There is always differentiation! Rewarding contribution in a post-ratings era

The debate around the future of ratings is prompting more organisations to review their approach to performance management. There is justifiable recognition that the year-end process is flawed, creates unnecessary tensions and increasingly does not reflect new ways of working or how employees are motivated.

Companies are struggling with the implications of the change – particularly on reward. And rightly so. In researching employees across the UK(i), we found that just under half those surveyed viewed the annual bonus as a key motivational tool. And two-thirds of those surveyed found the annual year end appraisal process helpful in understanding how they were doing. Done well, employees valued a clear understanding of how they are doing against expectations. Indeed only 15% found their last rating unfair.

We are seeing three main responses among organisations to date to address the challenge of rewarding contribution.

1. From individual to team recognition

A move to team-based reward models eliminates the pain associated with differentiation but still seeks to reward productivity or other desired outcomes from its staff. This works well with volume workforce in retail or manufacturing – where team collaboration is key.

2. “In the moment” recognition programmes

Many companies are developing programmes that enable flexible recognition – giving control to the business unit to acknowledge contribution by individuals. This is often used to encourage and recognise key behaviours such as innovation or customer attitude. New technology is making this easier, enabling a tailored and rapid response – that may not always be financial.

3. Assessment without ratings

The remainder (and majority) of those making changes are shifting from single digit ratings to an annual process that assigns greater ownership and gives greater flexibility to managers. Working within a budget, and drawing on performance data, managers will allocate reward to reflect contribution in the year. But it is based on a broader assessment of performance than a single number equalling a cash figure.

There are positive aspects to this emerging change. It smoothes out the cliff-edge nature of ratings. It allows a more balanced assessment of performance, potential and market needs. It can provide the context to have a much more positive conversation about career progression, training needs and the wider employee value proposition.

But with opportunity and change comes challenge

A conversation still has to take place, and based on our research, many managers will struggle with giving clear messaging in a less transparent system without good data. So it needs to be balanced with greater emphasis on the quality of information, assessment and conversation –with clear governance around allocating reward. But we should not fool ourselves by assuming that this creates a new egalitarian culture. There is always differentiation.

What do you think? Are ratings even disappearing? Is there an alternative to the annual bonus for the new world?

(i) PwC research into 2000 UK employees of larger companies (July 2015)

Alastair Woods
+44 (0)207 804 8102
Email: [email protected]

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