Money talks, and it doesn’t always say what we mean it to.

Take performance review time.  Palms sweat, hearts race, and one thought runs through the mind of the employee in the hot seat: “What’s my salary increase?”  We’ve all been in that anxious place, but as managers, we sometimes lose sight of how much salary increases mean to our employees.  Many work the entire year for that one moment that defines their worth to the company.  Or does it?

Salary increases often have little to do with an employee’s value to the company.  As managers, you have the power to educate employees about this truth, but you must first understand how employees relate salary increases to self-worth.  When employees get a generous raise, they feel as if they are important to the company and that their work matters.  They feel safe for another year.  When employees get a modest raise, the opposite happens.  They feel unappreciated, unimportant, and like they could be shown the door any day.  You can imagine how employees feel when offered no raise.  No matter the scenario, money is always an emotional matter.

Such an emotionally charged topic may intimidate some managers, but your job will be easier if you discuss expectations about money from the get-go and throughout an employee’s career.  Informed employees will understand and trust your decisions about salary increases, creating fewer disappointed or angry employees and requiring you to defend your choices less frequently.  An open dialogue will make performance review time less stressful for you and your employees.  So how do you get started educating your employees about fair salary reviews?

Try the four-pronged M.U.L.A. model:

Market rates – In a nutshell, align salaries with market rates to ensure increases are fair.  Employees will feel better knowing their raises are similar to their peers’ raises.  A formal salary survey of your industry and geographical area may help you in this effort.

Unlink salary and self-worth – This is a tough but critical point to master, because salary as self-worth is deeply ingrained in many employees.  Some employees define themselves by the money they make.  Some even assume they will get a certain salary increase because they are liked, and they take it personally if that number doesn’t come.  Explain that salary increases have nothing to do with personal likability or an employee’s overall value to the company; they relate directly to job performance that year and whether it was exceptional, adequate, or subpar.

Level with employees – Always have candid and supported explanations ready when giving out salary increases.  Of course, it’s easier to gush over an employee who is getting a large raise than to level with an employee who is getting a small raise or no raise, but those “small or no raise” employees can gain the most from salary discussions.  Research shows that salary discussions have the most positive impact on employees who need to improve performance.  An honest salary discussion coupled with an honest performance review can increase these employees’ participation, work planning, and goal setting.

Anticipate the next review – After telling employees why their performance earned them the raise they got, tell them what they can do to maintain or improve that raise by the next review period.  Work together to set specific goals and objectives for the coming year, which can be used to justify the next salary increase.

Don’t be afraid to talk to your employees about money, otherwise the money will speak for itself.  By following the M.U.L.A. model, you’re starting employees on the road to understanding their salary increases and what steps they can take to improve performance (and to earn those higher increases).  When you maintain an open dialogue about salary and performance, performance review time will mean fewer questions, slower heartbeats, and drier palms all around.

Want to learn more about effective performance reviews?  Look for more tips from the YES! Your Human Resources Solution team in an upcoming issue of the Orange County Business Journal!