No-compensation Ratings

If we are going to use ratings as incentives, then we cannot attach financial consequences to ratings.

Many organizations assign ratings like meets/exceeds/doesn’t meet expectations to all employees. Using ratings as incentives suggests that we abandon the veneer of objectivity of the ratings process. There will always be judgement involved. (There will always be bias involved too, which we need to actively counteract, but that’s a topic for another day.)

If we accept that ratings are subjective, we can begin to use ratings as a way to emphasize a needed conversation. (Why did we wait this long to deliver feedback? Again, another day.) A conversation with a rating attached has extra mustard.

Two Conversations

Say we have 2 people with the same performance over the review period. Both crushed their project, resulting in millions in unexpected revenue, but both unnecessarily angered colleagues in the process. The first person was warned about the negative people impact but showed no attempt to improve. The second person came from an even worse people impact in the previous period and showed marked effort & improvement.

As a manager I want to have different conversations with these 2 folks. I want to rate the first “does not meet expectations” & discuss how project results do not excuse bad behavior. I want to rate the second “meets expectations”, express gratitude for the project results & the improvement dealing with people but emphasize the costs to the organization of damaging relationships.

Compounding

Now comes the problem. Person 1 gets a 3% raise and Person 2 gets a 5% raise based on ratings. This is clearly unfair, unfair today and more unfair in the future. Raises compound. In a decade what was a small difference in compensation turns into a large difference. And all because as a manager I wanted to have different conversations about the same performance from different people. That’s not right.

What if ratings had no financial consequences? Then as a manager I’m free to use ratings as a tool to create incentives.

As a coach I frequently talk to ICs who want to know what to do to improve their rating. The naive approach is to just do better work and trust you’ll get rewarded. Nope. You get what you negotiate, not what you deserve. But also yeah, do better in visible ways and rewards (in a healthy organization) tend to follow.

What I hate seeing is people twisting themselves in knots trying to increase their rating. This slows their growth, costs their teammates, and costs the organization. Incentives are mis-aligned. My hypothesis is that removing financial consequences from ratings will reduce this mis-alignment.

Money is in the picture of course. Work is not only about money, but it certainly is also about money. We’ll talk in future about the incentives created by money, good and bad.