Educate Employees as to How Performance Reviews Affect Their Pay
It’s Performance Review Season. Is Your Process Working?
Insight from Employees on Performance Reviews and Seven Tips for Everyone to Get More from the Process
EMPLOYER MYTH #1: Your employees “Get It.”
FACT: Many employees don’t understand how the performance review impacts their compensation.
Generally speaking, the majority of employees don’t have a clear understanding of how their employer links pay to performance. For managers who have been trained in the organization’s performance management program and merit budget process, it’s easy to assume that employees understand how their performance is linked to their merit increase or bonus; however, most employees never receive this education and lack clarity about how the performance program works, how merit and bonus program budgets are derived, or how their pay compares to the market. In fact, many employees think the performance review process is a waste of time, and is simply a once-a-year meeting that has little or no impact on their earnings. For example, employees can spend hours on self assessments only to walk away from the review meeting feeling that their raise was determined before they ever sat down with their manager. The biggest challenge for an employee is “how do I translate my performance rating, (i.e.—”exceeds expectations”) into a merit increase or bonus payment?”
Although most managers have been trained in administering performance reviews and managing to the merit increase budget, most have not been trained to talk with employees about how their performance compares with expectations, how the company must budget for increases, or how the employee’s compensation compares to the market.
BEST PRACTICE #1: Over-communicate. Repeat the message at least three times to ensure employees internalize the message.
Establish a clear training and communication program that demonstrates how pay links to performance. Provide reference materials to ensure that employees understand this linkage.
Did You Know?
According to the survey:
Positive trend: Linkage is somewhat established.
- 89% of managers and a comparable 82% of employees report that performance reviews are at least somewhat linked to their company’s annual pay increases.
Not so positive: Employees lack clear understanding.
- The majority of managers (57%) believe that employees understand the guidelines for pay increases
- Less than half of employees (45%) claim they do.
The intent of pay-for-performance programs is to set clear goals, motivate excellence, and reward outstanding performance. You can’t create motivation if the program is unclear or employees can’t see how results are rewarded. Don’t assume that your employees “get it” or that the pay-for-performance connection is being articulated by other people within the organization in a consistent message or format.
Establish clear and regular communication that not only explains when reviews will happen and how they will be structured, but also ensure that employees at every level understand how their individual performance can impact their ability to earn money. Provide reference materials; for example a calculation sheet that employees can refer back to or interact with to see the impact of a change in ratings.
The promise of a raise, bonus or other incentive has a far greater impact when the employee truly understands and is motivated by how pay decisions are made. If your sales force didn’t understand their commission structure or payouts, do you think they would be very motivated?
Tip Number Two
EMPLOYER MYTH #2: Everyone agrees on the goals.
FACT: Employees often don’t understand their individual goals and are not in agreement with their managers on these goals.
The reality is that many employees do not have a clear idea of what their goals are. In addition, employees do not understand the metrics their managers use to measure performance.
Clear metrics for success and detailed goals with descriptions are necessary to get employee commitment to meeting such goals. According to the survey, twenty-three percent of employees said that their goals are changed by their managers three or more times a year, while only 11 percent of managers believe they change their employee’s goals that frequently. This disconnect can be a highly demotivating factor for employees, and can prevent employers from meeting corporate objectives.
When employees feel like their goals are a moving target or that they are hastily assigned, employers will have a harder time keeping the workforce on task. An employee with a clear set of goals and how they will be measured against those goals is going to be a better performer than one who is unclear on how they will be evaluated. While it sounds like common sense, it’s fairly commonplace for companies or managers to lack a formal process for goal setting and gaining agreement with employees about how they will be evaluated.
BEST PRACTICE #2: Document the goals together. Make it a living document. Establish clear goals that are understood by both managers and employees so there is agreement and commitment.
Clear goals are necessary to drive employee motivation and commitment to achieving them. Having a clear set of goals makes employees more productive because they are able to prioritize tasks on a daily basis that are in line with their employer’s expectations. Verbal conversations are often misinterpreted. A good practice is to document the goals together, review the words, and clarify the meaning with time to answer any questions.
Employees aren’t mind readers – they can’t predict what a manager will want them to do from one day to the next, nor can they be expected to know what performance outcomes an employer will value. By establishing clear, written goals and expectations that an employee can refer back to throughout the year, employers can improve communication and ultimately impact employee job satisfaction and retention. Set reminder meetings to refresh the goals to accommodate changes in the business, and communicate the reason for these changes to the employee. Market conditions require business managers to be responsive and to adjust goals throughout the year. But if employees do not understand the reason for these changes to their goals you may loose their “buy-in.” When employees have a current record of what the goals are and understand the external forces that require a change in goals, they will be far more likely to work toward achievement of those goals – and chances are they will have a better relationship with their manager.
If You Want Employees to Care About the Company’s Goals, Communicate Better
EMPLOYER MYTH #3: We’re all marching toward the same goals.
FACT: Employees are not aware of the larger corporate goals and how their own performance goals align with them.
The truth is that many employees are not clued in to corporate objectives and strategies. They either don’t know how their individual goals are aligned with corporate goals, or don’t believe that they are. Many employees are focused on their immediate tasks, and need to see how they contribute to overall corporate strategy in order to understand company priorities. Most employees want to be able to make a measurable impact on the business, but don’t know how to do so.
Organizations receive from their performance management program what they invest in it. Performance is a two way street where the value to the employee must be as clear as the value to the employer. Superior performance is achievable when both work together.
By improving how employees understand organizational priorities and their role in contributing to success, employees begin to perceive their performance from a more similar perspective as managers. In doing so, employees feel empowered and start to see the direct linkages that their role has with other parts of the organization. This helps to build better teamwork and can be a very motivating force for employees, particularly at lower levels of the organization.
BEST PRACTICE #3: Demonstrate how employee goals align with organizational goals and over-communicate if necessary.
Having clear goals is not sufficient. To maximize the power of everyone pulling together, managers need to communicate the power of goal alignment. Find a compelling way to illustrate why employee alignment and contribution matters, what is the larger upside of meeting organizational goals, what is the risk of underperforming. How does your team’s performance affect the group?
Until employees understand the goals of the organization and how their goals align with those goals, employees will not understand how they can improve their performance from the same perspective as their manager. Individual contributors are less likely to view their goals as unimportant if they see how meeting those goals can help the company meet its objectives.
Tip Number Four
EMPLOYER MYTH #4: To everything there is a season.
FACT: Compliance with performance programs within set time-frames is only a part of ongoing performance management. Performance management isn’t a seasonal activity—it should happen all year long.
Did You Know?
According to the survey:
- 82% of managers believe they are aware of most of the tasks their employees perform
- However, only 50% of the employees believe so
Many organizations are so focused on compliance with performance programs that quality, ongoing performance feedback, and skill development are often overlooked. This is not to say that compliance is not important. You can’t reap the benefits of a performance program that people don’t participate in or take seriously. But by the same token, a performance review that is rushed and completed without a lot of thought is equally unhelpful.
Particularly in large organizations where driving compliance with performance program guidelines and time tables can be a challenge for HR, compliance in completing reviews on time often overshadows any communication about review quality. This perspective shortchanges everyone involved. Companies of all sizes are beginning to automate performance programs using software that makes it easy for HR to monitor and enforce compliance. As compliance improves and the process becomes easier for managers to complete, companies should make the quality of performance reviews a top priority.
BEST PRACTICE #4: Move from “compliance” to a focus on “quality.”
It’s not just about getting it done; it’s about doing it right. What if employees treated their job-related tasks the same way and focused primarily on speed; not quality? When the focus of the performance management process is on ensuring compliance, managers are not held responsible for having quality interactions with employees about their performance and how they can improve. Turing the focus to quality lets managers know that the goal of the performance review process is not to complete it, but to improve employee performance.
This approach benefits the employer and helps to change the mindset that reviews are “not effective.” If employees see the time and care that goes into the review and know their manager takes the process seriously, they in turn will take the process more seriously as well, and will benefit from ongoing development and mentoring.
Tip Number Five
EMPLOYER MYTH #5: Performance feedback is a two-way street. Employees know when you’re providing performance tips.
FACT: Managers have frequent discussions with their employees about performance and don’t depend on reviews alone to have performance related discussions.
This is actually true. Many managers have frequent discussions with their employees about performance. The problem is, many employees don’t realize managers are having them. An informal conversation about how to improve a particular process or perform a specific task may count in the manager’s mind as a performance discussion, but the employee might see that as normal manager-employee dialogue. Many employees need a specific “call out” that the manager is providing “formal” performance feedback in an “informal” setting or place.
If managers want their performance input or coaching to be actionable, they need to be clear with their employees about the nature of such talks. If they are looking for a specific actions or results – they should make that clear. For example: Managers can open up a performance discussion with “I want to provide some performance observations. As we discussed in your review, this would be a good project on which you can demonstrate your leadership skills.”
BEST PRACTICE #5: Quality and quantity matters. Promote frequent, meaningful performance discussions.
It may feel like “stating the obvious” but employees tell us they want specific and clear communication. These breakdowns in the communication between employer and employee leave everyone confused and dissatisfied. Managers want to see results or actions taken on their critiques. Employees want clear goals and an understanding of what the manager expects. Through clear communication and even “stating the obvious” a lot of confusion can be saved and employees will feel valued and understood.
Did You Know?
According to the survey:
- 55% of employers reported that managers meet with employees to formally review their performance two or more times a year
- However, only 30% of employees stated the same.
Regarding more informal discussions about performance outside of the formal review process:
- 75% of managers said they hold at least quarterly discussions
- Only 27% of employees say such conversations are that frequent.
Although the most typical frequency for formal performance review discussions is still “once a year,” this survey indicates a trend to more frequent interactions throughout the year. When employees report less frequent interactions than managers believe they are performing, this indicates that these communications should be made more clear and formal. Motivational theory has demonstrated that frequent performance interactions are essential for sustaining behavior change. Leading practice organizations are holding performance discussions many times throughout the year.
Tip Number Six
EMPLOYER MYTH #6: Performance review time equals development plan time. Employee development is the outcome of the performance review process.
Many employers probably believe that the natural outcome of their performance program is employee development, but in reality, the post assessment development plan sometimes lacks follow-through on the part of the manager. Reviewing performance will not improve performance. When managers focus on assessing employee performance vs. developing employees it is little wonder that employees don’t believe the process helps them to improve. The employee value proposition requires that employers make an investment in developing talent.
Employees want development opportunities in order to advance in their careers, and when employers don’t provide such opportunities, the workforce not only fails to perform better, but involuntary turnover can increase. An employee working in the same job but not developing new skills over time presents a flight risk for the employer. That employee is far more likely to become bored and start looking for new opportunities that will aid their career development.
BEST PRACTICE #6: Make a commitment to employee development and ensure follow through.
Managers should spend more time working with employees on their development activities and following up on progress than they do on assessing past performance. Formal talent development programs foster greater employee engagement and help to keep the workforce motivated. An employee that feels challenged and excited about learning new skills is far more likely to be content in their job than one who is subject to the same mundane tasks day after day.
Investing in talent development can pay dividends to employers in the form of greater productivity and advanced skill sets among the talent pool, but it can also help to attract top talent. Employee development programs can differentiate an organization’s talent acquisition strategy because top talent will look for these before joining an organization. A recruiter armed with formal talent development programs can be more successful in attracting the types of employees can help the businesses excel.
Tip Number Seven
EMPLOYER MYTH #7: Employees think the performance process is fair and equitable.
A frequent reason that employees “opt out” of the performance improvement process is that they don’t believe the process is fair. They often think that their goals are unattainable or that manager expectations are unrealistic. If employees believe that certain people receive preferential treatment, or that managers assign unrealistic goals, or if they don’t see any clear linkages between pay and performance, they likely will feel disillusioned by the entire performance process.
Did You Know?
According to the survey:
Employees and employers perceive the feasibility of reaching their incentive or bonus objectives differently.
- 16% of employees believe their incentive or bonus objectives are well outside their reach.
- 99% employers believe that bonus and incentive programs are based on realistic expectations.
Employees probably won’t take the process very seriously and therefore neither party will get from the process what it is designed to provide.
BEST PRACTICE #7: Work to ensure fairness and to demonstrate fairness to employees.
For employees to perceive the process as fair, goals and expectations must be clear and achievable, managers must be consistent with all employees, employee input must be included in the review, and the connection between pay and performance must be clear and equitable. Process and policy transparency is a must. Employees that commit to the performance program—who have clear, achievable goals and see how those goals tie to corporate objectives; feel that their input is valued; and know how their performance is linked their compensation—will be productive, valuable members of the workforce. They will have greater job satisfaction, will be less likely to consider other employment options, and will have a positive opinion of the company for which they work.
In demonstrating fairness, employers reap the benefits of a highly productive workforce.
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