The Sting of the Salary Review

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Author John Towler, Ph.D.

How to conduct effective salary reviews.

It’s that time of year again. You have to decide who should get a raise and who shouldn’t. How will you make up your mind? The ones to get the raises will be delighted – maybe. But what about those who won’t be getting a raise or the size of raise they hoped for? How will you justify your actions?

This can be a tough, anxious time for everyone involved. The manager feels under the gun and the employees do too. What should be a positive experience in which peoples’ efforts are rewarded often turns out to be a time of disappointment, anger and resentment. It shouldn’t and needn’t be this way if it is handled properly through a systematic and ongoing performance appraisal process.

However, despite the fact that they know better, too many organizations operate in a cavalier fashion in which no one is really satisfied with the results and what is worse, the company is left on dangerous grounds and liable for legal actions from employees who demand justification for what they think is unfair treatment.

Some firms operate in a system of “total darkness.” They have no particular policy or procedure for evaluating employees so they just let everyone do it their own way. In the absence of a clear and comprehensive policy, individual managers take a few minutes once a year to think about their employees. Usually this takes the form of who they like and get along with, and who they dislike and who has been a problem. Based on these subjective and unfair criteria, the manager decides on a figure and informs the employee, usually by means of a memo. The manager and the employee operate in the dark about what has happened and why.

Other firms have established some general criteria for employee performance and leave it up to their managers to figure out whether these objectives have been met. This is known as the “I think I’m lost” system. The manager thinks he knows where he is headed, but in the absence of accurate measures of performance, he never knows whether or not he actually arrives at the desired results. True, the manager may try to measure the employee against the objectives, but he or she has no tools to use and no way to decide to what degree the employee has performed satisfactorily or not. Here again, subjective judgments take over and we are right back at the anxiety and anger levels.

Other firms think that they have the problem licked. They have a comprehensive system for evaluating all their employees. Not only are there objectives and procedures to be followed, there are pages and pages of them. The appraisal form itself is exceedingly complex and so complete in its attempt to be precise, that the poor manager could spend days reviewing it with each employee. Instead, he or she only uses it if forced to do so and then only uses part of the system. This approach is called the “I know what I have to do, but I won’t do it” system.

None of these approaches is satisfactory from the viewpoint of the employee or the employer. However, there is a middle ground in which properly designed performance appraisal systems are being used effectively by appropriately trained managers and workers. A good appraisal system can help you manage your people and your operation more effectively. Among the benefits to be realized are:

• Providing good feedback to employees
• Rewarding those who are doing a good job
• Identifying employee training needs
• Pinpointing problem employees
• Establishing a record of performance that will stand up in court if necessary
• Keeping job descriptions up to date with changes within the firm
• Early selection of promotable employees
• Improvement of labour-management relationships

If performance appraisal systems can be so useful, why isn’t everyone using them? There are many answers to this ranging from, “we’ve never used one before,” to “it takes too much time and money to get involved in it.” The first response is a cop out and merely a poor excuse for not using a system. The second answer contains a bit of truth, in that it will cost money and time to set up a system. However, the benefits far outweigh the costs.

Nevertheless, there are at least six sources of problems that prospective appraisers should look out for. The first is human judgment. We are all subject to letting our biases influence our decisions. Raters must continually guard against allowing racial, ethnic or sexual prejudices to influence their decisions. A second source of difficulty is an untrained rater who doesn’t know how to interview and coach an employee to develop his or her full potential as a worker. No matter how good the forms are, they must be used wisely by a person who has been trained in their use. A third problem may be the forms and criteria themselves. Ambiguous standards, lack of precision, or simply the lack of information about an employee can result in a useless appraisal system.

A fourth potential problem can be the organization’s policies or the lack of them as far as appraisal is concerned. No commitment to a total company-wide system, failure to use the results, infrequent appraisals or no allowance for employees to participate in the process can all undermine the process and kill its effectiveness.

Failing to attend to current legal requirements can also be a source of future problems. Firms must be sure to reduce risks of charges of discrimination or unfair practices based on performance appraisal results.

Finally, the sixth area of potential problems is a firm’s inflexibility or that of the appraisal system itself to reflect the fact that jobs, departments and whole organizations are dynamic and in a constant state of change. No matter how good the system may have been when it was first designed, it will become outdated and require changes as time goes on.

John Towler is a Psychologist and the founder of Creative Organizational Design. Please send comments about this article to jtowler@creativeorgdesign.com. For more information, please contact us.

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