Traditionally, performance reviews offer an ostensibly objective way of awarding pay benefits, like bonuses and raises. It has been a corporate best practice for years. However, many forward-thinking companies are decoupling pay structures from performance reviews for various reasons, and companies making this innovative change are seeing tremendous benefits in their company culture.
"When performance reviews directly determine raises and bonuses, self-assessments can become an attempt to justify a raise rather than a time to learn from one’s own mistakes." -Small Improvements Blog
Today’s highly sought-after skills include collaboration, accountability, intellectual curiosity, and other qualities that nurture an environment of ambitious learning, creative problem-solving, and synergy. Performance reviews are an excellent way of appraising an employee’s embodiment of these skills. However, when pay structures get tied to this evaluation, the conversation can quickly skew to reflect personal achievement rather than collaborative engagement.
When fighting for a pay-raise in today’s job market, one becomes less likely to accept their shortcomings for fear of losing monetary rewards. Rather than absorbing feedback, an employee is apt to rebuttal any constructive criticism.
A performance review should set a framework for conversation about how best to collaborate. When employees hope to close the conversation with a raise, they’re less likely to express how their managers can better support them. This hinders professional development on all management levels and cuts down any ideas of accountability and transparency.
"Pay for performance can actually be counter-productive and introduce an air of unhealthy competition among employees who need to collaborate. In short, if the review process is perceived to be unfair, highly valued qualities such as trust, cooperation and teamwork can go right out the window." - Review Snap Blog
A growth culture requires self-reflection and vulnerability. When performance reviews emphasize monetary rewards, there begins a hyperfocus on individual recognition, which can cause employees to point fingers at teammates to diffuse their own culpability.
"Not acknowledging the intricacies of interpersonal relationships and systemic issues isn’t going to make our cultures flourish." -Leapsome Blog
While the general corporate focus is to purge bias from organizations, it is impossible to eradicate it entirely and can be dangerous to act on the assumption that it doesn’t exist. When these biases enter a performance review that dictates pay, it can widen wage gaps based on race, age, and gender.
Many organizations are challenging the traditional pay-raise structure with a career framework, which defines clear criteria for pay progression within their organization. Role leveling is an important tool in this approach, as is a framework for merit review that is decoupled from performance reviews. See the Arthur Ventures Performance Management eBook for more details.
Another option is to hold a separate conversation about salary without the overarching performance review pretense. This keeps the performance review focused on employee development and the salary conversation more transparent and open.