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How to stop losing good employees over money during the annual performance review

The end of the year is often when individuals reflect on the challenges and accomplishments of the previous months. Many companies have also instituted year-end reviews to help plan for the next year’s budget.

When performance reviews signal money trouble

But while you’re busy preparing your employees’ annual performance evaluations, your employees may be preparing too.

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What will you do if an employee comes to the meeting armed with a long list of what he brings to the table, his opinion of how other employees—who don’t work nearly as hard—get paid more, and a demand for a new salary?

No manager wants to face this scenario. It’s awkward and difficult enough to conduct performance reviews without worrying whether a previously engaged employee will be around for next year’s projects. How can this be prevented?

Truth time. If your employee presents in this adversarial manner, the company probably hasn’t been doing a good job of providing a rewarding work opportunity for the individual. The employee probably has other complaints as well, such as lack of support from supervisors, poor team building, and a general negative work environment. Chances are, this employee has been grumbling about a number of things for months, or maybe even years, before this day.

Don’t lose a good employee

But there’s hope! If an employee uses the performance review process to renegotiate her pay, there are several ways to get a better outcome than losing her to a competitor.

4 ways to nip pay issues in the bud

  1. Don’t wait for the performance review to reward good performance
    Make your corporate culture about regular recognition for a job well done. Proactive recognition can prevent grumblings from turning to full-blown disgruntlement. Has your employee done an outstanding job on a super complicated project? Stepped in without complaint after another employee’s departure? Learned a valuable new skill, or even better, become the go-to person for teaching others this new skill? Don’t wait for the annual review to tell him you appreciate it.
  2. Know your people
    Take the time to survey your employees, at all levels, to find out what perks they’d value. Use this information to boost your compensation in other forms like benefits, work updates, and project reassignments. Again, the key here is to be proactive.
  3. Get to the bottom of employee disengagement now
    One disillusioned employee can bring down an entire team’s attitude. Educate your managers to spot issues early on, and keep an open door policy so employees can come to your office about concerns before they become problems.
  4. Review past employee separations for trends
    When an employee leaves, it’s not always about pay. Perhaps the employee couldn’t find the opportunity he wanted at your company. Capture this information with a standard exit interview. Look through your past employee separations to determine whether a number of people are leaving one particular department, manager, or job type. Perhaps some management-style issues need addressing, or maybe a salary review is needed to improve your company’s compensation plan.


If you follow these tips, you’ll be sure to reduce the chances of losing good employees because of money disagreements brought to light during the annual performance review.

Learn about managing pay for performance strategies with this informative whitepaper: Strengthen the Link Between Pay and Performance.


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