CHANGING THE PAY RAISE PARADIGM

Steven Cesare, Ph.D.

An inquisitive business owner from Virginia called me the other day to talk about his company’s annual performance appraisal process. True to form, the owner plans to have all his employee performance reviews completed by the end of February. Readers of this weekly posting know that with strategic intent in mind, I strongly recommend all employees should receive their annual performance review at the same time each year, instead of on their respective anniversary hire date. Thus, at that unique moment in time, the entire company workforce is completely aligned, bound by uniform goals, feedback, and key initiatives.

My preferred time frame for performance reviews is February for most companies, with snow-based employers granted to March to coincide with employees returning for the new landscape season starting in March or April. February is the opportune month for individual performance reviews due to several factors:

The company and department results from the previous calendar year have been finalized since fiscal year end closing was completed in mid-January;
The company and department goals for the current calendar year have been finalized since the company’s strategic plan was approved by the end of January;
Predicated on said results from the previous year, each employee should be reviewed within the context of his/her department’s performance from the previous year;
Based on the stated goals for the new calendar year, each employee’s performance goals for the current calendar year should be aligned with his/her departmental goals for the current year;
With those fundamentals in place, the entire organization is aligned by the end of February.

The Virgina business owner, sincerely noted that performance reviews are not really about employee performance, but rather, merely an entry point for employees to negotiate a pay raise. The real answer is “both.” But we certainly acknowledge his key point. Nevertheless, to that end, he asked me about procedures related to determining fair and meritocratic pay raises for his employees.

As a capitalist, I told the business owner my recommendation for that conversation is to shift the paradigm from employee entitlement to employee value. For example, many performance reviews contain obligatory comments like: “What did you accomplish last year”, “What was your greatest achievement”, “What were some obstacles that you overcame as part of your job last year”? That status-quo prattle will only add more expense to the company in the form of greater payroll costs, though not fueling incremental company value.

Instead, I have long advocated that the premise for any pay raise, especially during a performance appraisal meeting, should focus on those new knowledge sets, skill areas, or proficiency credentials the employee gained during the past year (i.e., 2024), that he/she did not have the year before (i.e., 2023). At essence, the justification for a pay raise now shifts from the employer feeling obligated to pay the employee more money, to the employee proving that s/he has earned greater pay based on newly-acquired value to the company. Pay raises must be tied to demonstrated value, not simply completing status quo job tasks.

Thus, as mentioned previously, the traditional comments offered by a supervisor, should be replaced with “What are you doing TODAY that you were NOT doing a year ago?”, “What do you anticipate doing a year from NOW that you are not doing TODAY?”, “Looking back over the past year, how have you INCREASED your value to the company?” This reorientation emphasizes that pay increases are linked to the value employees bring to the company, not just their tenure.

Examples include: operating a skid steer, becoming proficient with a specific pruning technique, leading a small work crew, managing a specific project phase, increased knowledge of plant types, soil conditions, or landscaping best practices, training crew members, implementing new safety protocols, earning an OSHA 10-hour certificate, improving project scheduling, repairing equipment, learning Excel, applying chemicals, conducting job quality audits, learning irrigation functions, etc.

By implementing this new approach of incremental value and communicating it to employees effectively, business owners can inherently foster a culture of continuous improvement, increase employee engagement relative to their own career development and annual income, instead of continually paying more money to tenured employees for status quo task completion.

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