Evaluating Performance Ratings
Recent studies show that fewer companies are using employee rankings to determine salary increases, and more companies are moving toward eliminating annual performance reviews. Experts share new ways of rating employees' performances.
By Jill Cueni-Cohen
The number of organizations using a formalized merit matrix or employee ranking to determine base salary increases has been in decline. That's according to WorldatWork's Survey on Compensation Programs and Practices, which found that, while the majority of organizations reported having a formal employee-performance-management program with a rating that is shared with the employee, 67 percent of surveyed companies said they do not rank their employees based on performance.
"Wherever you work, everyone wants the same things: to be recognized for a good job [and] to feel valued for the work they do; and that value comes in the form of compensations such as cash, benefits, time-off, etc.," says Kerry Chou, senior practice leader at WorldatWork's headquarters in Scottsdale, Ariz. "Then there's the intrinsic value they feel for contributing to the organization, which comes in the form of recognition from their peers and managers. Organizations need to look at performance ratings from a broader view of what needs employees have and how management can best recognize and reward them so that they'll give 100 percent."
To that end, Chou says, the trend is for companies to replace annual or bi-annual performance reviews with a more consistent and collaborative approach.
"There's a feeling that the annual performance-review process takes managers away from their day jobs, is a pain and no one likes it. So, why not get rid of it? There's a mistaken belief we have to do this agonizing process each year, and we'll save a lot of time not doing it," says Chou, who adds that just the opposite is true. "Those companies that are moving away from doing [performance reviews] once to twice a year are moving toward making it an ongoing process. Check-ins' are bi-monthly or more frequent meetings between the employee and manager. It's less formal, but employees are meeting with managers more often and it's an ongoing process, not a one-time event during the year."
Sproutloud is a Davie, Fla.-based marketing-technology company that helps brands advertise through their local small-business sales channels. According to Samantha Downie, vice president of people and culture, Sproutloud recently implemented a collaborative feedback system for its 160 employees by personalizing different methodologies, including Topgrading; an interviewing philosophy that focuses on the company's most talented and well-rounded performers and collaborating using programs such as Google Sheets to drive employees' scorecards and dashboards.
"Our scorecards came out of Topgrading," says Downie, adding that Sproutloud has taken portions of Topgrading that work in Sproutloud's environment and built upon them. "We use Google Sheets for collaboration between managers and employees, and then we use Paycom for payroll."
HR professionals need to create individualized performance-review systems that will complement each company's particular culture, Downie says. "We have very clear career paths that have salary banding," she says, with each level of worker assigned their own salary band that correlates with their level. "This empowers our managers to give raises within those bands without going through a bureaucratic system or lengthy approval process. This way, we can be more timely. We work closely with finance and know what job levels we can sustain at all times. We know how many team leads we need, so if there is a viable business reason for any level to be open, we have room to promote based on employees' development opportunities and business needs."
Research from CEB shows more than four-fifths of companies (84 percent) are making changes to their HR performance-management systems. "Most performance-management systems aren't very good," says Brian Kropp, HR practice leader at CEB's Arlington, Va., headquarters. "Our surveys show that most say their systems need to change."
Executives need to take a hard look at their performance-management systems, Kropp says, and then evaluate how effective they are at improving employees' future performance. "People say they want employees to improve," he says, "but the system is actually built for [reviews of performance from] the past. When you hear that a company has gotten rid of ratings, that might be true, but companies have gone from a quantitative rating to a qualitative rating. Are employees performing consistently with expectations or are they exceeding or not meeting expectations?"
Technology plays an important role in providing companies with on-demand feedback. Kropp references survey companies such as Two-Minute Feedback, where managers can deploy a short, anonymous survey after a meeting. "Companies can aggregate that feedback during the year and use it more effectively as a tool," he says.
Another employer working to shift away from performance reviews is Ainsworth Pet and Nutrition in Sewickely, Pa. The company employs 475 workers and has recently re-evaluated its performance-review process in alignment with advice from CEB and WorldatWork. According to Tracey Staley, Ainsworth's senior vice president and CHRO, "our objective was to re-evaluate our process to evaluate employee and team performance. The new, more frequent review process, she says, was designed to make sure everyone feels valued through a simple, well-communicated procedure that supports pay differentiation for their highest performers and supports talent-development initiatives for their highest-potential employees. "We want them to be energized after performance reviews, not feeling awful."
Staley notes that review forms should be as simple as the check-in process. "It's a short discussion, it's a check-in about how things are going," she says. "We found many of our better managers were already having regular check-ins with employees."
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