Making pay and reward decisions with continuous performance management

One of the biggest questions we get asked regularly by our customers is ‘Now I’ve ditched the annual appraisal, how do I make performance related pay decisions?’.

The main issue here being that many organisations use their annual appraisals to rate their employees, and then use that information to decide who will get a pay incentive that year.  

The problem is that most performance related pay models rely on a level of performance measurement that is irrelevant, a 3 or five point scale that is then plotted on a bell curve. Then those who are scored in the very top percent are given the highest reward, the next 20% the next level down, the next 20% a little less and so on. But in reality, performance doesn’t work like this!

The other problem is humans are terrible at rating other people, it has been shown over and over again in many different studies, that different people would rate the same person, with the same performance, differently.

This is because ultimately the result of an evaluation will say a lot more about the rater than the ratee. This could be due to bias, a pessimist or vs an optimist, holding different values for what makes someone a good employee (ambition, loyalty, creativity, reliability etc.) meaning the same person, could be given 10 different results from 10 different people.      

This means the data is flawed to begin with, leading to organisations using their reward pot on those who might not be performing as well as they appear, and perhaps more worryingly, not recognising and rewarding those who are genuinely top performers, running the risk of losing valuable talent.

The ultimate goal here is to generate objective, set data that can really help you identify on a practical and impartial lever how people in your organisation are performing, so you can use the resources you have to incentivise those people to stay at your organisation.    

So rather than then ranking your people on a bell curve, they should be marked on a power law curve, which identifies those in the top 20% of your performers.  

The reason for this is in reality, is the difference in performance for the large majority of your employees will be very small, and measuring those people against each other really has very little value. The main focus should be identifying the very top performers and doing what you can to get them to stay at your organisation.

You may also wish to identify underperformers in your organisation, but if your managers have been using continuous performance management with their employees, they should have already identified in performance meetings throughout the year.

So, we know it’s important to get our data right and identify those top performers, and this is where our continuous model comes in. By using continuous performance management throughout the year, data will be stored to show how well employees have performed against goals, the feedback they have received from a range of different people throughout the organisation, and notes from their check-in meetings where they will have discussed development over the last year.

This data can be used to give an impartial overview of that employee’s performance and development over the last 12 months, and using that data, managers can answer questions designed to objectively determine their performance and potential, and not their manager’s thoughts and feelings about them as an individual.

Book a demo with our team today to learn about Advanced Clear Review, and start saying yes to great continuous performance management.