Linking Performance Reviews and Merit Increases


Employee performance outcomes is one important aspect to be reviewed when it comes to considering merit increases. It is not the only consideration though. Overall merit increase budgets, inflation, changes in external benchmarks for specific roles, current compensation ratios etc. are all additional elements which would impact actual merit increases per department and employee.

The resource I have here ties a specific overall individual performance review score to a specific range of possible merit increases. Some managers require a highly structured and fixed process for determining % changes and this is one way to create one. One should however also be sure to consider the other aspects mentioned above: budget for increases that year, company performance in the last year (overall), the market value of specific roles (roles that are in high demand). Compensation has a powerful influence on employee engagement and retention, but it is not the only one. Employees also care about career growth, flexible benefits and being helped to develop further.

I would caution anyone to consider unintended outcomes when attempting to standardize and establish rigid structures for considering individual performance and linking that in a fixed way to merit increase percentages. While intentions may be good: to reward your best performers for their contributions and to ensure those with lesser performance improve or leave the company, a process that is overly structured could fail to accomplish that intention.

The approach shared above – see download link – indicates one way in which a group has established a direct link tying the performance review process directly to the merit increase process. This example does not take into account some of the considerations highlighted above when it comes to selecting the actual increase percentage and I chose to share this resource anyway, because it does happen that HR is asked for a process like the attached on a regular basis and I want to make an example available to you if you find yourself in that situation.

I do suggest you consider ways to incorporate the other aspects as outlined above when you finalize your proposal to implement a more structured approach to tie performance management to compensation review.

My main advice is to think it through carefully to ensure your good intentions have the best chance of being reinforced by your performance management process and pay-for-performance approach . And I would also add that you should remain flexible in working with your documented process. Be ready and willing to adjust and update it as you gather input about how successful your process is in driving desired outcomes – results and behavior that you and the executives would like to see in your pool of employees.

Salary Review Template


salary review2

Most companies have an annual compensation review process where the salaries and other payments to employees are compared to internal and external benchmarks and adjustments are proposed, approved and implemented.

Many HR departments of larger companies have access to an online tool for salary reviews, but many smaller companies prefer to use spreadsheets like the one I am sharing with you today.

The basic principles for using this tool:

  •  You need to make sure to retain employees and avoid employee turnover by reviewing his or her salary on a regular basis. Typically once per year.
  • Employees need feedback regarding job performance expectations and also their own performance delivered against the expectations. The compensation they receive should reflect not only the market value of the work they do for you, but also their own level of delivery against expectations for that role. Performance which exceeded your expectations deserves to be rewarded. You could do it as a discretionary bonus or you could review the person’s annual salary and consider an increase.
  • Some employees bring increase requests to their bosses on a regular basis while others may just be waiting for their bosses to realize how much effort they put in and how many good results they are achieving. Without a solid salary review process which is run uniformly on an annual basis (at least) you could run the risk of not treating all of your employees in the same fair manner when it comes to salary reviews. It could happen that only those employees requesting regular increases are receiving them while those who do not ask, do not.
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Training Certificate Example


When employees complete internal courses, one can be stuck with having to create a professional-looking training certificate for training participants. Not everyone has a knack for that, so here is a basic basic template (you can download it below) which can give you a good starting point for making your own training certificates. It is in *.ppt (Microsoft PowerPoint) format so you can edit the details as needed.

Receiving a training certificate is good way to recognize employees for completing required training courses and handing them out during a townhall meeting or other company event can help reinforce how much the company values the completions.

Using technology currently available to us it is more possible to avoid printing paper versions of a certificate. You can create the certificate electronically and also add digital signatures then save it as a *.pdf document or a picture. That way distribution can take place by means of sharing a hyperlink to the certificate or attaching an electronic file to an email addressed to the recipients.

Some tips:

  • When you customize the file or change elements, beware of creating something that is overly colorful and “busy” with competing elements – graphic and text.
  • When you insert digital signatures be very careful about who has access to those. It is a very sensitive graphic to have and can easily be abused if it falls into the wrong hands.