The results of a formal employee performance review can set the criteria for raises in pay. Creating a weighted performance review process, with measurable and scored goals, provides a standardized and fair way to determine how much of a raise each employee deserves. The percentage of pay raise will equate to how high the employee scores on his performance review. You can design a performance review system from scratch or by using a software program with preprogrammed scoring mechanisms.
Create a list of several major categories to measure employee performance. For example, your categories may include individual performance, department performance, company performance and training. Under each category, list achievable goals. For example, under training you may list “complete continued education requirements” and “attend skills seminar” as goals.
Assign a weighted percentage to each category with the most important categories reflecting the highest weights. The weights do not need to be equal but all categories combined need to equal 100 percent.
Create goals within each category that contribute to the overall category score. Give the employee’s primary task the highest weight. For example, if a project manager’s primary goal is to complete projects in a timely fashion and within budget, and this represents 75 percent of her job, then this goal’s percentage would carry a weight of 75 percent within the associated category. Rate all other tasks based on importance within the job.
Score each goal on a scale of 1 to 5 with 5 being a perfect score and 1 indicating the employee did not meet the goal. Take the scores from each category and calculate an overall performance score based on the category weights.
Set criteria for raises based on overall performance scores. For example, employees achieving an overall score of 4 to 5 would receive a 5 percent raise, employees with an overall score of 2 to 3 would receive a 3 percent raise and employees scoring 1 or below would not earn an increase. Align these percentages with your company and departmental budget.
Invest in performance management software, such as Success Factors or Halogen. Using a software program will streamline the process for managers, create standardization and allow for auto-calculations and faster and formal documentation of the evaluations. Software companies may offer free trials for you to explore if the program meets your needs before purchasing. If you cannot afford a program, create a performance review template in Word or Excel that allows for input and auto-calculation of the scores.