Forgoing Annual Performance Reviews: What Are the Alternatives?

A 2014 survey report from the Society for Human Resource Management (SHRM) finds that 70% of organizations use annual performance reviews and 16% use semi-annual performance reviews. However, only 32% of surveyed organizations believe that managers are able differentiate between poor, average, and strong performers. Such stats can help us understand why there are mixed feelings when the topic of performance reviews is mentioned. In this Astronology®, we discuss the current trend of replacing or enhancing the annual performance review with regular communication.

Why are performance reviews conducted? Performance assessment became popular in part due to labor union contracts requiring annual reviews to grant merit raises. Over the years, performance reviews became the go-to method to help organizations formally set goals for their employees, make employees feel valued, and keep employees focused on the organizations’ visions. Performance reviews also served as a critical source document – proof of legitimate grounds for terminating an employee.

Times have changed, however. Depending on the nature of the work and organizational culture, performance reviews can be viewed as time consuming and / or too complicated to properly conduct. As a result, confidence can wane on whether the assessment not only is accurate…but also if the feedback and goals are worthy of consideration.

In some cases, the nature of work can change so frequently that a yearly assessment may not be sufficient to engage employees. In response, The GAP INC conducts regular coaching sessions between employees and management, replacing the need for yearly feedback. Rob Ollander-Krane, the Director of Talent and Performance at GAP INC, explains in a Forbes online article that “We call it GPS. If a GPS waited until you got to the destination to tell you that you took the wrong turn, you would never get where you wanted to go. This is how individuals benefit from regular feedback; there is an alignment and re-calculation that helps them get to their goal. From a company perspective, there are parts of our company that are doing well and some less so. I am more of the mindset that we should use performance management to help individuals achieve their goals.”

Another company that uses continuous communication in performance assessment is General Electric Co. (GE). Last year, GE introduced a phone app called “PD@GE” that employees use to assess both employees and managers, replacing the once-a- year performance assessment conversation with rolling feedback. The new system is being tested on the company’s 185,000 white-collar employees. This frequent communication method also allows for immediate adjustment if a goal or method to complete a task is working – or not – for an employee.

Back in 2012, Adobe made waves by revealing it was replacing the annual performance assessment with a program called “Check-In.” Donna Morris, in a 2014 Business Insider interview, explains “The check-in is far more informal. While the check-in process is regular and on-going, it starts at the beginning of the year, since it’s tied to people having yearly expectations.” After that initial meeting, an employee has established the year’s expectations. With regular on-going feedback, employees can perform better with the understanding of where they stand. Adobe boasts that within the first year of using the “Check-In” approach to performance, they saved 80,000 manager hours (equivalent to 40 full-time employees).

Astron National Director Jennifer Loftus notes that she regularly encounters the “should I eliminate performance reviews in my organization?” question when meeting with HR professionals across the country. “That question doesn’t necessarily have an easy answer,” explains Loftus. “The most effective advice I can provide is this: if your organization’s culture is supportive of honest, open, and regular weekly communication between managers and employees, then eliminating annual performance appraisals might be the right move. If, however, this switch will lead to even less communication between employees and managers, stay where you are. Strong communication systems are essential to making a performance review-free environment successful.”

While it looks appealing to completely scrap your performance assessment method, it’s important to think of how such changes could affect your organization. In some cases, perhaps adopting a hybrid method of constant communication included with an annual overview maybe more suitable. We here at Astronology® would love to hear your insights on the trend of changing annual performance reviews. Feel free to share in our comments section below!

To Ask or Not to Ask: The Salary History Question in Today’s Hiring Process

With increasing interest in the issue of gender-based pay gaps, legislation continues to make small movements to meet the challenge of eliminating pay inequity. One such movement has been recent legislation in a number of jurisdictions that bans asking job applicants / new hires about their salary histories. In this issue of Astronology®, we explore this new trend and what it means for employers.

It is heavily thought that asking an applicant his / her salary history continues the spiral of the gender-based pay gap and pay discrimination. For starters, if you begin your career with low pay at an early job, that pay rate could naturally affect the salary earned at the next job if hiring managers base their salary offers off your previous salary. In addition, historically, women tend to be offered lower salaries than men, even if the women negotiate with their employers.

This past summer, Massachusetts unanimously became the first state to enact a law that bans employers from requiring job candidates to reveal salary information, information that would be considered the basis for future pay. The law becomes effective on July 1, 2018. Jim Rooney, President and Chief Executive of the Boston Chamber of Commerce, mentions that the law does allow for candidates to be asked about salary expectations, thus providing hiring managers with an opening point for negotiations.

Another jurisdiction following Massachusetts’ lead is New York City. On April 5th, the New York City Council approved a similar law that prohibits employers from inquiring about, relying on, and verifying a job applicant’s salary history. According to a SHRM newsletter article, the new law, to be effective in six months’ time, will not apply to:

•  New York City employers acting pursuant to any federal, state or local law authorizing the disclosure or verification of salary history or requiring knowledge of salary history for employment purposes.
•  Current employees applying for an internal promotion or transfer.
• Public employee positions for which salary, benefits or other compensation are determined pursuant to procedures established in collective bargaining.

A Business Insider online article mentions that this new law amends the New York City Human Rights Law. This means that there will be two ways in which individuals can bring action against employers who violate the rule. After filing a complaint, if the City or court rules in favor of the plaintiff, damages could be awarded to the plaintiff. In addition, the City could choose to issue civil penalties to the employer. These penalties and fines can reach up to $250,000. The article also notes that since New York City houses not only national but also international organizations, there is speculation that this law could have a far reaching impact on many well beyond the five boroughs.

While we expect other cities and states to adopt similar laws, there also are cases where similar legislation is being disputed. Recently, the Chamber of Commerce for Greater Philadelphia filed a federal lawsuit to block the City’s signed wage equity law, a month before its May 23rd effective date. The lawsuit hinges on the argument that the law violates businesses’ freedom of speech and that the new law won’t do much to close gender pay gap issues. The lawsuit also suggests that the new law would deprive employers of information they could use to make effective decisions in the hiring process. We will have to keep a close watch on what happens in the “city of brotherly love” to see how this impending lawsuit affects other cities and states considering their own salary question ban laws. In the meantime, what can you do?

Organizations not subject to such a law can prepare now. Besides keeping a close eye on jurisdictions that have already passed such a law, pay attention to organizational reaction and changes that employers make in response. Proactively, review your organization’s job application to see if such a question is listed. Consider other options to the question that are in compliance with legal trends. Organizations also should consider training HR staff, line managers, and anyone involved in the hiring process on how to handle interviews after the implementation of new laws.

An additional step proactive employers should take is to ensure that their base pay compensation systems are market sensitive, up to date, and free from discrimination. As National Director Jennifer Loftus explains, “organizations should focus new hire salary offers on the value of the position, not the person’s last salary. While of course there will be natural variations in salary due to years of experience, education, or other factors deemed acceptable under the Equal Pay Act, using the job as the basis for salaries addresses the gender-based pay gap in an equitable fashion.”

Essential Success Tips for and Possible Disadvantages of Gainsharing Plans

         In our previous Astronology®, we discussed how to increase organizational success by combining gainsharing and the “Balanced Scorecard” strategic performance method. At the end of the article, two questions remained for exploration:

• “What are some critical tips in developing a strategically aligned gainshare program?” and
• “Are there any negative impacts to using such a program?”

        In this Astronology® we answer these questions, and open the floor for your insights on gainsharing plans!

The following four tips are essential for developing a strategically aligned gainshare program linked to a balanced scorecard performance document.

1. The program should be organization-wide in terms of funding and accomplishing key balanced scorecard objectives. The funding can be an increase in net income, or a decrease in operating expenses or some other quantifiable savings. A single organization-wide objective focusing on a quality, customer, or growth objective should be set as a circuit breaker. Failure to meet these objectives results in total forfeiture of any monies gained.
    
2. The program should be an annual one based on the realities of today's complex financial reporting systems and the need for employees to work towards objectives over a realistic period of time. While this may add some pressure in terms of Fair Labor Standards Act (FLSA) overtime calculations for non-exempt employees, this approach tends to be more successful in allowing employees time to correct early failures.
    
3. Place no less than a 25% share of the gain in the employee pool. Less than 25% sends a message that the employees' efforts were not considered valuable by organization management.
    
4. Have a direct linkage to the performance process. Since this process focuses primarily on contributions to strategic objectives and essential functions, base employee payout shares on this contribution. At the end of the gainshare calculation cycle, managers recommend to senior management three levels of share for employees:

• a full share for high contributors,
• a three-quarter share for contributors, and
• a quarter share for those in need of improvement.

Senior management then can make the final assessment for reward distribution.

Gainshare plans aren’t without their potential downsides, however.  Disadvantages to using gainshare plans aligned with performance processes can include the following:

• Leadership Challenges: in many cases, in order to maintain a successful gainsharing plan, leaders may need to have prior experience on how to lead a gainsharing plan.
• Time: It is suggested that it could take a company with over 100 employees close to a year to implement a gainshare plan.  Successful plans aren’t developed and implemented overnight.
• Confidential Information Sharing Concerns: For gainsharing plans to work successfully, communication is key. As employees have an even more vested interest in the success of the organization, information such as expenses, profits, projections, and employee bonuses have to be disclosed to people in senior level positions who may not have had access to this information under other circumstances.
• Employees Can Begin to Focus on the Wrong Details: A sense of entitlement, instead of motivation, can develop with the exposure to information mentioned above. Compound this with regular payments of profit sharing money in favorable times, and employees can begin to feel self-important and negatively impact the organization’s culture, ruining motivation for others.

Since the ultimate goal of using a gainshare plan in performance assessment is to increase motivation, it is prudent for leaders to review the organization’s culture prior to investing in implementing such a plan. A review will allow for proper planning, to avoid some of the potential program downsides, and to address any underlying issues the organization may already be facing.

Has your organization considered or implemented a gainsharing performance assessment program? We would love to hear your experiences! You can share your thoughts by commenting in our comments section at the end of our article, or by emailing us at: astronInfo@astronsolutions.com.

Pay Equity in the Workplace: Do Gender-Based Disparities Still Exist?

The American Association of University Women released its Spring 2017 Gender Pay Gap report/guide with statistics regarding the pay disparity between women and men. In this issue of Astronology®, we look into how broad these pay disparities truly are and how this situation impacts Human Resources.

According to the American Association of University Women (AAUW), in 2015 women earned 80% of what men earned. The smallest pay gap was found in New York, where women earned 89% of what men earned. Delaware came in second at close to 89%, with Florida third at 87%. The largest pay gaps were Louisiana at 68% and Wyoming at 64%. Some writers highlight that the AAUW’s findings do not take into account personal choices with respect to careers. These choices or factors include college major, occupation, industry, hours worked, workplace flexibility, and experiences.

Yet in AAUW’s recent research findings, unexplained pay gaps still exist even when men and women have the same level of education. For instance, women with a Bachelor’s degree make 74% of what their male counterparts with the same education earn. Women with a high school graduation level education made 78% of what their male counterparts earned.

In regards to industry, there is research that notes a few fields were women make more than their male counterparts. These fields tend to be historically male-dominated fields such as riggers, small engine mechanics, and non-oil & no-gas drillers. For many industries, however, a gender pay gap exists, with male counterparts making more. In some cases, the gaps are closer than others. These findings, plus additional research & speculation, lead many to believe that personal choices can’t fully account for the gender pay gap. Adding to the importance of the discussion, a 2013 Pew Research Center report finds that 40% of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family.

What can HR departments do to prevent gender-based pay disparity? Keeping accurate records is an important step. The AAUW urges employers to “conduct salary audits to proactively monitor and address gender-based pay differences.” Astron Solutions offers an array of packages to support organizations in the quest for fair and equitable compensation programs. We encourage you to learn more about how we can be your trusted partner in this critical and sensitive matter! If you do not use an outside consultant, however, closely watching your organization’s internal salary increases, salaries for new hires, and salary changes associated with promotions is critical in eliminating gender-based pay gaps in your organization. An ounce of prevention today is worth a pound of cure tomorrow.