Read this article to learn the pros and cons of linking compensation and performance, 5 compensation best practices and do-s and don't-s of pay transparency
The right compensation management practices and policies can make or break your employee experience. Of course, there is merit in linking compensation and performance to drive organizational success, it can lead to several questions and implementation problems as well.
Read on to get all your compensation management related questions answered.
Let’s start with the very basic question of why fair compensation is important and the merits it brings along. It is no surprise that if you are paid more and are compensated according to your efforts, you are likely to give in your 100% and stay with an organization longer. However, there are other factors that support fair compensation:
Thus, fair compensation as a part of compensation linked performance management has the potential to facilitate better employee outcomes such as engagement, experience and performance.
To make compensation fair and inclusive in all aspects, it needs to have a clear foundation. Most organizations have relied on performance reviews as a way of reflecting on performance as a means of compensation decisions. However, there are several competing views both for and against tying compensation to performance reviews.
Clearly, there are both sides to the story.
The most favorable outcome will be to keep performance as one of the parameters for compensation, but not the sole foundation.
Additionally, as one of the best practices, performance reviews can be conducted on a regular basis, where some are only developmental in nature and others can be tied to compensation management.
As discussed, focusing only on performance reviews for compensation management needs a relook. Working with growing organizations, we have curated a list of the top five performance and compensation management practices you can leverage:
Ensure that your compensation structure aligns with the market trends so your employees don’t feel underpaid and leave.
Provide complete transparency and clarity to your employees on what constitutes high levels of performance and what it will take to earn a raise or appraisal.
Have specific, well defined and measurable criteria for the compensation strategy to ensure that there is complete transparency.
Salary in hand or the pay check your employees receive is accompanied by a range of benefits that are a part of the compensation structure and cost to the company, but are often overlooked by employees. Make sure they are widely communicated.
Ensure that there is a base pay range for every role and profile with variable additions based on candidate competencies.
The idea of fair compensation and linking compensation and performance management, leads to a very interesting concept of distributive justice. On a broad level, distributive justice essentially focuses on ensuring that the compensation received by employees is fair and equitable and is based on objective and rational grounds which are uniform for all. Here are a few ways to ensure distributive justice:
Measure potential and market value of the employee in addition to experience and expertise to ensure distributive justice for high potential employees
Another interesting component of compensation and performance management that you must acquaint yourself with is pay transparency. Essentially pay transparency refers to how openly or freely employees within an organization can discuss their compensation with others.
This is not only limited to the check they take home but other perks and benefits they are entitled to. Invariably, many platforms today also enable individuals to anonymously share their salaries online and get insights from others doing the same. However, there are diverse views on when it comes to pay transparency for an organization.
Those who advocate for pay transparency believe that it can enable large scale impact for the organization across performance management.
However, there is a flip side to pay transparency too with some common pitfalls that need to be addressed proactively.
In the last section of this article, we will focus on how managers play an integral role in compensation and performance management and the best practices to guide managers to have effective compensation conversations with their team members.
Almost 58% organizations do not train managers on pay communications
This startling statistic clearly highlights how despite the apparent importance of compensation management, the focus on ensuring a seamless process is rather limited. However, organizations today can play a leading role in enabling their managers to have better pay communication and conversations by following these tips:
It is quite evident that compensation and performance management are intrinsically interlinked and if leveraged well, compensation has great potential to not only drive performance, but also facilitate engagement, retention and much more.
However, to ensure the same, you need to have a very structured, transparent and fair compensation strategy and policy. Furthermore, you must, don’t forget to invest in training your managers to bridge any gaps and constantly gauge and address employee pulse — to ensure fair compensation for all.
When it comes to performance review, there are several aspects you need to focus on, including when to conduct, how to conduct, etc. One important aspect that deserves due recognition is the use of performance rating scales. There are schools of thoughts on both sides of the discussion on using vs not using it. However, if used strategically, a performance rating scale can effectively make the employee performance review process smoother. Through this article we will cover:
While preparing your organization for a performance review, you might find yourself conflicted about whether or not you should use a rating scale. A performance rating scale is highly effective in gauging an employee’s performance from a quantitative perspective, but has limited scope when it comes to evaluating performance qualitatively.
Therefore, we have identified the top situations and advantages of using a performance rating scale as well as when you should not be using them.
You should use a performance rating scale when you need to:
Based on the use case above, here are a few advantages of using a performance rating scale:
Despite the diverse use cases above, a performance rating scale doesn’t have universal applicability. In fact, using a rating scale in situations it doesn’t fit may lead to a poor performance review for employees. Therefore, you should refrain from using a performance rating scale when:
Here are a few disadvantages of using a performance rating scale:
Now that you have an idea when to use a performance rating scale and the various advantages and disadvantages, you need to move to the next phase of understanding how you should select the right performance rating scale.
Depending on the nature of responses to the scope and intent, there are several types of performance rating scales that you can choose from. In this section, we will help you understand the different types that you can explore and best practices to make the right choice.
Focusing solely on performance, we will discuss the top 4 types for rating scales that you can use for different situations.
The point scale is one of the most commonly used employee rating scales used by organizations. It involves rating employee performance on a pre-decided scale across a spectrum of responses. It can range from a 3-point scale to a 10-point scale depending on the scope and the need.
For a long time, the 5-point scale was the one that most organizations relied upon. While the 3-point scale gave only a macro level view, the 10-point performance rating scale became too comprehensive. Thus, the 5-point scale maintained a balance of being detailed but not overwhelming, where identifying differences between the points was difficult.
The points on your point scale can be numbers or numerals with each number having a corresponding meaning. Alternatively, it could be words like Average, Above Average, Exceptional, etc. to indicate performance levels.
In the most recent times, there has been a rise of the 4-point scale which focuses on eliminating the neutral or the middle option which is often seen as an easy way out that requires no further explanation.
Another common performance rating scale that many organizations use is the Likert scale. Like the point scale, it generally has 5 parameters on the scale. However, the difference lies in the value of the parameters. They are always written and the same for all questions.
The five options on the Likert scale include
Strongly Disagree-Disagree-Neither Agree Nor Disagree-Agree-Strongly Agree
While the normal range is five options, it can range from 3 to 7 depending on the context and performance parameters.
The Likert scale can be used as a matrix with statements on one side and the scale options on the other and can run like a list for performance review. An effective Likert rating scale generally has an equal number of positive and negative outcomes with a neutral option in between.
This is a reinvention of the point scale which changes the balance of the positive versus the negative options. Generally, a point scale has an equal number of options that indicate that performance needs improvement and for a job well done. However, many organizations claim that a limited number of options on the positive side make it difficult for them to distinguish between good performers and top performers.
In most cases, if there are 5 options, with one neutral in the center, there are only two options indicating good performance. Generally, these two options are unable to capture the performance rating for those 1-2% employees who set new expectations and a bar for performance. Invariably, their exceptional performance fails to get noticed and rewarded and is equated with the good performance of other employees.
To bridge this gap, many organizations are using a performance rating scale which increases the above average performance spread. The scale for below average performance is limited to one, which can be substantiated with qualitative feedback. On the other hand, the scale focuses on more above average performance options.
Finally, when it comes to a performance rating scale for interpersonal skills, the frequency scale is most sought after. Like most scales, it consists of a statement, followed by a few options. However, the nature and scope of the statement and options is what makes a difference.
On the statement front, instead of directly asking whether an employee manifests a particular skill or quality, it focuses on a behavior that comes as a result of personalizing that skill. For instance, instead of inquiring if the person has good communication skills, the focus should be on behavioral aspects like display of active listening, ability to articulate thoughts, confidence of presenting in front of a group, etc.
The options, on the other hand, seek to understand how frequently that behavior has been observed. The idea is to gauge whether the employee has been consistently displaying the desired behaviors or is there a particular pattern to it or if it has just been observed as an off chance.
The employee starts and ends meetings on time and runs them with a concrete agenda
This question can help gauge the time management, organization and planning skills for an employee, without directly asking the question.
As you have seen above, your performance rating scale can have options in the form of words or numbers. However, choosing which way to go can have an impact on the overall efficacy of the performance review process. It is best to use a rating scale with words over numbers because it is:
However, you can still use the number rating scales to review performance in situations where you need an absolute rating or when there is a clear and uniform understanding of what each number represents.
Working with multiple growing organizations over the years, we have been able to identify a few tips and tricks that can help you select the right employee rating scale for your next performance review.
As a growing organization, choosing a 4 or 5-point performance rating scale makes sense because, it:
To augment the efficacy of your performance review rating scale, choose one which provides options in words or a description over numbers to:
Almost all performance rating scales are vulnerable to biases both in their scope and nature as well as for the rater themselves. Thus, when you pick a rating scale, you need to be aware about the potential biases and have remedial actions in place to ensure that they don’t give you an unauthentic picture of the overall performance. We will talk about some of the common pitfalls and biases in the next section for greater clarity.
When you choose a performance rating scale, you need to ensure that the difference in options is very clear and not ambiguous for the raters to figure out on their own. There are several aspects to it:
Next, it is very important to use the right words in the statements and options that you choose. When it comes to the options, make sure there is a clear index of what each option means, especially if it is numeric. This index must be shared with all the stakeholder, the raters, those analyzing the results as well as the employees.
Similarly, the questions should be very specific on one performance aspect. For instance, if you combine performance on communication and punctuality, it might lead to a lot of confusion. An employee might have great communication skills, but may not be punctual and thus, addressing them in the same question will be difficult. Furthermore, even aspects within the same performance parameter like active listening and ability to present in a large group can be separate.
Now, let’s look at some of the common biases a performance rating scale might be vulnerable to that you need to be aware of and try to avoid to the maximum extent possible:
As discussed above as well, the definition for options can be significantly different even when they are descriptive. This is so because all of us have different notions for each term. For instance, a manager might award an exceptional rating to some of his/her employees because they have been performing consistently well and that’s how they define exceptional. On the other hand, the bar for perfectionism might be too high for another, leading to a lower incidence of being awarded exceptional. Similarly, in instances where the options talk about meets or exceeds expectations, bias on what the expectations are can set in.
How to prevent this: The easiest way to prevent the definition bias is to have very clear definitions for all options which are communicated time and again to all.
The leniency bias occurs when the rater tends to give a more lenient or positive rating to an employee than what the performance actually begets. This can be seen when the rating is more on the positive side. Mostly the reason is that managers don’t want to demotivate their employees with a lower rating and, thus, end up giving a higher rating, which may not be a true reflection of the performance.
How to prevent this: Leverage a performance rating scale which increases the above average spread and talks about different aspects like top performers, outstanding, etc. This will ensure that decent performance is ranged at above average while exceptional ones have a separate rating.
Numbers can have different meanings for different raters in a rating scale. While each number can have a different meaning, the entire spectrum can be also looked at from two lenses. For instance, on a scale of 1-10, both 1 and 10 can be perceived as the top or the bottom.
How to prevent this: Similar to the definition bias, the numeric bias for a performance rating scale can be prevented by using a clear index which clearly illustrates how the spectrum works and a definition against each number.
This is a very common bias when it comes to using a performance rating scale. Here, the rater tends to select the neutral or the central option to avoid any conflict or external explanation. More often than not, poor performance needs to be substantiated with improvement actions while high performance needs to be supplemented with evidence and rewards. To avoid any such actions, some raters take the easy way out, which doesn’t help differentiating between high and low performers.
How to prevent this: The easiest way to prevent the centrality bias is to remove the center or the neutral option. As shared above, you can simply go for a 4-point scale which doesn’t have a neutral option and thus, the rater has to distinguish between high and low performers.
If you are dealing with consistent poor performance issues within your team, this article on Performance Improvement Plan might help.
Invariably, you will have a statement or a question which will become the basis of the ratings for your managers. This final section will focus on the different nuances around performance rating scale questions that you must be aware of.
Let’s start with a basic understanding of how to choose the questions for your performance review rating scale which can help you yield the best responses. To make the right choice, you must ensure that your questions are:
Read 150+ performance review phrases to find a diverse set of questions and statements for your rating scale across 17 employee qualities
Before we conclude, here are some examples of common questions you can use for different types of performance rating scales. These questions can help you understand which scale is most appropriate for you depending on the situation.
While there are different views on whether or not a performance rating scale is the best tool to measure employee performance, there is no doubt about the merits it brings along. Therefore, it is critical for organizations to leverage this potential. Here’s a quick revision of everything you need to know about performance rating scales:
Now that you have a comprehensive understanding about performance rating scales, you should get started with applying the same to gauge performance levels in your organization. Follow the best practices and be aware of the pitfalls to make a dent in organizational success.
“Coaching is unlocking a person's potential to maximize their own performance. It is helping them to learn, rather than teaching them.” - John Whitmore
Employee coaching is the secret tool that high performing organizations use to develop and nurture talent they already have. It supports continuous performance management by not only addressing challenges of today, but also preparing the employees to tackle what comes their way in the future.
In this article we will discuss:
Before we discuss further about how coaching can be implemented to achieve performance improvement and how managers can support the same, let’s quickly look at a few reasons that illustrate the importance of employee coaching:
On a closer look, you will see that employee coaching not only enhances employee experience leading to greater engagement and retention, but also has direct business impact with better performance, productivity and revenue.
Before we start with specific employee coaching tips, you need to understand that the same coaching approach may not work for performers across different levels in the organization. There are two sides to this understanding:
Once you have figured out different groups of performers, use this list of tips to support employee coaching at different performance levels:
When it comes to improving performance, employee coaching can help in many ways. Here are some actionable tips for you to implement easily.
To undertake the practices mentioned above, managers need to have a certain set of skills that can enable them to unlock performance for their employees. Following is a list of top skills to hone and some best practices to master the same.
For employee coaching, managers need to move away from providing solutions and towards asking the right questions. The questions should be powerful enough to help the employees think in a growth oriented direction.
While coaching is about providing guidance, it seeks to ensure that guidance and support is offered to the situation of the employee. Hence, active listening is an important skill for managers if they want to become better coaches.
Active listening involves hearing, understanding, reflecting on and responding to what the employee has to say.
Managers who seek to excel in employee coaching need to have a growth mindset with a commitment and belief for the development and success of their employees.
As a coach, managers will be exposed to many sensitivities of an employee that might be holding them back. In such a situation, empathy as a skill is extremely important to create a high level of comfort and confidence.
Finally, for managers to become a highly effective coach, the skill of consistency needs to be imbibed. The intent is to ensure that your efforts are not limited to a one off instance, rather are sustainable and scalable over time.
Drawing this article to a close, it is quite clear that employee coaching has incredible potential to skyrocket performance for any organization. However, a few things need to be kept in mind.
If you are interested in checking out more useful resources on managing employee performance, do check this out
Feedback is an integral part of creating a high performance culture. Research shows that 60% of employees reported wanting feedback on a daily or weekly basis. However, in addition to the frequency of the feedback, the content of the same is also very important.
That’s where a Start Stop Continue feedback becomes important. Instead of simply stating how the performance has been, start stop continue feedback enables managers to highlight the desirable actions and behaviors for employees and simultaneously shed light on what needs to be changed. In this article, we will discuss:
Start stop continue feedback is a highly intuitive and easy to implement feedback framework for growing organizations. It can be used for and by anyone including teams and individuals for feedback by managers and peers as well as for self reflection. Essentially, the start stop and continue feedback has three aspects or components, including:
Thus, the start stop continue feedback enables employees to receive feedback on all aspects which is constructive, appreciative and sets a ground for improvement.
Now that you understand what this framework means, let’s quickly look at why you should use it for your organization:
The start stop continue feedback is very easy to implement and does not require any specific training or upskilling. You can get started with a simple session introducing the framework. Furthermore, it can be implemented across the organization irrespective of the functional diversity, making it an all encompassing framework.
When you receive the start stop and continue feedback results, they are quite easy to interpret and put to action. Chances are seldom that you will have to read between the lines or require high level analysis, making it ideal for growing organizations with limited resources to easily improve employee performance.
The start stop continue feedback delivers clear actions that an employee needs to take to facilitate high levels of performance, preventing it from being yet another form of feedback which is generic.
Finally, the framework enables everyone to put on an analytical hat while providing feedback and come up with new and fresh ideas for better performance.
While the start stop and continue feedback framework has widespread relevance and adaptability, its impact increases in some specific situations, including:
As opposed to many other feedback frameworks, the start stop continue feedback can be sought by employees from managers and others to reach their goals in an effective manner. Here are a tips questions you can leverage while asking for start stop and continue feedback:
When it comes to giving start stop continue feedback, it is important to follow some best practices to maximize its effectiveness. At times, even when the intention is correct, managers might deliver the start stop and continue feedback in a manner that does not yield the intended impact. Use the following tips to bridge the gap from intention to impact.
As a practice, start stop continue feedback seeks to be action oriented. However, you have to make sure that the actions are specific and backed with supporting resources/ guidance on how to achieve them.
For instance, if an employee doesn’t collaborate effectively, instead of using ‘Be more collaborative or be a better team player’ as a start action, you can use:
‘You should listen to what your team members have to say more often and build a relationship with them to facilitate meaningful synergies. I would recommend connecting with them over tea/coffee breaks, start asking for help instead of doing everything on your own and even lend a helping hand once in a while.’
If you simply mention an action that an employee should start, stop or continue doing, it might not have a large scale impact. However, if you back it up with examples and evidence, you are more likely to influence their behavior.
For instance, if you tell an employee to continue upskilling himself/herself in digital marketing, it might be a good idea to illustrate why you are saying so with an example of how his/her skills have improved and the impact it has created for the organization as well as for the employee professionally.
The start stop continue feedback framework seeks to motivate employees to take necessary action and improve their performance. However, if your feedback is skewed more towards start and stop actions, the employee is likely to get demotivated, considering himself/herself as a low performer. On the flip side, if your list of continue doing far exceeds the other two, it might set unrealistic expectations in the employee about his/her level of performance, potential appraisals and might lead to overconfidence.
Finally, when you give start stop continue feedback, you need to make sure you are objectively focused on the performance around a particular goal/ area in mind. If you are talking about the interpersonal skills of an individual and you mention continuing high levels of technical efficiency, it will dilute the whole purpose. Stick to the main theme and provide feedback for the same, without being deflected around other aspects of the employee.
As mentioned above, the start stop and continue feedback can be used for teams as well as individuals. Here are a few examples for each of the two segment groups that you can consider as a starting point.
Pro tip: Start with a specific goal in mind for which you want to create the start stop continue feedback strategy
From a team perspective, here are the top 5 examples:
Here are the top examples you can use to set start stop and continue feedback specifically for individual employees based on their career trajectory and goals:
As we come to the end of our article, here is a quick template for you to help you get started with the right questions that you can add to your start stop and continue feedback strategy to ensure that all stakeholders get a fair understanding of what is expected of them.
While start stop continue feedback is the simplest way to provide actionable feedback, you need to make sure that the feedback you are giving is based on facts and not just mere opinions. Before you start your feedback session, analyze performance trends of the employee (it is even better to have it supplemented with behavioral data) as well as gather 360 degree feedback on the employee to have a qualitative understanding of the overall employee performance.