While I enjoy blogging here on the Compensation Café, my primary (selfish) benefit of doing so is the tremendous amount I learn every day from my fellow bloggers and readers who regularly share deeply insightful and thoughtful learnings, lessons and applications in the broad field of compensation.
Today, I’d like to tap into your collective knowledge on the subject of performance and compensation. A complex and nuanced topic, certainly, to many outside of our profession it seems as if it should be quite simple.
So my questions to the group today:
- How does your organization approach performance management? Formal or informal? Annual, bi-annual, frequent? A combination?
- Is the performance management process tied to compensation – merit increases, pay decisions, bonus awards, etc.?
- If the performance appraisal process isn’t tied to raises directly, do employees understand this clearly? How is this communicated?
I’m asking because of recent research from BambooHR showing that few non-managers find the performance review “very valuable”:
- 34% of non-managers
- 58% of management (non-HR)
- 70% of HR
A quick search of Twitter reveals similar results in more colorful terms. The image below is from my session at SHRM last month:
Why is the traditional annual performance review such a failure? Because few prefer to receive feedback in such a format. And because this formal process exists, too many managers defer feedback to the formal, scheduled session. The BambooHR research cited above showed the very low percentages of respondents who preferred to receive feedback in a scheduled performance review:
- 18% of non-managers
- 16% of managers
- 16% of HR
That’s a primary reason why more and more companies are moving away from the traditional review process. The Washington Post recently reported:
“[Accenture] will disband rankings and the once-a-year evaluation process starting in fiscal year 2016, which for Accenture begins this September. It will implement a more fluid system, in which employees receive timely feedback from their managers on an ongoing basis following assignments…
“[Accenture’s] answer was that performance management had to change from trying to measure the value of employees’ contribution after the fact. It needed instead to regularly support and position workers to perform better in the future.”
Indeed, going back to the BambooHR research, “Only 4% of all respondents feel that performance reviews are the best way to motivate and engage employees… They prefer to motivated through:
- Open, informal conversations (24%)
- Getting raises (18%)
- One-on-ones more geared toward career path (17%)
- Managers listening to their ideas and using them (15%)
- Getting more employee recognition (13%)”
So why do we keep doing formal reviews? An easy argument is that the review process is a good way to assess and compare performance to assign raises or merit increases. But in the last decade or so, it seems many organizations are moving away from this traditional linking of review and compensation.
I argue it’s time for a more human approach to providing continuing recognition, feedback and compensation adjustments. A blend of formal and informal, annual and frequent, manager feedback and peer-based praise – a truly crowdsourced performance review.
In addition to my three questions at the beginning of this post, let me ask another. Why do we stick with a century-old process we know doesn’t work well? From a compensation perspective, what’s a better way to determine those deserving of increases?
As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.