In a today’s world, a digital transformation is occurring around employee engagement. Workers are also much more mobile. Thanks to advancements in technologies such as the cloud and collaborative platforms that ensure team members are engaged regardless of where they are.
And, outdated models – such as standard performance rating scales – are no longer efficient in the modern workplace. In fact, many companies are doing away with their annual appraisal systems from GE to Goldman Sachs and more. Still, how can you determine pay without performance ratings? We’ll get to that shortly.
Compensation without forced rankings
For most of industrialization’s recorded history, a team member’s salary was often tied to their performance ratings. This practice was thought to be a fair method for rewarding the highest-producing team members. Further, if anyone questioned the compensation, all they had to do was to look at the performance ratings.
Yet, it takes a lot of organizational time to review, rate, and compile the findings. Some critics talk about inherent cognitive biases. Many companies have now done away with forced rankings and are utilizing creative methods for setting compensation.
Team members show up to get paid
Pay for performance can be as simple or as complex as you make it. Even though you’ve dropped the rating system, you can leave something else in its place. Perhaps a more robust system is necessary now. One way to more equitably measure performance is to look at a team member’s work results and their associated behaviors, such as approach and tone. Are they meeting their goals and doing it with the right approach?
Another way to determine compensation without performance ratings is by taking the Market Reference Point (MRP) for the team member’s associated role and level of experience. The MRP may change annually so it’s also important to keep your salaries updated. When the MRP goes up so does the team member’s salary. Further, if they are promoted, then they also get a salary increase. So then, your compensation rationale is truly transparent.
You may also opt to engage in shadow ratings where management appraises employees based on vague measurements. Unfortunately, your team members will want to know why they didn’t get a raise and why their colleague did get a salary increase. This method isn’t transparent enough for the contemporary workforce.
An entire year of performance is difficult to rate fairly. Instead, pay for performance should be based on consistent contributions. As a result, you can witness the positive impacts on engagement, motivation, and productivity.
HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.