The story started with a rash of news coverage about how Adobe, Deloitte, Microsoft and Goldman Sachs had decided they were not seeing the results or uplift in performance of employees as a result of the time and energy invested in regular performance reviews.  At the heart of the discussion were key issues about faster pace of business (annual reviews don’t cut it), and employers recognising that a more collaborative coaching style of manager was getting better results with Gen Y (and everyone else) than the top-down MBO traditional approach. 

So out went the baby with the bath-water and in came a new, less rigid framework approach to managing performance.  Coaching conversations and focussing on the future rather than forced ranking and performance scores were the direction of travel.  Employees mainly approved, managers needed help, but this was quickly available in the form of on-line performance management systems which helped managers have useful and productive conversations with their team.

All was positive in the new world, except for one wrinkle.  But it was a big one.  How can you tie coaching conversations, personal development and career progression with hard, cold decisions about compensation?

Without a clear structure to manage pay, organisations found that their new approach was in danger of putting too much pressure on managers to make hard compensation decisions, without an audit trail of formal data points on performance assessment.

So how is it possible to marry the forward-looking coaching and developmental style which is the basis of many of the ‘new world’ approaches with the need to make robust decisions on pay which are defensible, fair and, in today’s world of increasingly transparent disclosure on pay, justifiable to the wider world?

First: don’t follow the crowd.  Although at first pass all the ‘new’ schemes look similar, actually, they have been crafted to meet the needs of individual businesses. Deloitte’s approach doesn’t mirror Adobe and neither have followed Microsoft’s scheme.  What is common is a focus on the individual, a move away from a very rigid annual timescale, and a recognition that objectives set annually are difficult to manage in our faster-paced and more fluid world. 

We discovered that Gen Y require more regular feedback, and in smaller bites, and more timely to the work being reviewed.  Unsurprisingly, so did everyone else.  A discussion about future career, and an honest discussion about areas for development is probably not best tied to the same 30 minute conversation which settles the pay review for the following year.  However, a simpler approach, where performance evaluation and performance development are split into two streams is effective and doable for most jobs.

In low inflation times, organisations may decide to take a 3-lane approach to performance evaluation and pay reviews: those who are sinking, those swimming and those who are clearly and obviously walking on water. Pay adjustments can be made with more understanding of the relevant external pay markets, and the rise of digital delivery of pay benchmarking data means that recruiters, talent professionals and even managers can have fingertip access to the external pay intelligence which used to be the sole premise of Reward managers.

Although this is more challenging that the ubiquitous flat 2% rise, and less complex a five-point rating scale, it allows for a straightforward pay point of view for most employees (“we will pay in the middle of our market”), and there is scope for talented and highly valued individuals to be positioned competitively against their own upper quartile peers.

Innecto can help with any aspect of pay and reward. Give us a call to get started on 020 3457 0894.

 

This extract was first published in Lance A. Berger & Dorothy R. Berger, The Talent Management Handbook, (Third edition, 8 December 2017). 

 

 

 

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