Compensation Practices Driving Cultural Shifts In Performance Management Explored In New #HRWins eBook
A lot has been said about the shift from annual performance reviews and employee engagement measurement to more frequent surveys. I’ve even come across some employers considering completely throwing away these processes. “Nobody likes performance appraisals or long surveys. Not managers. Not employees.” That’s usually how the conversation starts. It’s hard not to disagree, and everyone is feeling really liberated and innovative until I ask my usual question:
“What are you going to do about compensation when you throw away that performance process and move to that transparent ad hoc feedback tool?”
I’ve been answered with everything from blank stares to “We don’t know.” Well, there isn’t any excuse for not knowing any more. It’s not just about the annual salary increase that comes out of the performance review these days. It’s about the employees’ access to data and information. Employees aren’t just looking for a certain percentage of salary increased year over year. They want to know that they’re paid fairly and competitively.
The move away from the annual performance review is based on big changes in the way work gets done. What business has an annual business cycle anymore? That must be cozy. I can’t even remember those days. It HAD to change in order to align with the business and the way our people are working. But, what hasn’t changed? Your employees’ expectations that their compensation is looked at annually based on performance and any cost-of-living adjustments, and that you are paying them fairly and competitively.
These expectations are reinforced by another trend: There is a lot of data available in the market now on myriad of websites and free services. Data that give employees an idea of their fair market value for total compensation. There is also a ton of news in the market about pay equity and fair compensation practices. You can’t look at a newspaper or newsfeed without seeing something about fair compensation. One of the newest trends recently reported on are local ordinances, like the one passed in New York City, that makes it illegal to ask a candidate what they are currently earning for any positions in the city government. Expectations are being set for the employer to pay fairly and competitively. At the same time, there is a newfound urgency for employees to know what they’re worth in market terms. The persistent gender pay gap is another constant headline calling attention to the need for everyone to know what they’re worth, and to have perspective about what others with similar backgrounds are getting paid. There is a rising awareness on the part of the employee that they need data, and it’s out there for them to find – just a Google search away. This is leading to employee’s desire for transparency to pay levels relevant to them.
I applaud employers for thinking about moving away from annual performance reviews. In fact, I encourage them to do it. But, first I implore them to come up with a compensation strategy and policy that offers whatever level of transparency their culture and management team can embrace. Clear communication about how compensation is formulated, including the sources of data used to validate pay is a great start.
It won’t just be the need for data and fair pay for your employees that you’ll be satisfying. Compensation is a key driver of another business metric: employee engagement. When we surveyed U.S. employees and asked them what the top contributors to their feeling of engagement at work was, compensation was number two to having meaningful work. In fact, if we combine compensation and benefits (total comp) it is by far, the number one contributor an employee’s feeling of engagement. Engagement leads to increased productivity and also improved employee retention. The business justification is there, and it’s just the right thing to do.
So, what should you think about in your compensation strategy as you move your organization away from annual performance appraisals and into the world of employee engagement measurement and ad hoc employee feedback? We’ve shared our research and insights in our latest free eBook, Compensation Practices Driving Cultural Changes In Performance Management.