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How to Best Reward Stand-Out Employees

publication date: Nov 26, 2012
author/source: Caron Beesley

SBA.GOV site - U.S Small Business AdministrationIt's that time of year again -- annual employee performance review season! And with employee reviews comes the inevitable question of how do you reward high-performing employees? Do you give them a wage increase, hand-out a one-time bonus, or both? In a tough economy, are there other ways to reward employees, without breaking the bank? Here are some tips for assessing the best ways to reward your employees based on a strong performance review.

Assessing Performance

When it comes to reviewing employee performance and assessing eligibility for a pay increase or other benefits, i-s best to establish a clear grading system upon which to measure performance in a fair and consistent manner.

A good rule of thumb is to set your own guidelines for assessing employees against key areas and then weighting these according to importance:

For example,

  • Performance (50%)'Under this there may be a sub-set of specifics related to that individua's job function.
  • Professionalism (30%)
  • Attendance (20%)' Tardiness, abuse of leave policies, etc.

Remember that every company and position places value on different skills' whether i's training, customer service, management capabilities, and so on. So within these performance measures, be sure to add specific areas for review that align with employee goals. For example, if it is a priority for an employee in a sales function to establish strong relationships through networking, make that a goal and measure performance against it.

Are Wage Hikes Required?

Did you know that the law does not require that you introduce annual pay reviews or bonuses for high-performing employees? In fact, the Fair Labor Standards Act (FLSA) only requires that employers comply with minimum wage and overtime pay standards, as well as regulations that govern the hiring of minors.

However, an increase in pay for high performing employees will not only demonstrate that you value the contribution they are making to your business but it will also motivate them to continually improve.

Read more about what the law requires when it comes to employee benefits in the earlier post: Employee Benefit Plans: Wha's Law and Wha's Optional.

How to Calculate Wage Increases

If you can afford to reward high performance with wage increases, how do you determine who qualifies and what size increase should you give them?

Some companies assess their budgets and come up with a grading scale of awardable pay increases. So, for example, calculate what percentage increase of an employee's base salary you can afford and introduce a sliding scale - top performers get a 3% hike on their base salary, consistent performers 2%, and so on, at your discretion. This percentage system sends a strong message to those who get the highest slice, and likewise to those who don't.

Whatever you decide, communicate it. Include it in your employee welcome kit or benefits package and remind employees of your policy once more when performance review season comes around

What about Bonuses?

If you can't afford or predict your ability to be able to support employee pay raises (remember once that pay rise is out there there's no taking it back), then a popular alternative are one-time bonuses for individuals who have gone above-and-beyond to help grow your business.

Bonuses are good for both employers (no sustained increased costs) and employees (a clear signal that their hard work is appreciated), and can be awarded at your discretion. Just remember, for anti-discrimination purposes, be sure to document your reasons for making the award and back it up with performance examples.

Non-Financial Employee Rewards

A complimentary or alternative option to pay increases or bonuses is to offer soft benefits to employees who excel - these might include flex-time, paid corporate memberships, and so on. Not only do they reward performance they also boost morale. Read Get More from Your Team - 5 Employee Incentive Program Ideas that Pay Off for tips on what might work for your business.

What About Cost-of-Living Wage Adjustments?

Some companies provide all employees, regardless of performance, with a cost-of-living adjustment (COLA), based on the rise in inflation. However, given the flat economy and the fact that this wage adjustment is typically awarded across-the-board, regardless of performance, it is often considered unfair and rarely seen in today's workplace.

What's worked for your business? Leave a comment below.

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