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It's performance appraisal and/or bonus time. Several of my clients are sweating this week over how to make the most of the one-on-one conversations they will have with their staff. Perhaps you are too?

No wonder it's uncomfortable for the leader. The money part of the conversation is the most difficult for the boss and the easiest for the staff member. From the boss's perspective, the money conversation has the most potential to cause demotivation and even loss of an employee. Ironically, in industries where people are paid very well, staff are more likely to be demotivated, even as they receive huge gobs of money in their annual bonus. Their expectations are volatile and sensitive. Their hopes can be dashed when they receive less than they expected, but more importantly their egos are damaged as they have so much pride tied up in their pay amount.

As the boss, you always have practical limitations on how much you can pay. For staff, talking about money is simple: they want more, and by focusing on the money only, they don't reveal any personal information.  If they tell you they are motivated by money, it just means they don't trust you, and/or you're not willing to hear the full story.

What are the keys to effective money conversations with your staff?  Here are a few I've uncovered with my clients over the past few weeks.

1) Set expectations accurately.
The more your staff know about how their bonuses are set, the less likely they will be disappointed. Explaining the system to them thoroughly, even the parts that are political, beyond your control or not to your liking, has several advantages. First you build trust with them by being open. Second, they are less likely to blame you when things go wrong. (If you're planning to give them a poor bonus or no raise, you'll need to be honest about the reasons for that. That's good management.) And of course, with clear information about how the system works, they are more likely to estimate accurately for themselves before you have to give them the bad (or good) news.

2) Separate the money conversations from performance conversations
People who are worried about their compensation can't listen or think as well as those who are relaxed. So if you really want to help people improve, keep those conversations separate. Even if past performance has a major bearing on how they will be paid, you can still have a separate conversation about performance before you give them the money news. If you do negotiate your compensation packages, it could still be to your advantage to allow more time to reflect between a performance appraisal meeting and a negotiation meeting, but that depends on your style.

3) Manage your emotions
If you are stressed or uncomfortable with these kinds of meetings, your staff will notice and react, whether they are conscious of it or not. The energy you project has a huge influence on people, much more than we are generally aware of. And if they sense fear, they may respond either like an attack dog or like a meek puppy. Neither response is conducive to good communications. Therefore, be cool and confident. Know your boundaries (e.g. no negotiation) and tell it like it is.

4) Be generous with sincere praise
There is a saying that all children need love, especially when they least deserve it. The same goes for adults! Your most hardened employees may be the ones who can benefit the most, although they may not admit it. Try praising one of your toughies and see them swell with pride and rise to the challenge of winning more praise. Performance review meetings are the perfect time to build trusting relationships through sincere and specific appreciation. Sincere praise is a precious tool for leaders. The key word is sincere. Make sure your true feelings are congruent with your praise. (That's the personal development part!) And stay in rapport, especially with those who are uncomfortable receiving praise.

Do you have any other tricks you use to get through these difficult conversations? Or how about other situations that these tricks won't handle?

Please do share with us.