Chapter 4

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.

This arti­cle sum­maris­es the pros and cons of per­for­mance rat­ings in more detail.

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 (which can be renamed in the soft­ware), 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 you can use your own ter­mi­nol­o­gy, so instead of View­points you could call it a Review, PDR, Tal­ent Review, Per­for­mance Snap­shot,etc. 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.

For fur­ther guid­ance on how to man­age per­for­mance-relat­ed pay with con­tin­u­ous per­for­mance man­age­ment, read our ded­i­cat­ed eBook on this sub­ject.

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.

Sum­ma­ry

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.