Why linking pay to performance reviews is a bad idea

Pay for performance is a hot topic. Just as surely as the sun rises in the east, employees will do what they are financially incentivized to do. This makes it very tempting to link pay to employee performance reviews. However, linking pay and review sessions is not actually a good idea.

Employee performance evaluation sessions should be about the employee and what they have done over the past year. What went well, what went badly, and what development opportunities are ahead?. If done correctly it is a rich vein of two-way conversation where understanding can be created and ideas shared.

Pay, on the other hand, is not generally a two way conversation. There is no development. This is the amount of money available as salary for this position as a result of the business environment and unfortunately performance is not always a factor. Even the best performing banker is likely to see a reduction in salary this year for reasons that have nothing to do with personal performance.

Pretending that pay and performance can be linked without taking in to account broader market conditions sets employees up for disappointments. As the global economy tightens its belt, focusing on staff development separately from compensation will make employees feel valued even if there isn’t a hefty raise on the horizon.

It will also allow both managers and employees to focus on just one kind of conversation at a time. Studies show divided attention means less effective conversations. By making effective conversations a goal and keeping money a separate issue, employee performance reviews will go much more smoothly than in the days when the two conversations were combined.

Until next time
Ingrid Cliff

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Heart Harmony – Freelance HR writer