Drop the connection between compensation policy and performance reviews

by on June 12, 2009 · 0 Comment POSTED IN: HR Info Center

Conversations about compensation policy should be an adult discussion about money

We’ve got to get away from the parent to child kind of routine in compensation policy where employees come in begging and we have to tell them, “Yes” or, “No”, like we’re some kind of entity above them.

Shift expectations and interactions about compensation policy
Shift your interactions with employees from potentially a parent-child kind of discussion where they just ask for it because they want, need it, and deserve it to an adult to adult conversation about money.

There’s something kind of interesting here. All of this is precipitated by an interesting notion. Most performance evaluations are tied to the compensation policy.

Some of you may be modern enough that you’ve tried to separate these things. But if you listen to my other work – if you study what we teach on catalytic coaching, for example, and if you read what I’ve learned in terms of literature reviews I’ve done: traditional performance evaluations were created to protect you against your own employees and to decide about pay.

With many compensation policy systems, we normally find ourselves once a year sitting down with people, giving them a review. At the end of the review, we give them some kind of grade. And after that – shortly after that, we tell them what that translates to in terms of an increase.

And since it’s always very, very small, I mean 2%, 3%, 5%, 6% is almost always anticlimactic. But that was created this way. And all I’m going to say here is that pay for performance, you’re talking about last year’s performance leading to this year’s pay, we think it’s a big lie.

The problem in conversations about compensation policy
So, if part of your problem in trying to talk to somebody about compensation policy this year and part of your reluctance to sit down with them, I know a lot of companies right now that say, “Well, we’re not going to sit down and talk to anybody because, you know, I got nothing to give them” and that’s the punch line at the end of the joke, “You know, if I’ve got nothing to give them, why should I do a performance review?”

It’s a good question, okay, because I don’t believe you ought to be doing a performance review in the first place because it doesn’t really tell you anything about pay directly.

This whole thing of, “If you work hard and you do well, I’ll give you a good rating, you’ll get a big increase”, that’s not true. I don’t care who you are. Again, I’ve not only worked for Exxon. I worked for Shell. I worked for Phelps Dodge, the world’s largest copper company. I work with some really big highly, highly profitable companies and I got to tell you, they can’t do this. And if they can’t do this, how can you? They can’t go directly from last year’s performance to this year’s pay.

As a matter of fact, in your company and in every other company that exists out there, here’s reality, you don’t pay for performance with base salaries. You can’t pay for performance with base salaries. And most importantly, you don’t even want to.

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