While some companies talk about doing away with performance evaluations altogether, others claim it’s simply better to keep performance reviews and employee raises separate.
Before developing or updating your performance evaluation process to make evaluation and salaries independent of each other, we suggest asking yourself a few critical questions:
What’s the reality in your specific market like? Are employees motivated by salary first and foremost? Is it realistic for your company to be fully transparent about remuneration? What organizational constraints are in place, and if you’re not going to compensate employees based on performance, how will you determine their salaries?
True or false? Employees that have high salaries are more driven
Yes, salary is certainly important, but it’s no longer the case that it’s the thing that matters most to employees. According to Les Affaires, employees prefer to have more time to dedicate to personal projects than having high salaries.
In fact, employees want salaries that are consistent with what they feel they deserve. A study conducted by Gallup on 1.7 million people spread over 164 countries showed that people who earn between $60,000 and $75,000 are happier because they can achieve a work-life balance successfully. A higher salary undoubtedly means they will have less time to devote to their personal interests.
Transparency, self-managed teams and pay equity challenges
In the private sector, more and more companies are trying to openly disclose the salaries of their employees. Some even go so far as to leave teams of employees in charge of deciding salary amounts for each other. We think this is a great idea (as long as the teams are perfectly able to manage themselves)!
In order to give employees this freedom, your organization has to have a very high level of business agility and autonomy. Plus, if you’re going to avoid employee dissatisfaction, your pay equity will have to be exemplary.
In this scenario, there is also the risk that employees who are shy will accept a salary that is lower than what they would like, to avoid confrontation, especially if the pay increase parameters aren’t clear. Your teams have to determine specific criteria when it comes to offering a particular salary.
A few constraints to keep in mind
Some companies cannot separate evaluations and pay for specific reasons. If your organization is accountable to a board of directors, government or shareholders, you have to disclose the reasons for giving an employee a pay increase.
On the other hand, if you work for a SME that is run by sole owners and is not publicly traded, you will inevitably have a lot more freedom.
Determining salary increase when it’s not linked to performance
Whether you want to link salary increases to performance or not, it shouldn’t be the only determining factor for remuneration.
In the event that you don’t consider evaluation when deciding on compensation, you can determine salary according to:
- Salary surveys in your industry
- Inflation rate
- The company’s financial status
- Team objectives
- Employee involvement within the organization
If you are looking to recognize your employee’s hard work without giving them a raise, you can reward them with a bonus, which is totally separate from their salary.
It’s important to inform your employees about salary and pay increases as early as the hiring process to avoid any dissatisfaction.
The solution: recurring performance evaluations, but only one pay increase per year
It’s excellent practice to meet your employees on a regular basis, but it’s hard, if not unrealistic to award pay increases many times a year. This is one reason why companies choose to keep performance evaluations and pay increases separate.
Equally as important: you should think about the impact that your evaluation process will have if it’s not linked to pay increase. If you want your initiative to be a success, be sure to talk to a compensation consultant.