Separate the Raise from the Review

Ed Koch, former mayor of New York City, used to stand on the street and ask people, “How’m I doin?” He wanted real feedback from New Yorkers about his performance.

I feel the same way. I want to know how I am doing at work so I can keep doing a good job or make changes when I need to improve. And yet, every year when performance review time came around, I would get a knot in my stomach. My reviews were always favorable. I would get a raise and move on until the next year. But I kept wondering, why did I have to wait an entire year to know how I was doing?

Once, I had a manager who gave almost no feedback at all. I would ask regularly, and he would simply say, “You’re doing a good job.” No specifics. No examples. He even postponed or canceled my annual review meetings.

In another job, I was overwhelmed and unhappy. I was working long hours, doing work I did not enjoy, and I let my frustration show. My attitude affected the people around me, but my manager never said a word. I kept thinking everything must be fine.

Then one day, I came into work and found payroll change forms on my desk. Every manager received a raise, except me. No one had told me I wasn’t getting a raise.

When I asked why, my manager said, “You didn’t earn it. No one liked working with you. Your attitude was terrible.”

I was stunned. I had never been given the opportunity to correct my behavior. Instead, I was denied the chance to improve and earn that raise.

That experience stayed with me. Managers have many responsibilities, but one of the most important is communication. Employees deserve to know what they are doing well and what they need to change, in real time, not once a year. Many managers are comfortable giving praise, but they struggle with harder conversations about improvement.

When raises are tied to an annual review, managers often avoid tough conversations all year long. Then compensation becomes the moment where employees find out, too late, that something was wrong.

Compensation reviews and performance reviews should be separate. Performance reviews should focus on growth and development, while compensation reviews should be handled as a separate, transparent business process.

For decades, many organizations have bundled performance reviews and compensation discussions into one annual conversation. It feels efficient: evaluate performance, decide pay, check the box, move on.

But in practice, this approach often creates confusion, frustration, and missed opportunities for employees and leaders. Separating compensation reviews from performance reviews is a smart business strategy that leads to clearer communication, stronger performance, and higher trust.

1. Pay Conversations Shut Down Honest Performance Dialogue

When employees know their raise (or lack of one) is on the line, the performance conversation changes immediately.  Employees are focused on one thing: “How much is my raise?”

That pressure makes it harder for managers to give candid feedback and harder for employees to hear it. Even strong feedback can feel like justification for a smaller raise rather than guidance for improvement.

Separating the conversations allows performance discussions to be forward-looking, developmental, and honest.

2. Performance Reviews Are About the Past; Pay Decisions Are About the Future

Performance reviews evaluate what someone has already done. Compensation decisions, on the other hand, are influenced by multiple forward-looking factors, including:

• budget constraints

• market competitiveness

• internal equity

• role scope and future responsibilities

• business performance

Compensation decisions are broader business decisions based on many factors, many of which employees have no control over.

3. One Conversation, Two Very Different Emotional Reactions

Performance feedback can be emotionally charged. Compensation discussions carry their own emotional weight.

Combining them often results in:

• employees fixating on the number instead of the message

• disappointment overshadowing recognition

Employees can engage more thoughtfully with feedback when they aren’t simultaneously reacting to a compensation outcome.

4. Better Trust Through Transparency

When pay and performance are discussed together, employees may leave with unanswered questions:

• “Was my rating adjusted to fit the budget?”

• “Is this feedback genuine or just a justification for pay decisions?”

5. Managers Perform Better in Focused Conversations

Let’s be honest: these are two of the hardest conversations managers have.

Asking them to:

• deliver thoughtful feedback

• manage emotions

• explain pay decisions

• defend budget limitations

all in one meeting sets them up for failure.

The Bottom Line

Performance reviews should be about growth, alignment, and continuous improvement. Compensation reviews should be about fairness, transparency, and business realities.

When organizations separate the two, they get better conversations, stronger relationships, and employees who feel heard.  And that’s what build strong employees who build strong organizations.