Some Companies Ditch Annual Raises and Review Worker Pay More Often | The Wall Street Journal

This article outlines how the demand for workers has led some organizations to forgo annual pay raises and adopt more frequent pay reviews. One example is CoorsTek Inc., a maker of industrial ceramics, who started doing quarterly pay reviews last year, primarily to ensure it could hire and retain workers for critical and hard-to-fill manufacturing roles. While not mentioned in this article, firms should also consider how the “type of work” being performed could inform the frequency of performance and pay review cycles. With work becoming more agile and project-based in many firms, there is an opportunity for a segment of organizations to align performance and pay evaluations with the duration of work project cycles. One benefit of this approach is that workers can regularly see an explicit link between performance feedback, evaluations, and rewards payouts for each project (e.g., a 2-month project). This approach can mitigate certain performance management biases associated with annual or longer performance cycles, such as recency bias, where managers rate an employee based on recent performance—forgetting or placing less emphasis on the entire year’s performance. Although aligning performance and pay cycles with project duration sounds good in theory and is already in place in some organizations, it can be challenging to implement and may not be feasible for some firms and roles. Organizations should critically evaluate whether the benefits of shorter performance and pay cycles outweigh the complexity and risks.