Why Aligning Raises With Reviews Will Boost Work Performance Your business will thrive if you properly reward your employees for their hard work.
By David Partain Edited by Ryan Droste
Opinions expressed by Entrepreneur contributors are their own.
No matter what your employees' role, they're going to want fair pay, and they deserve to be directly rewarded for a job well done. Performance reviews and raises should be interconnected and handled simultaneously rather than leaving pay and performance separate.
With this alignment, work performance should improve significantly as your team members feel acknowledged and appreciated by leadership.
The expectation is already in your employee's mind
Socially, we've always associated better results with a bigger reward. There is a universal understanding that the harder you work, the more you will receive. There's no getting around that reality. When employees have performance reviews, they're already thinking that if they've done well, it's only fair to gain more compensation.
Typically, what I've seen is that organizations betray that expectation. The employee has an excellent performance review. Leaders say thanks for the great work they did. Because of that, the employee naturally thinks the follow-up conversation is going to be good — they look forward to a raise. But when the compensation meeting happens, even though they might have busted their tail the entire year before, now the company isn't doing as well as expected. Leadership says the raise won't be as significant or won't happen at all because the compensation pool is smaller than anticipated.
Related: 10 Tips to Boost Employee Productivity and Skyrocket Performance
What's the result? The employee feels like they're the victim of a bait-and-switch — like it doesn't matter if they try hard. Guess what happens next year? They do the bare minimum, get depressed or even leave.
Compensation is what you want it to be
Because people associate results and compensation, it's best to reward them right away if they do well. It keeps them from being unnecessarily disappointed and motivates them to keep striving for the next level. But what counts as compensation?
That's flexible. It could mean an increase in hourly rate or salary, but it could also be days off, paid dinners or even a gift card for gas or groceries. The more you interact with and get to know everybody on your team, the more apparent it will be what matters to them, what excites them and what they need.
Related: This Entrepreneur Says It's Time for Performance Reviews to Get a Complete Makeover
Know your budget, do the math and then tweak
Even though you can compensate in a way that's totally customized for your team, your budget is what it is. Take a look at your numbers and be realistic about what you can afford. Then, once you know what you can spend, have a percentage in mind for how that can be allocated to each individual.
For instance, if you have five people on your team, it's reasonable to have 20% of your designated budget go to each person. However, you should think about what people deserve and adjust. Maybe you give someone who's gone the extra mile 25%, while the person who didn't really participate gets 15%. It's up to you to make those decisions.
People will talk, so don't hide anything
As you adjust a little around your target percentage, don't kid yourself and think everybody's pay will stay confidential. Employees can and do talk to each other about what they earn, so just be truthful and upfront. Explain your value assessments and make it clear what people need to do to earn more. If you focus on the positive and hone in on their ability to improve, they will likely adapt without getting upset.
Most of the time, workers are going to think and talk about compensation in terms of how the entire company is doing. But your team isn't necessarily going to have the same budget or number of people that other teams have. While everybody should have an overall sense of whether or not the organization is in good shape, make sure you talk about the compensation pool you have for your own group. That way, your people can understand that they're still within the norm for their team.
Delivering on expectations means your team stays strong
Results and effort are connected in your employees' minds. To make sure they stay happy, loyal and motivated, respect the expectation that you'll reward them based on performance. Tie your reviews and compensation together to stay fair and build trust, and remain open and honest as you deliver the rewards that serve your team and your business best.
