Thinking about getting rid of ratings? Be bolder and look at bonuses too.

 We often get asked to work with clients who want to change their approach to performance management. Typically, this focuses on the sensible desire to remove the dreaded appraisal ratings. There’s nothing wrong with this.

It’s widely acknowledged that providing your people with an annual score does little to improve performance and in some cases, can seriously demotivate. The desire to move to a more agile and human approach where performance is enhanced through frequent check-ins rather than the traditional annual “end of year report card” is admirable. But it does leave some challenging questions around how the annual bonus can be distributed without a numeric underpin. HR practitioners worry about whether this will be seen as unfair and too arbitrary, knowing from experience that they may have to clear up any mess that might result.

Yesterday, I spent the day with a group of HR people and senior leaders from a company who are determined to do things differently. They believe, rightly in my opinion, that the best results will come from re-designing both their approach to performance and reward in parallel. I can’t tell you how refreshing it was to be unshackled from the constraints of the words “but what about the annual bonus?”. The removal of the bonus question meant that they could genuinely explore how they can enhance the performance and motivation of their people without having to reverse engineer their solution from the distribution of an annual payment. It freed them up to incorporate real-life human behaviours and responses into their design. Instead of fretting about the perceived objectivity of any bonus payment, they started to ask themselves “what really makes our people feel valued?”, “what matters to them in terms of recognition?”, “how can we ensure our performance and reward processes are aligned around who we want to be?”. 

The resulting design was both ambitious and exciting. The performance management approach is to be based around some core principles such as employee-owned and driven, removal of an annual objective setting cycle, frequent check-ins with enhanced career conversations. Their plans are all made achievable due to their agreement that their annual bonus delivered very little for the millions that are spent on it annually – and therefore needed to go. As one of them put it “so little joy comes from all the money and effort that goes into paying bonuses”. 

They are not naive. They know that they still have to convince some meaty Execs who remain wedded to the misconception that money is the key motivator. But they are blessed to have an HR Director who is brave and compelling and a CEO who, if not totally convinced yet, is open to new ideas and who recognises that the current mechanisms aren’t delivering his vision for the future. 

Can you make a new performance management approach work and still maintain an annual bonus? Of course you can. You can remove ratings and distribute the bonus through line manager discretion, bonus calibration sessions or a move to continuous assessment. But all of these involve trade-offs and your beautiful new design may be slightly less well received as a result.  If we are going to really enable our people to perform better, then our re-designs will be so much more powerful if we are brave enough to look at reward at the same time. 

Thank you to my lovely client yesterday for proving that whilst that bravery is sadly still in short supply, there are some HR professionals out there who are prepared to be bold.