You should document your employees’ performance and salary reviews and make them part of their personnel files. One way to do this is to write a memo or summary of the review for the employee's file and have him or her sign and date it. You may also want to provide the employee with the opportunity to have his or her own notes of the review included in his personnel file as well.

Performance and compensation reviews are directly linked to different types of employment actions you may have to take including promotions, raises, disciplinary actions and termination. In some instances, these reviews may be the only documentation that you have to justify the employment decisions you make.

You should be aware that documentation of reviews can be a two-edged sword. For example, a fired worker can use good appraisals as proof that he or she was not fired for incompetence, but for some reason such as racial, age or gender discrimination. One of the worst positions you can be in is to fire an employee for poor performance, but have five years of appraisals that rate the employee as a good worker.

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