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Your Performance and Compensation Systems Stink – Here’s Why

Let’s face it – there is no silver bullet out there that can cure your performance management woes. There is no performance panacea that will deliver a 100% objective review and links directly into your compensation system. However, there are many organizations that have pretty good systems that do a decent job of setting goals, being able to measure these results and reward accordingly. As I said, not perfect systems by any stretch but pretty good for the most part. A lot of companies know their system basically stinks and are actively working to try and change/improve them – goods news – you are in good place and will continue to move the dial north on your performance management efforts. The real danger is in not knowing that you actually have a bad performance system in place. In order to figure out if your current system stinks, see if you recognize any of these signs:

Stink1) No one understands it – goes without saying, but if your employees, and worse yet, your managers don’t understand the timing, how to provide the right inputs/data into the performance review, how everything links, etc. then you have big issues. Don’t chalk it up to the fact that more training for your employees and managers is required – your system probably stinks.

2) You can’t differentiate average from great – if your system does not allow for a clear delineation between average performers and great performers, than your system stinks. A good system that captures proper performance data should allow for a clear distinction between these two types of performers. The system and its outputs should readily identify average from great and reward accordingly. Bonus tip – if your performance system “rewards’ great performers with a 1% increase more than average performers, then your system stinks.

3) You can’t identify individual performance from group performance – if you hear comments from managers on how they aren’t able to show how one person excelled (or not) compared to others that worked on projects, than your inputs into the performance system aren’t working. If your system does not allow you to capture individual performance levels within specific projects, items produced, service rendered, etc. then you have a problem. Be vigilant about listening for managerial comments to this effect – than be prepared to fix it.

4) Managers reward employees for putting up with %&*# – in other words, the employee’s performance meets expectations, but because of internal circumstances they had to deal with during the year (i.e. impromptu travel, expenses not getting reimbursed in a timely matter, etc.) the manager wants to provide a higher rating/comp increase. This is bad because it not only means that your system stinks because you aren’t providing comp increases for the right reasons, but you also have a poor company culture that doesn’t properly take care of its employees appropriately.

5) The only way an employee can get an increase during the year is at review time – stuff happens during the year, employees go above and beyond on a particular project, market pay conditions change, etc. but in order to get anything that represents a decent raise they have to EXCEED all EXPECTATIONS. Perhaps your system doesn’t allow for a project that consumed 5% of their year (but was HUGE in organizational impact and results) to rate an overall exceeds. Therefore, managers artificially inflate the review to reward the employee. The problem is that your review system AND your overall rewards systems are out of alignment and you need to address these in tandem. A related issue you may be facing is that you have in ineffective rewards system. Whether it be additional monetary rewards (bonuses, etc.) or non-monetary, there are no other methods in place for managers to directly or indirectly compensate staff for group results, project performance or going above and beyond, other than the once a year review and merit increase.

6) It all takes too long – this includes everything from the fact that it takes too long to capture the necessary data, too long to complete the performance review form, too long to secure the approvals for the ratings and too long to align with compensation increases. This should be a tight process that can be wrapped up in a month or two, at the most, when done properly. If it stretches out over 3-5 months than you have problems that need to be addressed immediately because you need to start to streamline your system and make it less onerous on managers. A good rule of thumb is that if your managers spend more time writing reviews and completing forms than they do actually talking to their employees, than your system stinks.

What about you? What has been your experience with performance systems? What other signs of stinky performance systems have you seen? As always, I welcome your comments and feedback.

Image courtesy of David Castillo Dominici/FreeDigitalPhotos.net


3 Responses

  1. This is an interesting post. I’ve worked in HR in only a couple of companies, but they’re performance systems, by your standards, would definitely stink! All annually based on overall and company performance. I can see how ineffective this can be. As a newer HR professional, I would be really interested to see/read/find out about a really effective “unstinky” performance system.

    • Hi Kim, thanks for reading and commenting! In my opinion and experience, systems that don’t stink are ones that focus performance expectations in the form of measureable goals and outcomes – so people know what they need to focus on and how their success will be measured. This then feeds into a system that rewards its top performers accordingly. As I mentioned in the article, a 1% difference between top performers and middle performers does not incent! A great model I have seen work is one that focus on the top 5 most important items in the role to focus on – the manager than defines, up front, what constitutes good and what is great performance…and then links it to a WIIFM model for the employee. In other words, if they meet these goals, what is in it for the employee (promotion, development, etc.)

  2. *their performance systems, not they’re. Sorry 🙂

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