Companies that have chosen to ditch the annual performance reviews in favor of more regular feedback now face a quandary: how does this new system impact compensation and promotion decisions?
It may be tempting to directly link the information collected to compensation and promotion, as previously done with annual performance reviews.
However, doing so could have consequences on your new feedback culture.
Separating Feedback from Stress
There are some really good reasons to separate feedback from compensation and promotions, including:
Performance Reviews Induce Stress
One of the biggest problems with traditional performance reviews is that, rather than encouraging development, they often cause stress.
When performance reviews have the potential to impact your employee's job security and financial situation, employees won't look at the information as an opportunity to advance, they'll look at it with dread.
One report showed that performance review stress causes 22 percent of employees to call in sick rather than face their review. Receiving mostly positive feedback is a relief, while constructive feedback merely induces fear — this completely undermines the objective of feedback: to provide insights for professional growth.
And Stifle Innovation
The feedback process should be linked to learning and development. The more learning-based the performance management process is, the more likely employees will take risks that can potentially lead to breakthrough innovation.
What HR has to do is eliminate fear of failure from the equation. Linking pay and advancement to performance can stifle innovation.
Optimizing Promotion & Salary Decisions with Frequent Feedback
Removing these factors from the process makes it easier for people to take feedback as an opportunity for improvement.
Of course you still need a way to promote new managers and make compensation decisions.
Here are three ways continuous 360-degree feedback can help you optimize your process:
Base Promotions on Leadership Skills
Not everyone is cut out to be a manager.
Just because someone excels in the technical skills they bring to a team does not mean they will necessarily be good at managing people — or want to do so. Only one in 10 people have what it takes to be an effective manager. In fact, Gallup unveiled the alarming statistic that companies choose the wrong person for the job 82 percent of the time.
Collectively, effective managers can produce 48 percent higher profit than average managers. Companies such as Facebook are taking this to heart by making management positions lateral moves rather than basing them on pay grades.
What do great managers have in common? Google’s Project Oxygen sought to answer this question within its own workforce. After conducting a company-wide study it found that skills such as coaching ability, communication skills and concern for employees’ well-being were even more important than technical skills.
Avoid Rater Bias
Data analysts have proven that unconscious bias in the workplace is much more common than you think. Studies have shown that a ‘rater bias’ based on age, gender, race, sexual orientation and personal relationships often surface in performance reviews.
When compensation and promotion decisions are made by one person (a manager), on an annual basis, the chances for bias to occur becomes more likely.
For example, bias may enter due to poor performance on a recent project, which clouds over successful projects achieved in previous quarters. Basing reviews on continuous 360-degree assessments limits the possibility for bias by bringing multiple perspectives into the equation.
Having more objective information, over a period of time, allows HR to compare and address potential bias in the workplace.
How do you answer the compensation question?
Rather than linking bonuses to reviews, one company is making promotion decisions based on the quality of feedback people give each other.
Every month people vote on the best feedback they received and the people who get the most votes receive a bonus. This system not only encourages people to give more feedback, but to give advice that will help others develop — which should be the objective of feedback in the first place.
Title image by Qusai Akoud