The End of the Annual Performance Review

Ruth-Thomas-200x200Guest post by Ruth Thomas, Founder and Senior Consultant at Curo Compensation

Ruth has over 20 years of international experience in the management of compensation processes and the design of pay and benefit structures, salary progression systems, and management incentive plans. Her corporate experience includes Lloyds TSB Group, Price Waterhouse Coopers, Dow Jones Group and Credit Suisse.

If this is the end of the annual performance review what happens to pay for performance? 

An emerging theme amongst the various analyst predictions for HR trends in 2014 is the belief that the traditional annual performance management cycle is no longer fit for purpose. The forecast is that forward thinking organisations are now looking at moving from an annual evaluation-only approach to performance management that is achieved through on-going feedback and coaching designed to promote continuous development.  This is in response to a number of factors including the increasingly dynamic business environment that has emerged where business goals and strategies are changing at a rate that outpaces an annual setting and assessment of performance goals.  Similarly forced ranking or competitive calibration is generally seen as counterproductive in the drive for high performance and engagement. Organisations are also trying to consider how to engage and motivate the growing workforce population of millennials who are characterised by their need for more regular feedback and reinforcement.

So does this also mean the end of the annual compensation review as well?

I think this is unlikely; many organisations have strived to move away from the ad hoc or anniversary based review approach with its inherent problems of budget creep and limited ability for peer/market ranking.  This combined with the reality that many organisations still struggle to manage a single annual review cycle in a way that prevents it from being anything other than a challenging administrative exercise.

Compensation-decision-factors

A better approach is to extend the range of factors that drive effective compensation decisions, to include:

  • Individual performance will move to be assessed more regularly but still provide input into variable pay decisions annually.
  • Annual business outcomes will continue to drive variable pay outcomes, particularly at more senior levels.
  • An assessment of an employee’s talent potential and leadership capabilities should influence compensation decisions, particularly salary in order to retain and motivate high potential employees.
  • More focus on recognising those employees with critical skills or indeed business relationships and networks required to support future business strategy should influence salary decisions.
  • Fairness and equity and market competitiveness will remain overriding principals for all compensation decisions.

Presenting the data on this broader range of factors to Line Managers to enable them to make informed compensation decisions will be a challenge for many organisations that are struggling to effectively access and calibrate HR and talent data.  Now is the time to start adapting reward policies for the new post-recession landscape and preparing yourselves for the data management and analytics required to support these changes.

 

Improving Performance Locally in a Global Market

stacey-harrisGuest post by Stacey Harris, VP of Research and Advisory Services at Brandon Hall Group. Stacey Harris oversees Brandon Hall Group’s research strategy and agenda, solution provider relations, and advisory services.

More than 83% of organizations with a skilled labor workforce state that it’s difficult to find employees capable of addressing their organizations’ hiring needs. By 2020, global workforce shortages are predicted for critical skilled roles in healthcare, high-tech, and manufacturing.

Yet unemployment in 2012 increased by more than 4.2 million people, according to the International Labour Organization (ILO), jumping to 197 million people globally. “Many of the new jobs require skills that jobseekers do not have,” said ILO Director-General Guy Ryder. That is especially true for 74 million next-generation workers between the ages of 15- to 24-years-old who are currently unemployed.

Businesses and governments alike are quickly realizing that long-term strategies for performance improvement, growth, innovation, and market share must include a workforce strategy focused on developing critical skills inside their organizations.

On  Oct. 23, at NetDimensions Next Steps 2013 in London, I’m looking forward to addressing these topics and sharing global data from Brandon Hall Group on:

  • Managing global talent scarcity
  • Embracing our changing world: getting on board
  • Creating strategic connections between performance and learning
  • Developing a learning environment to build the workforce of tomorrow

The Skills Gap concerns may very well be global issues – with real business impact:

  • More than 55% of manufacturing organizations say a lack of skilled labor impacts their ability to grow the business.
  • More than 35% of high-tech organizations say a lack of skilled labor impacts their ability manage costs and grow the business.
  • 33% of healthcare organizations say that a lack of skilled labor impacts their ability to comply with external quality standards and regulations.

But the answer to these challenges is more likely a local answer. Those organizations that ranked themselves as first-rate in managing community and educational relationships were 50% more likely to have all of their Key Performance Indicators moving in a positive direction.

Organizations that hired employees expecting to provide continuous development were correlated with the highest levels of ongoing business performance compared to those that hired people with the expectation of providing just onboarding development.

We’ll be holding several discussions throughout the day Oct. 23 about the role of learning, talent, and HR leaders in preparing their organizations to compete in a new world where performance and talent are tightly connected.

Next Steps London
Keynote: Improving Performance Locally in a Global Market

Stacey Harris will share hot-off-the-press global research on how organizations are addressing talent scarcity issues while developing the next generation workforce. 

Click here for more information on Next Steps 2013.