The Flawed Reasoning Behind Performance Evaluations

by on June 3, 2009 · 0 Comment POSTED IN: HR Info Center

Performance evaluations are supposed to determine raises and protect companies from lawsuits, but they often don’t

There are two big reasons the big companies do performance evaluations. Number one, to justify salary treatment. In other words, if you’re going to pass out raises, it would be nice if you had some means of justifying who gets a big raise and who gets a little raise. Enter performance evaluations.

Performance evaluations are supposed to tell you why somebody gets one raise and somebody gets something more. It is there to defend you in case somebody complains. But bottom line is they’re to justify salary treatment.

In the same root as that is the biggest reason people are doing something that everybody hates; they’ve got to protect the company from litigation. If anybody sues, you need to be capable of defending yourself.

So both of these are legal in nature. In the end if a protected class gets the smaller raise than somebody in the majority, you’ve got to protect yourself. And if you take job action on somebody, you want to protect yourself again.

So if you get right down to it, you’re doing performance evaluations predominantly to protect the company from your employees and to justify salary treatment.

The Reality About Performance Evaluations
Neither one of those things come out of performance evaluations. What really determines raises is not last year’s performance. In your company, you don’t pay for performance with base salaries. And in your company, you don’t even want to.

What really determines somebody’s increase? Ultimately, you have to have a budget in order to give anybody an increase. In other words, the previous year’s performance is not the best predictor of this year’s increase. It’s only helpful to know last year’s performance on any individual after that you’ve gone through a preliminary screen to determine if you have money for raises in the first place That comes from a budget. A budget comes from excess money you got or your ability to compete in the marketplace. But essentially, realize first and foremost that performance evaluations are not going to dictate raises on any direct basis.

Secondly, let’s assume you have money. The second thing we need to know to determine your personal increase is what am I paying you already compared to the market.

Now, if you’re lucky and in a situation where there’s room for you then we can go on and we can look at the third factor in reality which is performance and potential.

If you have money and you have room your performance dictates how big a raise you get. It’s not that performance is not important. As a matter of fact, last year’s performance is a pretty good predictor of whether I’m going to keep you during difficult times, whether I might promote you during good times when I have an opportunity. It might even dictate which job assignments you’re going to get. It certainly will dictate how fast you get to the higher level and how quickly you get to the right hand side of the range. But ultimately, it’s not going to tell you exactly what you’re going to end up with.

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