December 17, 2013 at 10:03 am

Love it! Thanks for sharing Tim.

Bill Hargrove December 17, 2013 at 11:36 am

Dear HR Bartender – I have crossed this bridge before. I have a contrarian view that I was reluctantly persuaded to embrace after falling head first in the TQM process while also going through training to become a facilitator of “The Seven Habits of Highly Effective People” during 10 years in the healthcare industry. The problem with the solution is that it is hard work and requires a life long focus. This is heavy lifting that is way beyond most of us because policy and pay are institutionalized beyond our repair. Allow me to quote the expert, Dr. Edward Deming: “The performance appraisal nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and politics… it leaves people bitter, crushed, bruised, battered, desolate, despondent, dejected, feeling inferior, some even depressed, unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior. It is unfair, as it ascribes to the people in a group differences that may be caused totally by the system that they work in.”

Here’s another one…

“Basically, what is wrong is that the performance appraisal or merit rating focuses on the end product, at the end of the stream, not on leadership to help people. This is a way to avoid the problem of people. A manager becomes, in effect, manager of defects.”

Deming offers the following alternate recipe…

“Institute education in leadership; obligations, principles, and methods.
More careful selection of people in the first place.
Better training and education after selection.
Instead of being judges, leaders need to be colleagues, counseling and leading people on a day-to-day basis, learning from and with them… working for the improvement of quality.
The people that form the system will be subject to the company formula for raises in pay. There should be no ranking within the group.
Discover who falls outside the system, and reward/address accordingly.
Hold long interviews with every employee, three or four hours, at least once/yr, not for criticism, but for help and better understanding on the part of everyone.
Figures on performance should not be used to rank the people that fall within the system, but to assist the leader to accomplish improvements of the system.”

Sharlyn Lauby December 17, 2013 at 4:42 pm

Hi Bill. Thanks for the comment. I totally agree – performance is a lifelong focus. That’s why it needs to be future focused. Not sure that in today’s workplace I would advocate the half-day meeting. I lean toward shorter and more frequent conversations. But that decision could be driven by culture.

I’ve talked about the need for frequent performance conversations in many posts. My point here is organizations should tell people what the performance appraisal is used for. If management thinks it’s one thing and employees another, it will never be effective.

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