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Performance Reviews: Counter Pay/Performance 'Perception Gap'

By Stephen Miller  12/1/2006
 

Only 39 percent of employees believe that their company's performance review process leads to improved performance, while 67 percent of their employers trust that the review process will achieve this aim, according to the 2006 Performance Review Survey by Salary.com, a compensation consultancy that polled more than 2,000 employees and 330 HR professionals.

"The survey results show significant gaps between employers' and employees' views," says Mark Albrecht, vice president of talent management solutions at Salary.com. For instance:

  • 82 percent of managers believe they provide clear goals to their employees prior to their formal performance review, but only 46 percent of employees say the same.

  • An overwhelming majority of employers (83 percent) say that they include the input of their employees in the review process, but less than half (43 percent) of employees feel their input is valued and included.

  • Nearly half of the employees surveyed said their performance has at some time been reviewed against goals that were not previously communicated.

To a large extent, these disconnects are "the result of unclear communication and limited transparency regarding how the review process is conducted and its impact on the employee," Albrecht says.

Other interesting results in the survey include:

  • Employees and employers perceive the feasibility of reaching their incentive or bonus objectives differently: Nearly all—99 percent—of employers believe that bonus and incentive programs are based on realistic expectations. But a mere 16 percent of employees believe their incentive or bonus objectives are well within their reach.

  • 23 percent of employees state that managers change their goals three or more times a year, while only 11 percent of managers believe they change employee goals that frequently.

  • A large majority of employers (79 percent) said they provide employees with written job descriptions, and employees generally agree (72 percent).

Doubting Pay and Performance Ties

Employers and employees do exhibit some agreement when it comes to the link between pay and performance, but only to a limited extent:

  • 89 percent of employers and 82 percent of employees report that performance reviews are at least somewhat linked to their company's annual pay increases.

  • But 57 percent of employers believe that employees understand the guidelines for pay increases, while only 45 percent of employees say they do.

"Generally speaking, the majority of employees don't have a clear understanding of how their employer links pay to performance," Albrecht says. Most employees lack clarity about how the performance program works, how merit and bonus program budgets are arrived at, or how their pay compares to the market.

In fact, he adds, "many employees think the performance review process is a waste of time, and is simply a once-a-year meeting that has little to no impact on their earnings. For example, employees can spend hours on self assessments only to walk away from the review meeting feeling that their raise was determined before they ever sat down with their manager."

In short, the biggest challenge for an employee is "how do I translate my performance rating, (i.e., 'exceeds expectations') into a merit increase or bonus payment?"

Among his top suggestions to employers to help employees understand performance review processes:

  • Establish clear and regular communication that not only explains when reviews will happen and how they will be structured, but also ensures that employees at every level understand how their individual performance can impact their ability to earn money.

  • Provide reference materials such as a calculation sheet that employees can refer back to or interact with to see the impact of a change in ratings.

"The promise of a raise, bonus or other incentive has a far greater impact when the employee truly understands and is motivated by how pay decisions are made," Albrecht says. "If your sales force didn't understand their commission structure or payouts, do you think they would be very motivated?"

More performance review misperceptions and solutions are noted below.

Performance Reviews: Facts and Fiction

Employer Myths

Facts

Best Practices

Employer Myth #1: Your employees "Get It."

Fact: Many employees don't understand how the performance review impacts their compensation.

Best practice: Over-communicate. Repeat the message at least three times to ensure employees internalize it.

Establish a clear training and communication program that demonstrates how pay links to performance.

Provide reference materials to ensure that employees understand this linkage.

Employer Myth #2: Everyone agrees on the goals.

Fact: Employees often don't understand their individual goals and are not in agreement with their managers on these goals.

Best practice: Document the goals together. Make it a living document.

Establish clear goals that are understood by both managers and employees so there is agreement and commitment.

Employer Myth #3: We're all marching toward the same goals.

Fact: Employees are not aware of the larger corporate goals and how their own performance goals align with them.

Best practice: Demonstrate how employee goals align with organizational goals and over-communicate if necessary.

Employer Myth #4: To everything there is a season.

Fact: Compliance with performance programs within set timeframes is only a part of ongoing performance management. Performance management isn't a seasonal activity—it should happen all year long.

Best practice: Move from "compliance" to a focus on "quality."

Employer Myth #5: Performance feedback is a two-way street; employees know when you're providing performance tips.

Fact: Managers have frequent discussions with their employees about performance and don't depend on reviews alone to have performance related discussions.

Best practice: Quality and quantity matters. Promote frequent, meaningful performance discussions.

Employer Myth #6: Performance review time equals development plan time; employee development is the outcome of the performance review process.

Fact: When managers focus on assessing employee performance vs. developing employees it is little wonder that employees don't believe the process helps them to improve.

Best practice: Make a commitment to employee development and ensure follow through.

Employer Myth #7: Employees think the performance process is fair and equitable.

Fact: A frequent reason that employees "opt out" of the performance improvement process is that they don't believe the process is fair.

Best practice: Work to ensure fairness and to demonstrate fairness to employees.

Source: Salary.com, It's Performance Review Season; Is Your Process Working?, by Mark Albrecht

Stephen Miller is editor/manager of SHRM Online's Compensation & Benefits Focus Area.

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