Why pay reviews must be linked to appraisals

The time for the annual pay review has come around again. Some of us may believe that our staff – even our star performers – are so grateful to have a job that they will swallow any pay rise, however derisory. But, have no doubt that if you do not run a proper review process you will be storing up problems for the future and your ambitious lawyers will start polishing up their CVs.

An even bigger mistake than being casual about the review process is to believe that it is just about money. It is not. Most people are not motivated by money alone. They want to understand whether their work is appreciated and, if not, what they can do to improve it.

Our employees see pay as part of their overall package. So, it is important to avoid creating a culture where pay appears to be divorced from the performance criteria that people are measured against. Management may believe that simply throwing money at the people they consider important is the way to keep them. This is not the case and is bad management.

Some years ago, there was a debate in management circles about whether or not material generated by appraisal systems should be used as part of the process under which that individual’s pay is set. I think that argument has now closed and people understand that, if you are serious about performance management, you cannot ignore the link between measuring performance and rewarding people for that performance.

But in how many pay rounds do we actually make that link? Many managers find a discussion about pay even more difficult than an appraisal meeting. They know that a generous pay rise will cheer up staff and make them popular. A zero pay rise or one that is below an award given to their peers has the opposite effect. But, if the appraisal system is used properly and the results are clearly linked to the pay review, none of your staff should be surprised by what they get in their new pay packets.

If your appraisee understands from your appraisal meeting that he is doing what is expected of him, he has a fair expectation that his reward will reflect that praise. If he is disappointed by the pay review because it does not reflect his manager’s view of his performance, then he will be demotivated and, eventually, leave your firm. On the other hand, a lawyer who has had explained to an appraisee that he is not achieving the expected standards and knows what is then required of him and how to hit those goals will not be disappointed by a modest pay rise or even none at all.

If, at the beginning of the annual pay cycle, people are given objectives that are discussed and agreed with them, then they know what they are expected to achieve. The appraisal meetings, or balanced scorecard sessions, should review those objectives regularly and employees should come away from those meetings with a clear understanding of how successful they have been in performing against those objectives.

The worst thing that can happen is for an employee to believe that he is are doing well and that he is meeting his objectives, only to find that he is not going to be rewarded accordingly. If the employee believes that the appraisal system is divorced from the pay system, then the element of reward is no longer a motivating factor for him to achieve his objectives.

In some organisations, an appraisal system has been developed and put in place, but the link in the chain to pay reviews is broken. That may be deliberate or it may be because managers do not understand the process, need training or simply give in to the temptation to take the path of least resistance. Whatever the reason, damage will be caused to the business if the pay review appears to be carried out on a completely different basis from the appraisal system.

Raising expectations and then not meeting them through rewards is a quick way to demotivate people and to ultimately lose them.

Can you really afford to ignore appraisals as part of the next pay review?