Common Concerns: Ratings, Pay & Adoption
Many organisations that we speak to are attracted to the benefits that Continuous Performance Management offers, but are concerned about whether they can still use ratings, how they will manage pay decisions and how they will get managers and their employees to adopt the new approach. We were mindful of these issues when we were developing our Continuous Performance Management framework, and through working with a wide variety of customers, we have developed practical, workable solutions to each of these questions. Let’s explore each of them in turn.
Should you use performance ratings?
The debate about whether or not performance ratings should be used has been going on for a number of years. There are arguments on both sides. On one hand, evidence has found that they are demotivating and negatively impact performance, except for those who receive the highest ratings. On the other hand, they are a convenient way of allocating performance-related pay and bonuses.
If you do choose to use ratings, be mindful of the fact that research has found that there is little correlation between the ratings and actual performance. This is for a number of reasons, including rater bias and the fact that managers frequently reverse-engineer the performance rating to get the reward outcome they want for the employee. So whilst ratings can tell you who your managers wish to give the highest rewards to, be aware that those employees are not necessarily your highest performers, so be cautious about the decisions you make using those ratings.
Can you use performance ratings with Continuous Performance Management?
Yes, you can. Although the continuous elements of performance management (regular check-ins and frequent feedback) should be developmental and not involve any form of rating, you can collate performance ratings periodically as a separate process. In our own Clear Review performance management software, we call this process Viewpoints, as it collates the views of managers about their team members’ performance using ratings or other targeted questions.
A big advantage of Continuous Performance Management over annual appraisals is that the managers views and ratings are based on a number of discussions that have taken place throughout the year. The resulting ratings are therefore likely to be more objective those based on a single annual appraisal meeting.
One thing we encourage the organisations who work with us to consider is whether ratings are the most effective way of measuring their employees’ performance. Organisation such as Deloitte have replaced their traditional ratings with targeted questions which are potentially more objective indicators of performance and potential. For example, if you want to know who your top performers are, instead of asking managers to rate each of their team members as good, excellent, outstanding, etc., you could ask a simple question like:
“When compared to other people you’ve worked with in a similar role, is this person the best you’ve ever worked with?”
It would be hard for your managers to answer Yes to that question for lots of employees, whereas with traditional ratings, HR professionals frequently complain of too many people getting the highest ratings.
The key thing to take away from this is that there is no right or wrong answer when it comes to ratings, each organisation’s needs and situation are different. That’s why we’ve made the Viewpoints functionality in our Clear Review software flexible so that you can use ratings, targeted questions, or a combination of both. And if you don’t need to measure performance at all, you can simply switch the Viewpoints module off.
How do you manage pay decisions with Continuous Performance Management?
Closely linked to the question of ratings is how to allocate performance-related pay and bonuses using a Continuous Performance Management approach. The answer is to focus your check-in discussions and feedback on performance improvement and personal development, then run a separate pay review process that incorporates performance measures. As we established in Part 3, this is the approach advocated by the CIPD.
It is also what organisations such as Microsoft and General Electric have implemented with great success. Both companies famously abandoned appraisals and ratings and introduced regular check-in style conversations throughout the year. At the year end, they carry out a standalone pay review process which looks at the impact that each employee has had on the business or team over the last 12 months. This year-end process works in a similar way to our own Viewpoints process outlined above. Since GE moved away from appraisals in favour of continuous performance management, 77% of managers have said they are better able to differentiate performance for pay purposes.
Many organisations who are introducing Continuous Performance Management have taken the opportunity to question whether they should have performance related pay at all. Earlier on in this eBook we learned how performance related pay first became popular at a time of very high inflation. Now that inflation and average pay awards are consistently low, you may wish to consider whether performance-related pay is worth the administrative effort (and associated pain) that typically goes with it. This article explores some alternatives to performance-related pay.
How can you get your staff to adopt continuous performance management?
A question that we often get asked by HR professionals is:
“It’s hard enough to get my managers to do appraisals with their team members once a year. How are we going to get them to meet with them more frequently?”
It’s certainly a valid concern, but getting managers to have regular, meaningful conversations with their staff is not as difficult as it might seem…as long as it’s done right.
Let’s look at why managers avoid doing appraisals. Firstly they take up a lot of their valuable time – it can often take several hours per team member to prepare, have the discussion and then complete the associated documentation (whether on paper or online). Secondly, if there are ratings involved, appraisals are often onerous discussions that both parties would rather avoid. Thirdly, managers frequently question the purpose and value of the annual appraisal – rightly so in many cases.
Taking this into account, if you say to your managers that they will no longer have to do appraisals, and that instead you want them to have shorter, more informal Check-ins with their staff a few times a year, they will generally be positive about this change. That’s certainly been the experience of our many customers who have successfully switched from annual appraisals to Continuous Performance Management.
There are a couple of provisos here. Firstly, don’t make the mistake that some organisations have made whereby they expect their managers to have informal one-to-ones during the year and still do an annual appraisal at the end of the year. Managers are unlikely to buy into that. It’s asking too much of their time and, as one HR Director I spoke to recently put it, if managers are having quality conversations during the year, they don’t see the point of having another one at the end of the year to summarise what has already been discussed.
The second proviso is that you need to make it incredibly easy for managers to have check-in discussions. Keep bureaucracy and form filling to an absolute minimum, ideally by using software that is purpose-built for Continuous Performance Management.
Software is also essential in order to provide structure for Check-in conversations and feedback, to generate reminders to staff and to enable HR and senior management to keep track on who is and isn’t having regular conversations and getting regular feedback. We’ll look at why you need software in more detail in Part 6 of this eBook.
In this section, we have expored the most common concerns that organisations have when considering Continuous Performance Management and laid out some practical options for addressing them. In Part 5, we’ll be proving the theory by looking at case studies of three diverse organisations who have successfully embedded Continuous Performance Management.