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Understanding the Ratingless Performance Management Trend for Compensation Professionals

This article explores the evolution of performance management, the pros and cons of transitioning to a ratingless approach, and how other companies have implemented it. It also discusses the implications for compensation professionals and prepares them for conversations about this trend.

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Understanding the Ratingless Performance Management Trend for Compensation Professionals

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  1. Understanding the Ratingless Performance Management Trend for Compensation Professionals

  2. About Me • Talent development leader • Organizational design & development • Leadership development • Talent assessment • Succession planning • Learning & development • Brands:

  3. Agenda • Explain the evolution of performance management • Describe the pros and cons of making this transition • Share how other companies have implemented it • Discuss what it means from a Compensation perspective and prepare you for the conversation

  4. We want you to be seen as this…

  5. …Not this

  6. Who is Eliminating Ratings and Why?

  7. Companies That Transitioned from Ratings

  8. Rationale for Removing Ratings “Specifically, we tallied the number of hours the organization was spending on performance management—and found that completing the forms, holding the meetings, and creating the ratings consumed close to 2 million hours per year. As we studied how those hours were spent, we realized that many of them were eaten up by leaders’ discussions behind closed doors about the outcomes of the process. We wondered if we could somehow shift our investment of time talking to ourselves about ratings to talking to our people about their performance and careers—from a focus on the past to a focus on the future.” -Marcus Buckingham and Ashley Goodall

  9. David Rock, of the Neuroscience Institute, is a pioneer of the physiological impact ratings have on humans. • https://youtu.be/XrnfSeMXSO0

  10. The Arguments for Eliminating Ratings • The disappointing interventions • The disagreement when multiple raters evaluate the same performance • The failure to develop adequate criteria for evaluating ratings • The weak relationship between the performance of ratees and the ratings they receive • The conflicting purposes of performance ratings in organizations • The inconsistent effects of performance feedback on subsequent performance • The weak relationship between performance rating research and practice in organizations. Industrial and Organizational Psychology Volume 9, Issue 2 June 2016, pp. 219-252 Getting Rid of Performance Ratings Seymour Adler (a1), Michael Campion (a2), Alan Colquitt (a3), Amy Grubb (a4), Kevin Murphy (a5), Rob Ollander-Krane (a6) and Elaine D. Pulakos (a7)...

  11. The Case Against Eliminating Ratings

  12. The Arguments for Retaining Ratings • The recognition that changing the rating process is likely to have minimal effect on the performance management process as a whole • Performance is always evaluated in some manner • “Too hard” is no excuse for industrial–organizational (I-O) psychology • Ratings and differentiated evaluations have many merits for improving organizations • Artificial tradeoffs are driving organizations to inappropriately abandon ratings • The alternatives to ratings may be worse • The better questions are these: How could performance ratings be improved, and are we conducting the entire performance management process properly?

  13. What Does This Mean for Compensation Professionals?

  14. The Compensation Challenge More Frequent Feedback Compensation Real Time Performance Pay No Ratings to Trigger Merit Analytics

  15. Ratings Proxies • One large retailer uses the 9-Box to determine pay increases • Another large retailer uses manager discretion via a finite merit pool and reporting based on dollar distribution versus performance rating distribution • Several companies use an index of questions to determine merit, often distributed via manager discretion. Example: • Deloitte: The first two are answered on a five-point scale, from "strongly agree" to "strongly disagree;" the second two have yes or no options: • Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus.  • Given what I know of this person’s performance, I would always want him or her on my team. • This person is at risk for low performance. • This person is ready for promotion today.

  16. Table Activity • At your tables: • Spend 10 minutes brainstorming additional options for managing merit increases and compensation without merit ratings. • Take 10 minutes to choose the approach you think would work best at your organization and why. Select someone to provide a one minute summary of your group’s decision.

  17. Summary • The number of companies significantly changing their performance management processes, including removing ratings, is increasing. • The research is mixed regarding the success of the ratingless trend. • It is important to understand the intent of this change if/when you are asked to implement it. • Universal truths: • It starts with effective goal setting. • Ratingless performance management must be accompanied by an investment in leadership skills to help leaders effectively conduct the conversations and coach for performance.

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