Whilst many organisations have looked at removing prescriptive performance ratings, very few in New Zealand have made the plunge to remove them completely when it comes to determining remuneration outcomes, especially at annual salary review time. Some organisations have changed their approach, by placing employees in categories of performance, rather than a specific number or grade and other organisations have dived right in and removed it all.
There is often a fear by organisations that Managers don’t like deviating from what they know, which is a well understood process that has prescriptive parameters to differentiate performance and limited room for bias. However, what if this could still be achieved but without the need to slot employees into forced numbers, grades or categories. Each level of Manager within the management hierarchy should be well placed to know how each of their team members are performing relative to each other. Therefore, if you remove performance ratings, by looking at a number of holistic factors, which we as an organisation have done, you can still achieve differentiated remuneration outcomes. Some of the factors that we consider in order to work in a non-performance rating world are:
- Collaboration: As we continue to grow as a business and are recruiting new roles, re-sizing and re-benchmarking existing roles, this requires our HR team and Rem. Team to work closely with the business. This collaboration helps to ensure consistency, equity and differentiation of roles across the organisation and that employees are appropriately assessed against the correct role.
- Conversations: Emphasising ongoing, regular, quality conversations between managers and teams, which we as a business try and do on a fortnightly basis. This is important particularly for organisations who operate at pace and/or have projects or programmes that are constantly evolving or on the go. These regular check-ins provide an opportunity to have proactive conversations regarding the employees pay as well as where they are positioned within the ranges, their performance, career / development goals / opportunities and asking and providing feedback.
- Transparency: Employee conversations will inevitably lead back to remuneration and wanting to understand the data behind their role. As a business we have been working on a journey towards greater transparency. To date, we have created a remuneration framework, developed a remuneration library which houses role and grade ranges and shared the library with our HR and Talent teams. Managers also now have access to these ranges for their team via our HRIS system. This has allowed the business and Managers supported by our HR teams to have robust conversations about remuneration data throughout the year. Our next goal is to consider how we can extend this level of transparency to all employees.
- Purpose: It is important to understand the purpose of base salary and how performance links to any increases. For us, base salary is all about recognising things like employees’ overall contribution including performance / potential, behaviours, values, leadership, things unique to the role or individual
- Differentiating pay between employees: Encourage differentiation, the following are just some ways which can be used to determine variation in pay between peers:
- External competitiveness: For us being externally competitive means paying employees appropriately based on the skills and experience they bring to the role.
- On-going consistent performance: High performers may have a higher proportion than on target performers.
- Competence in role: Employees that are developing in their role may have a lower proportion than someone who is fully competent or operating at the role model/expert level.
- Unique skill set: Existence of unique or specialist skill sets that are relevant to the role and unique to the employee may driver higher remuneration outcomes
- Key talent: Individuals identified as critical talent, high potential, or in successor/feeder roles may have a higher proportion of the budget
- Calibration: When it comes to annual salary review time, our HR team works closely with Managers throughout the process to support and guide them on their recommendations. Whilst there is no forced calibration, in order to ensure fairness and equity across all areas of the business, each set of recommendations are reviewed and approved by each Manager’s Manager (with the opportunity to adjust) right up to executive level.
Whilst this may not be the right approach or work for all organisations, removing performance ratings can be successful when done in the right manner. Inevitably there may be the unintended consequence of a Manager who believes all their employees are equal and therefore gets the same increase. However, through a progressive mindset, regular check-ins and educating managers on how they can differentiate employees, this allows robust and informed decision-making on remuneration outcomes without a formalised ratings approach.