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“We’ve put a freeze on pay raises, so why do we need to keep doing performance reviews?”

The recession has led many employers to ask themselves that question. But dropping reviews can be a morale buster and liability magnet.

Morale issues: “Human beings have a fundamental need to know how they’re doing; it’s simply part of who we are,” says Jack Wiley, director of the Kenexa Research Institute, an HR consulting firm.

A new Kenexa study says employees who receive regular appraisals are more engaged and more likely to stay with their employer longer—even if the review isn’t pegged to a pay raise.

The study also found that 60% of workers in major global economies received a performance appraisal in the past 12 months. The number is higher in the United States (70%) and lowest in Spain (only 39%).

Legal issues: Employers that skip reviews set themselves up for legal trouble. Reason: Terminated employees who sue will have a much easier time winning in court if employers can’t produce evaluations that back up their stated termination reasons. Without written and pre-disciplinary evidence, terminations look more suspicious.

Consider this recent case: A 52-year-old minor league umpire sued for age discrimination after being fired. He claimed his boss had said, “We’re going to give the younger guys a chance.”

The league argued the umpire was dismissed because his performance had deteriorated. The problem: The league never did evaluations, so it couldn’t prove any drop in work quality.

The lack of reviews, the judge concluded, was enough evidence that the league’s termination reasons might have been manufactured to cover up a case of age discrimination. A jury will now decide. (Davis v. Atlantic League of Professional Baseball Clubs, DC NJ, 2009)

Bottom line: Continue to give employees real-time feedback and regularly scheduled performance reviews, even if pay raises are on hold.

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