Salary Review
Designed for use in situations where employees are compensated on a salaried or hourly basis, this Solution will help you organize the review and, at the same time, make the experience much more meaningful and productive for both you and your people.
To avoid misunderstanding, let us state what we mean by “salary.” Whenever you guarantee an employee that he or she will receive a certain amount of income which does not represent a loan or an advance, you are paying a salary. In addition, income is not directly related to a level of performance. In other words, your employee will collect his or her paycheck — in a predetermined amount ~ regardless of whether the performance is excellent, poor
As we mentioned above, a salary is neither a loan nor an advance. When you pay someone a “draw against commissions,” you are really making short-term advances that are reconciled periodically with the earned income. So, if the individual receives, say, a draw of 2,000 per month, he or she must earn commissions at least equal to that amount to cover the draw. Assuming that you reconcile the draw and the commissions monthly, you then convert the 2,000 from an advance to income, withholding the appropriate taxes. If the commissions exceed the draw, the employee receives the 2,000 plus the excess amount. On the other hand, when the commissions amount to less than the draw, the employee theoretically owes you that difference. We say “theoretically” because it is extremely uncommon for employers to collect on the debt. For that reason, a draw is normally nothing more than a salary disguised as something else — it is guaranteed income. Therefore, although we use the word “salary”, the discussion can also relate to draws.
Another term: “review.” Despite the fact that it seems to imply some sort of evaluation followed by a decision, the average employee has come to consider it as no more than an automatic increase in compensation. Thus, when your employee informs you that “it’s time for my review,” he or she is actually expressing the expectation of receiving a raise. Even though the event is not a true review, nor should it be, we will continue to use the term, for the simple reason that it has become so familiar in the work environment.
TIMING AND AMOUNT
The number and frequency of salary reviews are a matter of company policy. For that matter, you are not even required to have them at all, although such a practice will make it impossible to maintain a stable workforce.
The customary approach is to conduct reviews on the anniversary dates of the employee’s initial employment. During the first year, many companies provide reviews at the six-month and twelve-month anniversaries, after which they will become annual. The guiding principle maintains that the new employee is an unknown quantity, making the starting salary potentially unfair, either in favor of the employee or the company. The six-month review is intended to rectify that possible unfairness, while the twelve-month session puts him or her on the regular annual schedule.
While that sounds sensible enough, rarely will a manager reduce someone’s compensation at review time or, for that matter, even go to the extent of denying a raise. The majority of employees will simply not stand for it, regardless of their performance. The approach tends to be used because it is customary. Keep in mind that your employees expect the raise to be automatic. As a result, providing the schedule is reasonable — no less often than once a year — the timing of the review is not a major issue. It is to everyone’s advantage that you communicate the schedule to all new employees in writing — besides, they will ask about it anyway.
The amount of the increase is more important than the timing — again, the issue is largely discretionary. Increases between 5 and 20% are typical, normally averaging somewhere around 10 or 15%. Some managers feel it is necessary to have compensation keep pace with inflation, which can translate into fairly healthy raises. While that might be a noble objective, it could also be crippling for a small company, to say nothing of the fact that inflation was not your fault, to begin with, nor is it your obligation to “pay the price” for somebody else’s mistake. If you can protect your employee from inflation without inflicting unnecessary pain on your Business, do so. However, don’t feel guilty if it’s not possible.
Making advance announcements of reviews: if you also disclose their amount (raise) according to a predetermined schedule, you both gain and lose. You would gain by avoiding the pain of negotiating the amount with the employee when the review comes due. What you lose, however, is the ability to reward exceptional performance and to exert leverage when an employee has not done the job.
The most reasonable approach is to announce no more than the timing and leave the actual amount of the raise to the discretion of the employee’s manager.
You should establish parameters that determine the highest possible increase. In addition, you would need to inform every one of your managers that they will have the complete authority to deny an increase whenever they consider the performance to demonstrate unworthiness of it. The more guidelines with which you can provide your managers, the more effectively they will be able to handle a salary review session. You might find it helpful to develop and publish a table consisting of a series of potential compensation increments that relate to differing levels of performance.
Assume that your policy permits increases to a limit of 15%. You could advise everyone that the table prepared below is operative:
INCREASE – REASON
0% – Performance is below standard
7.5% – Performance meets standards
15% – Performance exceeds standards
You could empower your managers to deny an increase or grant a small one, then conduct another review sooner than the schedule provides — say, three months later. It must be made absolutely clear that evaluations and reviews do not take place at the same time.
THE EMOTIONAL DYNAMICS
Salary reviews are anything but rational discussions between managers and their employees. They tend to be charged with emotion and tension on both sides.
The employee will look toward certain dates (normally, anniversaries of the initial employment) when he or she will either ask for or expect a salary increase.
Every employee’s secret wish is that the manager will simply remember that the anniversary date has arrived without having to be prompted. Of course, that is asking much more of a manager than should be expected. Few managers take delight in denying requests for raises, but most have an instinctive resistance to granting them.
Any employee could receive higher pay by changing employers, which dramatizes the fact that people do not really work for money, despite what they may believe. The paycheck is literally nothing more than a yardstick with which the employee measures a very vague and unexpressed concept of “self.” If the issue were merely money, this entire process of salary reviews would not be so emotionally charged.
If your review process forces an employee to come forward with his or her request for a raise, the manager is left with no alternative but to grant the request in full or make a devastating comment on the employee’s self-worth.
- Download and review the “Performance Review” document.
- Download and review the “Performance review form.”
- Follow the process as advised.
