It's Good When Year-End Reviews Lead to Higher Payroll

It's Good When Year-End Reviews Lead to Higher Payroll

It's that time of year again when middle managers start thinking about year-end performance reviews. From mid-November through the end of December, they will march their employees in, one by one, to sit down and talk about their accomplishments over the last 12 months. If all goes well, the hardest working and most productive employees will be rewarded with pay raises.

When the performance review model works as intended, one of its most natural results is higher payroll. Not necessarily from a payroll management standpoint, but simply due to the fact that workers who perform well tend to earn more. This is the whole point of the performance review. To incentivize employees to do their best so that they receive good reviews and the subsequent higher pay and better benefits.


How to Know If It's Working

So how does a company know if its year-end performance system is actually working? Some of the more commonly asked performance review questions are as follows:

  • What are your most notable accomplishments over the last 12 months?
  • Did you fall short in any areas; if so, where and why?
  • What are your priorities for the next 12 months?
  • How can you contribute to the company in ways that differ from what you did this past year?
  • What are your expectations for the company over the next 12 months?

What's fascinating is that all of these year-end performance review questions don't actually get down to the nuts and bolts of performance. They merely gauge employee impressions of the past along with possible goals for the future. But they do not actually address performance at all. From a payroll management standpoint, this is not good. Giving employees a raise without some concrete measurement adds to the cost of payroll in a way that may not produce any tangible results.

Success cannot be a measure based only on year-end interviews. Just because managers might be rewarding employees with annual raises does not mean anything if those raises are not commensurate with productivity and better company performance across the board. Therefore, companies need to go beyond interviewing employees.


There Is a Better Way

A more effective way to use the year-end performance review is to tie it to data relative to a worker's tasks or the output of his or her department. For example, the performance of every member of the sales staff can easily be quantified by way of the total number of deals closed and the revenues those deals generated.

By contrast, a software designer would have to be measured in some other way. Managers may choose to evaluate how much time the developer spent on a given project, then compare spend to the total cost of producing the product versus how much revenue that product generates. This kind of measurement may be a bit more complicated, but it is also a lot more accurate.

Accuracy is fundamental to the equation if year-end performance reviews are to pay workers what they are really worth. They have to be based more on hard and fast data than the personal impressions of workers being reviewed. If they are, they should produce higher payroll commensurate with output and performance.

In short, it's a good thing when properly conducted year-end performance reviews increase payroll. It indicates staff members are doing what is expected of them in order to create a company that is winning customers and making money. Why would a company not want to pay more for employees willing to go the extra mile to get things done? That's just good business sense.