Set objective criteria for awarding pay raises.

Make sure your employee evaluation process includes clear-cut instructions and guidance for managers on how to link performance to compensation.

Reason: Courts have ruled that giving employees a smaller-than-justified pay raise can count as an "adverse employment action," which could form the basis for an employee's discrimination lawsuit.

Avoid that problem by giving supervisors written, objective criteria for determining the levels of performance that warrant higher pay. Subjective evaluation criteria leave room for employees to argue that a supervisor's prejudices kept them from earning more.

Better approach: Draft written...