April 2, 2007

The Financial Employee Review

By Paul Bieber

The employee review should be considered to have three parts. The first part, quantifying the employee’s successes and areas needing improvement;and the second part, designing goals that will motivate an employee should be done in one meeting. This first meeting should follow a specific company-wide program, either at a fixed date, such as all employee reviews are conducted in February, or preferably on or about the employment anniversary. The third part, the financial review should be about thirty days prior to the anticipated annual wage change. If your wage change is scattered though out the year based on employee hire dates, then hold the first two sections review six months before the wage change date, and the financial review two weeks to a month before the actual wage change.

Why have these two meetings separated? In doing them together, the employee will only hear the wage rate, ignoring the constructive help that is offered during the review. If the raise is higher then expected, as all of, the employee will be thinking how to spend the windfall; if less than expected, we’re planning who to appeal to, to get what we feel we deserve. Either way, the teaching part of the review is lost.

On the other hand, when properly spaced, you hit home-runs. Let’s say, in the goal setting portion you wanted an employee to arrive on-time every day for the next ninety days. They do, and now at the financial review you comment on that improvement in performance and give a small raise. By reinforcing the reward concept, you can set another goal of performance improvement that can be rewarded at the next review. People absolutely respond to this type of goal setting and reward. If the behavior you are trying to improve is so bad, maybe the reward is just keeping the job. But you still want to phrase the review as a goal that has been reached and a reward given, even if it is only continued employment and the opportunity to grow.

A question from the right side of the blog, “What if the employee doesn’t come in on time during the ninety day period?” In the goal setting session three months ago you set out the alternatives, come in on time and continue your job, or don’t come in on time and you may loose your job. If you don’t reward or don’t punish your effectiveness as a manger is shot.

The financial review should be dependant on three broad themes:

How is regional economy going?

If the annual inflation rate of your region is 2%, you’ll probably look to have an average raises of 2%. This means some will be above and some below. If everyone gets a 2% raise, and the people who worked hard see that the hard work wasn’t rewarded they will either leave you for some place where hard work is recognized, or they will work down to the lower levels and still get the same raise.

How did your company do in the last year?

If your company had a good year, you may set the raise above the inflation rate, rewarding all, but still some people will get more than others. If you lost money, you may still give some raises to your outstanding employees, and the low performers may get nothing.

How did the individual employee perform their job?

This is the key component and the one that takes the most preparation by management. Let’s guess that you have eight people to review. If the raise pool is 3%, you have $7200 to spread around. You can give everyone $900 and not upset anyone, but definitely not please your better performers. You have avoided telling the bad performers the hard truth, but they don’t care because they got more then they deserve. And next year, you won’t have the good performers to worry about. There will probably be two people who deserve good raises, four in the middle, and two who just don’t get it, and the only way to get their attention is by limited their raise. There is an alternate path. In your $7200 pool, give your weakest links an extra thirty days to improve and then get a small raise. If they don’t improve with the second trial period, it is time to help them look for a different career.

What about the extraordinary employee? For them to get a 4% raise, someone else has to get no raise. This is the time for what I call ‘moving people to another ladder’. If an employee does a regularly good job, they can climb up a ladder that will give them inflationary raises, plus a few cents more. But sometimes you have to switch the super people to another ladder. If you need to work with someone else in your organization to get a ladder switched, a previously written outstanding performance review done earlier from the employment review will help you make your case to upper management. Maybe the change is a job title change, or adding different duties, or a change from hourly to salary, but whatever it is, let the employee know that they have switched ladders as part of your review with them.

Another question–“I’m the employee, how do I set my financial goal when it seems so one-sided that the company sets the number?” You’re right. It is a at best a 70-30 conversation when it comes to the actual raise number because a poor economy, or a big job goes bad, and the company can’t afford big raises this year. But you can have a large say by preparing your portion of the review in an honest light, emphasizing your successes. Be honest about the areas where you have been average and be specific on your plan to improve those areas. In the employment review session, ask how the company is doing…are there any surprises coming? Ask the questions about what you can do to earn the highest wage increases…what tasks can be learned or improved to get to the top? If those are accomplished can I be assured of the top increase? A good manager will anticipate these questions and have answers for them.

The financial review is one setting where proper documentation is needed for the person who doesn’t get the top raise, for they are the person that can cry discrimination. A well written review, one that the employee commented on at the time of the review, acknowledged receiving, and then followed up ninety days later with rewards and punishments will always win out at any discrimination hearing. The company’s plan has to be, that people who accomplished similar goals receive similar rewards. Again, the reward may be simply keeping the job; but as long as you have that spelled out in the employment review, and then confirm that in the financial review, you will be correct!

Any questions or comments? Post your thoughts on the USGlass News Forum and we will get right back to you with answers.If you have a question that you don’t want published, write me at: paulbaseball@msn.com.