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.
So, a friend of mine was fond of saying, "What if we turn the knobs up to 10 on good practices?".
We give semi-continuous feedback on all aspects of contribution. Everyone has a mentor that may or may not be the person they are working with on a daily basis. Anytime there is conflict within a team, we encourage it to be dealt with. We also tend to have retrospectives every two weeks on most projects which is mostly about "how do we work better together?" We have one-on-one meetings between mentor and mentee every 1-3 weeks for everyone (weekly for more junior or recent members of the team, less often for those who are well established in the culture). We use checkins (15five.com) so people take a few minutes each week to reflect and report on how they are doing, what challenges they are facing, and what progress they are making on their priorities each week. Then we have general reviews to get peer feedback every 3-6 months on how people are progressing in all the areas of "expectations" and pick 1-3 things the person should focus on that won't naturally happen without some effort.
We review compensation yearly independent of all these things... but the feedback we've given and gotten throughout the year feed into it. Occasionally, when someone is clearly knocking it out of the park in their progression, and we feel they are clearly underpaid, we'll give them a mid-year bump.
We also make sure the "bag of money" is somewhat distributed on a quarterly basis with profit sharing bonuses... so more emphasis is on the contributing to the success of the company and "sharing the wealth... as long as there is wealth" than on the "what's my raise this year"... everyone gets a raise every time we have a good quarter.
That said, in addition to reviewing base compensation once/year, we tweak our bonus formulas every year based on what we've learned over the previous year(s). We also give each person a yearly offer (once we lay out the tweaks in the bonus formulas) with the option to trade off some things about their compensation (more time off vs. more money, putting more of their compensation at risk for a increased reward based on company profits). Someone who wants to take some more time off with their family can do that whether they've worked for us 1, 5, or 10 years. Someone who has a pretty good handle on their finances and is willing to share the risk and reward can do so.
So, everyone gets feedback and gives feedback. What one person wants/needs is not what the next person wants/needs.
Not perfect, but the best we've got.
Continuous Feedback Loops... it's not just for Extreme Programming any more.
Take a look at a simple process called Team-Set Salaries. I created it in 2002 when I was a manager with a team of 50 agile developers and have used it ever since.
It embraces subjectivity instead of fighting it. TSS is collaborative and completely decouples this quaLitative feedback Kent is talking about from quaNTitative performance appraisals you need for compensation.
Fair salary-setting has become a non-issue in my teams.