An employee performance review can be a minefield if not handled well. One key contributor to the potential conflict is the discussion of compensation that is typically part of this dialogue. We surveyed 100 remodelers who are part of Remodelers Advantage Roundtables and found that 70% of these owners follow the traditional route of discussing both topics at one meeting.

But the trend toward splitting the topics over more than one meeting has grown. With this format, the pressure of discussing money is removed and both manager and employee can focus on developing a program for the employee. The manager can also arrange several performance discussions throughout the year, which can make a huge difference when coaching an employee through a difficult learning curve. Multiple meetings give the manager a thorough feel for an employee’s capabilities. It’s much more than a once-a-year snapshot.

Joel Sommer, owner of Sommer Homes, in Bethesda, Md., says, “We always discuss performance as well as any change in compensation at the same meeting. First, I’m not a meetings kind of guy, so separating the two discussions means more meetings for me — I don’t want that. Second, by the time I meet with one of my employees, I’ve already put time and effort into preparing for the discussion. I’ve reviewed their performance; we are ready to discuss goals for the future, and I’ve developed our budget. So I already know how their compensation is going to change. Why not share it and let them feel good about it right then?”

But for many owners, discussing compensation at a different time from the performance review helps avoid potential conflict and focuses the discussion on what they believe is most important.

Michael McCutcheon, president of McCutcheon Construction, in Berkeley, Calif., says, “We tell our employees at their performance review that it’s their time in the spotlight, the time that we spend talking about them. We start by briefly reviewing past performance, then we discuss where we are today ... but most of our time is focused on the future. I ask what they want to accomplish in the coming year.”

William Fadul of Mosaic Group Architects & Remodelers, in Atlanta, says, “My partner and I changed our policy about two years ago to separate the discussions — performance and compensation. We found that both we and the associate were ‘anxious’ and distracted by the knowledge that eventually the discussion would come around to money. Furthermore, we feel like the review itself has an impact on compensation decisions. So now we’ve gone to semi-annual performance reviews and a once-a-year compensation review immediately following the second performance review. The jury is still out, but we like the separation.”

Jim Strite, owner of Strite Design + Remodel, in Boise, Idaho, believes that coaching his employees is his most important job. He discusses performance with individual employees in quarterly meetings during which there is no discussion of pay. He says, “We want them coming to us focused on reaching the goals. We let them know that we are here as a resource to help them reach their marks; that’s the most important thing.”

Strite’s employees meet with management right after the first of the year to discuss compensation changes. “This works well because by the third quarterly meeting of the prior year, everyone knows where they stand, so there are no surprises,” Strite says.

—Victoria Downing is president of Remodelers Advantage, a national consulting firm specializing in the challenges of running a remodeling company, and home of Remodelers Advantage Roundtables. 301.490.5620; www.remodelersadvantage.com.