By Stephanie Hammerwold
Performance reviews are a hot topic in HR right now. An overwhelming majority of HR professionals, managers and employees seem to be unhappy with them and would be happy to move on to another system, and some companies are finally responding by taking the drastic step of ditching the traditional annual review. October’s meeting of the South Orange County chapter of the Professionals in Human Resources Association (PIHRA) featured Noma Bruton, the Chief HR Officer at Pacific Mercantile Bank. Bruton spoke about how her company eliminated traditional performance appraisals and how they created a system that better supports employees and the company.
Bruton was joined by Lonnie Giamela, an attorney with Fisher & Phillips. Giamela started off the presentation by talking about the ways in which the traditional system of ranking with no narrative is under scrutiny. With an annual review, the emphasis is on once-a-year feedback rather than on real time feedback, which is much more relevant to how we work. Giamela gave the example of how his young kids will tell him how they feel about his performance as a dad immediately, and the feedback does not come in the form of a number. It is a narrative such as “You are the best daddy in the world” or “You are very frustrating today.” If our tendency is to give feedback as a narrative, why do we still rely on a system based on numerical ranking? Anyone who has written a review knows that it can be a challenge to assign a single number to a year’s worth of work. Criteria for ranking can vary greatly from manager to manager, which creates an unfair system.
When a company follows a forced ranking system, Bruton explained that it pits employees against each other. Rather than focusing on competition external to the company, employees are more focused on competing with each other. Bruton admitted that she had advocated for traditional reviews for 20 years before realizing that it was time to do away with a system that relied on numerical ranking. She cited statistics that revealed that 92% of managers do not think reviews have value, and 95% of HR professionals believe ratings are not accurate. Clearly it is time to make some big changes.
One of the first steps that Bruton tackled was delinking compensation and performance. Many companies tie pay increases to the employee’s score on their annual review. Bruton did away with this practice by basing increases on market research for the jobs in her company. Employees were evaluated based on years of service and skill level to determine where they fell in the range. They picked a common date and adjusted employee salaries on that day to put their jobs in alignment with the market price for each job. In short, the company did away with merit increases and based raises on a market adjustment.
Bruton said the most common question from employees was about not being paid based on performance. She explained that the market-based increases do reflect performance in that when the company does better, they are able to give more money for raises and placing people above the market average. The company’s success is a direct reflection of the employees’ performance.
The company replaced the annual review with a system that managed performance without the use of ratings. Managers have conversations with employees to review things like job responsibility, competencies and goals, and Bruton pointed out that the focus could then be more on development. Currently her company required that managers meet with employees for performance conversations twice per year. They use their HR technology system to record goals and what was discussed in the meetings. Employing technology can help give employees real time access to how they are progressing on goals.
Bruton ended by reviewing some of the lessons she learned from implementing the new system. She said the process has been a lot of work, but she has been receiving positive feedback from employees and managers. She advised those considering a big change like this to be prepared to support the case for a new system with plenty of market data because upper management may be resistant to undoing an annual review system that has been in place for decades. She also said it is important to train managers, and her company even brought in an outside trainer to go through supervisory basics.
With all the conversation around doing away with the annual review, it was nice to hear a case study from someone who is putting talk into action. As HR professionals, it is important that we recognize the areas where restrictive policies and processes may be getting in the way of progress at our companies. In a time where we are growing more and more accustomed to instantaneous feedback, our performance management system should reflect that.
Bruton’s system does two things really well on this front. First, it bases increases on market research rather than merit, which means that discussions around performance are about what an employee is doing rather than the number on their paycheck. To me, this seems more fair. With the traditional system where a score determined an annual raise, increases were left to the managers—some of whom would engage in questionable practices to inflate scores to get an employee a good raise. If an employee is having performance issues, coach them on the problem through conversation and not through affecting their pay at annual review time.
Second, Bruton’s system encourages conversations with employees and setting goals based on competencies. This sets the stage for ongoing conversations between managers and employees about meeting goals and work performance. Performance management should not be an annual thing. It should be an ongoing process that involves real time feedback if we expect employees to improve and grow.
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