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Recognizing Performance in a Tough Economy: How to Best Reward Stand-Out Employees

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Recognizing Performance in a Tough Economy: How to Best Reward Stand-Out Employees

By Caron_Beesley, Contributor
Published: November 23, 2010 Updated: March 28, 2013

It'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.

Additional Resources

About the Author:

Caron Beesley


Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley


When times are tight employees know that the cash flow isn't always there. If you can't give your employees a raise or bonus look for some other way to boost morale in the office. Maybe you could give everyone an extra day of vacation or plan an dinner or fun event for everyone outside of the office. You still want to let your employees know you appreciate their work.
An item frequently overlooked when discussing, and assisting with, an employee's performance review is goal setting. A clear list of goals and learning objectives should be discussed and agreed upon with an employee. That creates clear objectives which can be appraised during the review period. Therefore no barriers will be met when discussing objectives attained during the employee performance review.
I like the idea of open communication about raises. You have to give high performers a raise, or risk that they will leave your company for greener pastures (they should). But for those who haven't directly contributed to the bottom line in a positive way - which should be a decent amount, make that clear months before the performance review. Raises should be measurable - if you can make it clear to your employees that their pay DIRECTLY reflects performance, there should be no bad morale if they aren't getting paid up to a level they want.
The problem with some of these recognitions ( wage increase, bonuses, attendance) is they create a sense of entitlement and they reward people for work they are supposed to do anyways. Attendance should be manditory, its not optional. Why would we recognize people because they actually came to work? I know its a long standing tradition in many companies but i am more of a fan of spontaneous immediate specific rewards ---This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.
I agree with Ross. The best way to handle tough conversations, whether it's about performance or raises, is to set the stage early. You definitely don't want to get ambushed at your review when your supervisor could've given you a heads-up months prior. Plus, if you'd known about the problem or issue sooner, perhaps you could've addressed it before the review. Restaurant Supply Guy---This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.
Yeah, could be implemended!! I am in a dilemma what do, hope my other partner agree on this arrangement..

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