Performance Appraisal – Merit Pay – Pay For Performance and Employee Reviews Advice

Managers and human resource professionals often struggle with the linking of performance management and performance appraisal to performance pay or merit pay. It makes intuitive sense to reward the most valuable employees, but the practice is not a simple one, since it is common to create undesired and unanticipated side effects regardless of how you go about the task of using performance appraisals to determine raises. Here’s some guidance, adapted from Performance Management – A Briefcase Book, by Robert Bacal (McGraw-Hill)

First, there is no “best” way to link pay or salary to employee performance, and no best way to implement merit pay. There is only a “best” way in your situation or company, and what works in one place may not be best in another. So, you need to decide based on what you want to create, your circumstances, and the culture of your company. However, here’s an approach.

Acknowledge that no pay for performance system is perfect. Nor is there a perfect way of accurately assessing the value of employee contributions. So, is there a “best way”?

If you want to tie pay to performance, here’s how to do it. You make it a part of the performance planning process. You establish the criteria for a pay increase when you set objectives and standards. So, at the beginning of the year, each employee should know what he or she needs to achieve in order to receive the pay increase or bonus. You don’t tie pay to ratings or rankings. you make sure the criteria are as objective and measurable as possible to reduce arguments. And, finally, no surprises at the end of the year.

Also, take the position that it is your job (as the manager) to help each employee hit that target, make that extra money, or get the bonus. Make it clear that you’ll do what’s necessary to help every employee succeed.

In this way, you and the employee work together on the same team.

Robert Bacal

(c) 2007, Robert Bacal, Bacal & Associates. You are welcome to “reprint” this article online as long as it remains complete and unaltered (including the “about the author” info below) all links are made live, and this copyright notice and indication of authorship are included.

Bacal is a noted performance management author, consultant and trainer, and is the author of a number of books published by McGraw-Hill including Performance Management – A Briefcase Book, Manager’s Guide to Performance Reviews and Perfect Phrases For Performance Reviews. For more free information and help with performance management, reviews, and appraisals, visit the Performance Management & Appraisal Help Centerhttp://performance-appraisals.org. at

In addition to over 800 articles on performance related subjects, you will find tools to help with diagnosing performance, using progressive discipline, and setting objectives at http://performance-appraisals.org/learnto.