In the human resources world, we talk all the time about ditching, killing, abolishing, etc. the performance appraisal. And I understand that the concerns about the effectiveness of the performance review are very real. But I ran across this article on the blog Get Rich Slowly that really showcases a facet to the issue that we’re not talking about.
Many organizations tie pay increases to the annual performance review process. If the annual review goes bye-bye, what happens to the pay increase part?
My guess is that the one thing employees like about the performance review process – besides really good constructive feedback – is the pay conversation. They like it for two reasons: 1) because it’s about their pay but 2) because they don’t have to prompt the conversation. Employees know that once a year, they get to talk about pay.
No one likes asking for a pay increase.
Even when employees know they deserve more money, it’s a hard conversation to have. I remember many years ago, being the director of human resources at a location where I knew I wasn’t being paid competitively. I loved my job, but the pay was low. Finally, our corporate offices issued new compensation pay ranges and we were given the task of making sure that every employee was paid appropriately within their pay range. My boss came to me and asked if anyone was being paid below the range. I said yes, we had one person who was paid below the range. Only one person out of hundreds of people. He asked who. And I struggled to say it was me! Even when I had all the data to back it up. (Side note: I did get my pay adjusted. But the point is…talking about money is hard.)
As organizations start to have conversations about the performance appraisal, they need to remember all the other processes that are tied to the performance review. The annual review is not a stand-alone process. It impacts other things in the organization, like pay increases.
Companies also need to get prepared for more pay-related conversations outside of the annual performance review. For years, managers have been able to postpone pay-related conversations by telling employees, “Let’s address that during the annual performance review.” That’s not necessarily a bad thing. It was an opportunity for a manager to do their homework and possibly request additional monies for an employee. With the elimination of the annual review, the annual money conversation changes.
We’re asking employees to take more ownership in their careers. We want them to be self-managing and accountable for their training and development. Next on the list will be initiating the pay conversations. The question becomes are companies and managers ready?