Performance reviews and merit raises are a part of your role as employer. Once you hire employees, it is your responsibility to train and motivate them. In addition, you should routinely review performance and offer merit increases as appropriate. As an entrepreneur, the business is your livelihood, as employees, your staff consider their jobs their livelihood. Reward excellent performance, so you can retain trained and qualified employees. It is generally less costly to keep a good employee, than to regularly hire, train and hire again if good employees leave because of low compensation.

Often a personal regard and camaraderie develops between the small business owner and his or her employees. Such personal contexts can result in subjective decisions, when it comes to promotions and pay raises. To safeguard your decisions as relevant to work performance, maintain clear guidelines for employee performance. Measure employees against standards that have been set and are communicated from employer to employee. Such standards place job evaluations and merit increases on firm footing in terms of clear expectations for work to be performed and performance results. A performance review provides a forum for you to review an employee’s performance and share your observations with the employee. The employee should be able to share his or her perspective and feedback as well.

Be sure that you have clear job descriptions in place. More often than not performance problems can be traced back to unclear expectations or expectations that were not understood by the employee. A written job description provides a clear description of the skills and abilities required to effectively complete the job you need done at your company. The description should be written for the position and work to be performed, not to accommodate someone who may currently be filling the position. The more objective the standards, the more effective you can be in matching performance and skill to the job, rather than focusing on personality and people you may like to a greater or lesser degree.

A merit rating system, with grades or levels for positions within the company, can help you establish a reasonable pay scale for each job. Merit ratings determine what salary within a salary range an employee should be paid. Your industry’s trade association will often have a listing of average and median salaries for positions within your industry. The advantage of ranges and average salary information is that you can avoid setting salary ranges too high or too low for a given position. A part of your merit system, may be specific percentage raises for specific performance levels. An employee who performs his or her duties at the level of "excellent" would receive a larger increase than someone who performs "good" or "average." Factors beyond fulfillment of job duties are often considered as part of merit and performance reviews. Dependability, initiative and teamwork are common areas for employee evaluation.

If you would like to discuss employee reviews and merit pay, contact the SCORE® Association (Service Corps of Retired Executives.) SCORE® is a nonprofit association dedicated to the formation, growth and success of small business. More than 12,000 volunteer business counselors donated their time to assist entrepreneurs. SCORE® offers business counseling as a free and confidential service. For a referral to the SCORE® chapter nearest you, call 1 (800) 634-0245.