We have an annual review system. We score people. Nobody likes it.
But I'm not sure how else to do it. Once a year, I am told what my raise budget is, I sit down and figure how how much everybody gets as a raise. I bet if I asked my employees, "Should you all just get the same percentage?" they would say no. Every year I have some people who really work their butts off, a crisis comes down to them and we depend on them and they save us. I want to give them a smidge more. Or maybe we get somebody transferring in from another department and I think that person doesn't make enough, so I want him to get more. Or maybe there's a new guy and he's awesome and I know we've been losing newer guys to other companies a lot lately (happens everywhere - it's easier for them to move) so I want to give him a little more so he knows he is valued, and a little more makes a big difference to him since he's new and not earning a ton.
Since I'm on a budget that means another guy has to get a little below average. The difference isn't even crazy, it's just not as much as somebody else. So what do I tell him? Here's your secret raise, we don't have annual reviews so I'm not going to tell you what you COULD do better to get more money next year, you're not allowed to talk salaries with your coworkers so you don't know it's low, we'll just let you coast until the economy turns down then we'll lay you off, isn't that nice of us?
Yes it's competitive. The world is competitive. We compete to have better products than anybody else - the fastest, safest, most reliable, better better better than the other guy. So for my employee to say "don't compare me to anyone, that's not nice!" well hell, sorry man. I can't help it.
Also, as an engineer I have worked for plenty of bosses who couldn't be bothered to help me improve. That annual review forced their hand. We had to talk about it, I had to ask questions. It was a drumbeat. Yeah maybe HR forced us into it, but I was happy.
So that's my debate. Whenever a raise happens, people want to know the thinking behind it. That happens once a year.
So I guess the next question is could I give out raises randomly thoughout the year whenever I thought of it? I still feel like I'd get to the end of the year, see what's left of my budget, see who didn't get as much, and do a "look at the whole year" thing. Sounds a lot like an annual review... except an annual review that I do in my own head without telling anybody about it. UGH.
What would be the perfect system? Really?