Are You Really Paying for Performance?

The topic of the performance appraisal has been a hot one for a while now.  We see companies like Adobe, Lilly, GE, Deloitte and others tossing out the traditional performance appraisal and replacing it with frequent check-in meetings instead.  And we’re also starting to see the pendulum swing back the other way where some of these companies are considering bringing back some element of an appraisal process, mainly because they don’t know how to handle the annual merit cycle.

Which leads me to this question; don’t you know who your top performers are in your organization?  If you do, then that’s who you reward the higher merit increases to!  Don’t tell me a performance review that translates into a ratings scale really accurately provides the right information to reward an employee.  I understand the desire to ensure fairness with the process, but giving a high performer a 3% increase is not going to motivate and reward them, much less build loyalty and engagement so they want to stick around.

Part of the challenge here is that the merit budget is one of the first things to get scrutinized and tightly managed in the face of challenging financials.  But where is the logic in that?  You can’t say you’re a pay for performance organization if you have an annual merit budget of 3%.  That’s not pay for performance.  Sure, someone will say there’s discretion within the total number but let’s be honest here.  If the average performer gets a 3% merit (because 3% sure as hell is not what a high performer should be receiving), that means that you have to give your average folks less so that you have some money to give your higher performers more.  So you’re robbing Peter to pay Paul, all in the name of budgets and fairness.

How motivating is that for the average performer, who you need on your team because, let’s face it, not everyone is, or should be, a high performer. 

Your steady Eddie’s keep the ship moving and they are an important part of the mechanics of the organization.  I’m not saying to keep the low performers.  If you can’t develop and improve them, toss them overboard.  But for those you can rely on time and again and who do good work, let’s not penalize them and encourage them to look elsewhere.  The cost to replace that individual will be much greater than if you had rewarded them with a 3% merit increase, that’s for sure.

We need to trust our managers.  We need to partner with them when they’re assigning merit increases and ask thought-provoking questions to help them think through their actions, not tell them they have a 3% budget and to stick to it.  The performance appraisal and the merit increase process don’t have to be tied together.

After all, if you can’t figure out what kind of a merit increase to give your people without having a rating tied to it, then you’ve got bigger people problems you should be worrying about.