I'm picking up what might be an interesting pattern. It's still a very limited data set, but I have now encountered several organizations who have seen employee satisfaction with compensation decline in the years following a decision to drop performance appraisals and performance ratings.
It's too small a sample and, of course, these variables are far from isolated. Each of these organizations has a ton of other things going on that could impact satisfaction with compensation. Nonetheless, it was enough to get me thinking.
Like Adobe (see Jacque Vilet's Café interview here), these organizations still have a merit increase process in place. It simply functions without an explicit set of merit guidelines tied to discrete performance assessments. Salary increases continue to be made and position-in-range examined with consideration of "merit" -- but said merit is now a largely discretionary determination or (in a few cases) determined via a separate process (e.g., 9-box, topgrading, etc.), the results of which are not explicitly shared.
So what's the problem? I think it's this. Employees are forced to draw judgments about the fairness of their pay in the absence of clear, unambiguous information about how well they are performing. Given our collective inability to accurately gauge our own performance (either in isolation or in relation to others), it isn't hard to imagine that this might lead to a lot of people believing they are being under-rewarded for their contributions. Hence the dip in pay satisfaction.
In my mind, it all boils down to the following: Treating people differently (especially in a sensitive area like their pay) based on conclusions which you are unwilling to make explicit or clearly communicate to them is unlikely to be perceived by them as fair.
This raises questions about where we are headed with performance management and whether we will ever be able to reconcile the challenges of gauging people's performance contributions with the desire to reward them for those contributions. I'm inclined to agree with my friend Tony's prediction that performance appraisal will likely survive our awkward and unhelpful attachment to "annual reviews" as well as our current romance with ratinglessness to become "continuous, 360 degree and closely monitored by both machines and humans." Drawing on advances in data mining and analytics while not losing sight of the fact that (ultimately) people should make people decisions.
To the degree that we can arrive at this place, bring sufficient art to bear on the science and turn this information into helpful, meaningful, compassionate and actionable feedback, we will indeed have a solid platform for performance-differentiated rewards.
That's what I think. You?
Looking for the definitive guide to compensation leadership? Ann Bares collaborated with Margaret O'Hanlon and Dan Walter on the ebook Everything You Do (in Compensation) is Communication. Find it at www.everythingiscommunication.com. Ann is the Founder and Editor of the Compensation Café, Author of Compensation Force, and Managing Partner of Altura Consulting Group LLC. Ann also serves as past President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
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