Software Engineering

Breaking the Link Between Annual Reviews and Compensation

One of the biggest challenges faced by many companies is the way in which annual performance reviews become closely tied to conversations around bonuses, raises, and merit increases. This can lead to disappointment, frustration, and have a negative impact on culture.
Published on
March 2024

As companies continue to evolve, the way in which they evaluate and manage the performance of their employees is also changing. One of the biggest challenges faced by many companies is the way in which annual performance reviews become closely tied to conversations around compensation - bonuses, raises, and merit increases. This can lead to disappointment and frustration when that increase doesn't come, and can also put pressure on decision-makers when it comes to awarding salary increases. Demotivating employees is the last thing executives want to do.

Separating Performance and Salary Conversations

To address this, many companies are now moving away from the traditional annual performance review and towards a continuous performance management process. This approach focuses on developing employees throughout the year, rather than just evaluating them at the end of the year. This allows managers and executives to provide more targeted and effective feedback and to also identify areas where employees need improvement. Additionally, it enables them to award raises and promotions at a time that is best for the company and/or timely for the employee, rather than just following the traditional annual review cycle.

Focusing on Continuous Improvement

To implement this approach, managers and executives should focus on making performance management and evaluation a continuous process throughout the year by setting regular performance goals for employees and providing regular feedback. It is also important to involve employees in the process by encouraging them to set their own goals and participate in self-assessments.

By following a more continuous approach to performance reviews, companies can create a more fair and equitable system for determining compensation and career progression while also ensuring the best interest of the company is taken into account.

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Whenever you’re ready, here are 4 ways WorkStory can help you:

  1. The WorkStory Platform: Our all-in-one performance management solution. WorkStory makes it easy to gather continuous feedback, run 360 reviews, and track team progress—all in one place. Perfect for teams looking to move beyond traditional performance reviews.
  2. The Performance Review Builder Tool: Create customized performance reviews that fit your organization’s unique needs. Tailor the reviews to each role, streamline the review process, and focus on growth-oriented feedback.
  3. Performance Review Templates: Access a library of pre-built, best-in-class performance review templates that are ready to use. Whether you need templates for leadership, team members, or cross-functional roles, we’ve got you covered.
  4. HR Document Templates: From onboarding checklists to change management guides, our HR templates are designed to save time and ensure consistency across your organization. Simply download, customize, and implement.
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