I have an idiosyncratic view of life in small to medium sized companies based on a lifetime of experience, and I think that there is a real employee culture problem out there.  What I see with a number of the owners I work with is that when it comes down to the true essentials many owners are actually afraid of their employees.
If asked, most of us would say that our business was focused on what our customers need. The reality, however, is often a little different as many businesses tend to spend more attention on their own issues than they do on their customers’ needs.
In the minds of so many employees, a request for a "review" is imply code for a "raise"...
One of the questions that I regularly ask my clients is, “If your employees applied to your company today which would you not hire for their current position?”  This is a thought-provoking question, and I have found that it has yielded some interesting and rather surprising results.

The Hidden Paycheck

Employees focus on the paycheck they get each pay date and overlook the fact that their actual remuneration in terms of what it costs the employer is much higher. To educate them it is a good idea to produce an annual statement that details all the aspects of their compensation to drive the point home.

The High I Syndrome

One of the most common mistakes that I see made in interviewing is what I call "the high I syndrome", where people hire candidates that they like rather than people who are suited to the job they are trying to fill.
In a bacon omelet, the pig is committed while the chicken is merely involved. Think about your company in this way and separate your employees into pigs and chickens and it will lead you to some interesting insights.
People often say to me that they were lucky because a marginal employee left. They are congratulating themselves because the problem has gone away and they didn't have to deal with it. Not only that, but they don't have to pay unemployment. I call this ""fortuitous self-selection" and people who rely on it as a management tool are making a serious mistake.
What do you do when somebody tells you they are leaving your company? Do you take it personally and spend your time and energy worrying about where they are going? Are you worried about whether they can do anything to hurt you or do you focus on learning from their decision so that you can identify problems and make improvements?
Would you rehire this person for their current job if they applied today?
If you aren’t prepared to pay the right amount for the employees that you need you will settle for mediocrity and one of two bad things will happen. Either the good employee that you are underpaying will leave for a better opportunity or the marginal employee will stay because they are comfortable and you don’t have the courage to fire them.
It is important to identify the weaker performers in your organization but managers tend to grade people too highly and this can make the process difficult to implement. One good way around the problem is to force a bell curve on your managers.