I have come across several companies in the past 6 months that are using anniversary date reviews and asking me how to make the switch to focal point. I thought this practice had died! Of course having spent all my life in the high tech industry -- we all used focal point.
So let’s talk about the two methods, showing the pros/cons as well as how to make the “switch”. Just to make sure we are all in sync --- focal means that performance/salary reviews are done for every employee effective on the same date once a year. Anniversary date means reviews are done at each employee’s “anniversary” date of hire.
OK, let’s imagine that your CEO has asked for your opinion. Currently you use the anniversary date method. Managers are complaining to him. They are tired of having to write an appraisal on a different employee almost every month. Your CEO has heard about the focal method and has asked you to determine the advantages and disadvantages of both methods.
You do your research and come up with the following:
Advantages of Focal:
- All employees are rated/appraised at the same time each year. It allows management to get a single snapshot of the organization. They can see the top and bottom rated employees
- The salary budget is fixed. If the total proposed increases are rolled up and are greater than the budget, they are re-worked until they come in on target
- On time completion rates for written appraisals and salary increases are better. With focals, HR knows which managers are late because they receive all reviews at one time
- If focal reviews are done a few months after the company's year-end, performance can be reviewed against company year-end results. This assumes, of course, that all goals have been created to align with company goals.
Disadvantages of Focal:
- Managers must write appraisals and discuss them with each employee in a prescribed period of time. It can require a lot of time for managers with a large number of employees
- Managers face the dreaded “forced distribution” issue. Performance ratings are almost always tied to a specific salary increase percentage, and the ratings must meet the required distribution to meet budget.
Advantages of Anniversary Date:
- Managers do not have to write appraisals on all their employees at the same time. It lightens their load by spreading them throughout the year
- There is less visibility of “forced distribution”, and managers believe they can rate employees more fairly --- in other words, give more employees a higher rating. (This can be an advantage or disadvantage depending on who you talk to!)
Disadvantages of Anniversary Date:
- Managers tend to delay/postpone reviews because they are not being as closely monitored by HR.
- Employees may end up having retro-active salary increases because the manager misses the payroll effective date
- Because salary reviews are occurring all during the year, departments can easily go over budget
- There is less alignment to corporate goals as reviews occur and goals are set throughout the year
After reviewing the results with your CEO, he/she decides to move to a focal point review. So how do you make the transition?
Most companies use a pro-rated method. They delay reviews for employees who have recently received their anniversary reviews ---- say during the last three months ---- until the focal date of the next year. At that time their increase is annualized on a pro-rata basis.
An employee who has an anniversary date increase exactly three months prior to the focal date of the first year would receive 15/12 of the normal amount (based on performance rating) on the second focal date. Someone that has an anniversary increase 2 months prior to the focal date of the first year would receive 14/12, and so forth. Thereafter, all current employees would be on the same focal schedule and eligible to receive a full 12 month increase.
The same method would be used for new hires during a focal year. If hired during the last three months of the focal date, he/she would receive 15/12, 14/12 or 13/12 of the normal amount (based on performance rating) on next year’s focal date.
A switch in salary/performance timing like this can create a big disruption, confusion and misunderstanding on the part of employees. Needless to say, a change like this calls for a very simple and clear communication plan. A suggestion might be to train all managers first. That way managers are prepared ahead of time to answer questions on an on-going basis. Then have employee meetings to make certain everyone understands.
Remember, compensation may not be a “satisfier” ---- but it sure can be a BIG “dissatisfier”. So take your time and do the “switcheroo” the right way!
Jacque Vilet, President of Vilet International has over 20 years’ experience in International Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has worked with both local nationals and expatriates and has been an expat twice during her career. Jacque holds the CCP, GPHR and SWP (Human Capital Institute). She is a member of WorldatWork, Society of Human Resources Management and the Human Capital Institute. She is co-chair of the Global HR professional emphasis group for the Dallas chapter of SHRM. She is a regular contributor to HCI, HR.com and IHR Forum.
Image courtesy: katiealange.wordpress.com
For a more detailed analysis of the pros and cons of timing options, see this: http://www.worldatwork.org/waw/community/discussions/discuss.jsp?did=2188&tid=2188&frm=sr. Some of the "cons" you mentioned, Jacque, seem to assume a very sloppy HR department or the imposition of a toxic forced distribution scheme.
For example, most enterprises with decent HR controls don't allow evaluations to go undone (or the supervisor gets a black mark on their appraisal). Doing a few reviews each month is a lot easier than doing all simultaneously and it keeps the evaluation antennae twitching all year long rather than activated only once a year, among other advantages. Increases don't always feature a fixed budget; all goals are not universally simultaneous with the focal cycle; and the forced bell-shaped curve pay distributions beloved to bean-counters create automatic dissention and assure performance mediocrity, in my opinion.
The time value of money is frequently an additional input to the decision about what timing to choose and how to transition from one to the other. Cash flow considerations also affect your practices.
One does not HAVE to do things poorly, whether it is done once a year or periodically. So the sins of one firm are not necessarily shared by all. That said, the suggestions are helpful for those with such problems.
Posted by: E. James (Jim) Brennan | 03/15/2012 at 04:15 PM
Hi Jim --- well said. There are advantages and disadvantages of both methods. And the company culture, etc. affects the decision of which method to use.
However, most companies (in my experience) use focal point. Forced distribution is alive and well --- both for budgetary management as well as applying same "rules" for all employees. And no one likes it.
In my opinion, focal point trumps anniversary date if only because it is the one time of the year that management gets to see a formal roll-up of top performers. Some companies (Intel did as large as they were/are) had Director levels sit down and discuss why each had rated his/her people at the top. What did they do that rated them "top".
When disagreement arose on definition, they worked thru it and agreed upon a definition of "top rating". That meant that some employees were downgraded. But in the end, top management could truly know that top performers were truly calibrated across functions/BUs/divisions, etc.
I think goals could be redone quarterly. Agree they are fluid. And budget may be thrown out the window when awarding increases to "mission critical" employees.
Agree on that too --- especially with the "new normal". And top management could look at the org overall at another time of the year outside of review time.
Frankly we need to find a totally different way to handle performance/salary reviews and that is a very hot topic right now.
I know there are good orgs out there that do it right. Just wish there were more.
Posted by: Jacque Vilet | 03/15/2012 at 06:26 PM
I wouldn't drive my car with my eyes closed for 11 out of every 12 minutes and I wouldn't want my company (when I ran one) managed by a once-a-year review of performance adequacy. PAs should be done and communicated partially quarterly, with "the" annual one (whether focal or anniversary) being a simple roll-up of the prior 3 quarters plus the most current. Thus, you don't allow people to wander off course for long and there is no "surprise party" situation(http://www.compensationcafe.com/2010/12/avoid-surprise-party-performance-reviews.html).
Comparative ratings are most important to management in terms of critical skills for retention or readiness for promotion, and both dimensions require different standards than daily performance measures. Developmental reviews are different from pay distribution decisions and should be separated in time to permit the separate different focus required. A lot of this "ranking" is garbage, IMHO, because there is no way a money-losing unit could have all top-performing people while your cash cows hold all the low-performers; but I've seen such claims made.
Posted by: E. James (Jim) Brennan | 03/15/2012 at 06:53 PM
Agree with everything you say Jim. I really do.
IMHO the main reason we do performance appraisals (at least the one behind the scenes) is legal CYA. Lawyers want performance documented in case the company wants to terminate an employee later. And they want to see a good distribution so all managers won't rate everyone high.
Must have documentation showing justification. I know of cases where lawyers have told managers they couldn't fire someone because the last rating was a "B".
Lawyers rule the world!
Posted by: Jacque Vilet | 03/15/2012 at 07:36 PM