Performance and Salary Review Policy

Jul 1, 2014

Practice Note

There are no federal or state legal requirements to provide periodic performance reviews, nor to provide pay increases above minimum wage. However, most employers do provide annual performance reviews and consideration for pay increases as a matter of good management and effective competition for quality employees. For general information about managing employee performance, see Managing Employee Performance.For information about performance evaluations and merit pay increases, seePerforming Job Evaluations, , Obtaining and Using Relevant Salary Survey Data, and Managing Pay Equity.


The performance appraisal provides a means for discussing, planning and reviewing the performance of each employee.

Regular performance appraisals:

Help employees clearly define and understand their responsibilities.

Provide criteria by which employees’ performance will be evaluated.

Suggest ways in which employees can improve performance.

Identify employees with potential for advancement within [Company Name].

Help managers distribute and achieve departmental goals.

Provide a fair basis for awarding compensation based on merit.

Performance appraisals influence salaries, promotions and transfers. Therefore, it is critical that supervisors be objective in conducting performance reviews and in assigning overall performance ratings.


All full- and part-time regular employees are eligible for an annual performance review and consideration for a merit pay increase.


Performance review schedule

Performance appraisals, with the exception of pay-for-skills-program participants (production assembly) and sales staff on a commission plan, are conducted on an annual focal cycle. Employees will receive a performance review on the established focal date each year. Merit increases are not guaranteed and are based on company performance and financials. When provided, a merit increase may accompany a performance review if the employee’s performance and salary level so warrant. The amount of increase should be consistent with the approved merit budget.

Focal increase planning

Overall merit budget allocations and individual merit increases are planned for and allocated prior to the start of each calendar year. The focal salary increase program is designed to assist [Company Name] management in planning and allocating merit and promotional increases that:

Reward individual performance.

Are market competitive.

Are internally equitable.

Are comparable with [Company Name]’s operating budget.

Are equitably allocated among individual employees, taking into consideration all available factors at one point in time.

Performance reviews—salary increases

Each [Company Name] manager is responsible for the timely and equitable assessment of the performance and contribution of subordinate employees. A performance review does not always result in an automatic salary increase. The employee’s overall performance and salary level relative to position responsibilities must be evaluated to determine whether a salary increase is warranted. Out-of-cycle salary increases must be pre-approved by the department manager, human resource (HR) director and [Company Name] president.

Salary equity reviews

A manager may request an analysis of an employee’s salary at any time the manager deems appropriate. This request should be made to the HR director, who will review the employee’s salary in comparison to other employees in comparable positions.


The forms and spreadsheets provided by HR will be used, and the completed evaluation will be retained in the employee’s personnel file.

The performance evaluation will be discussed and signed by both the employee and the manager to ensure that all strengths, areas for improvement and job goals for the next review period are clearly communicated.

The manager is responsible for completing the focal salary increase planning worksheet, obtaining focal increase approvals and submitting the approved and final worksheet to HR for processing.

Salary increases must be supported by a performance appraisal for salary change processing. The manager will not discuss any proposed action with the employee until all written approvals are obtained.

HR will review all salary increase/adjustment requests to ensure compliance with company policy and that they fall within the provided guidelines.

Right to modify policy

The HR director has the right to change, modify or approve exceptions to this policy at any time with or without notice.

Express Requests

The HR Knowledge Center has gathered resources on current topics in HR management. Click here to view and request information.

This material is for informational purposes only and not for the purpose of providing legal advice. You should always contact your attorney to determine if this information, and your interpretation of it, is appropriate to your particular situation.


Job Finder

Find an HR Job Near You
Post a Job


Become a SHRM Member

Join/Renew Today


Find the Right Vendor for Your HR Needs

SHRM’s HR Vendor Directory contains over 3,200 companies

Search & Connect