Jack Welch’s Approach to Appraisals


I like Jack Welch’s (the very successful, former CEO of General Electric) approach to performance appraisals.

Manager presents to the employee a handwritten sheet of paper.  The left column lists the manager’s view of employee’s achievements.  The right column contains items the employee could do better.  Both lists focus on performance metrics and team behaviors.

Manager and employee engage in a meaningful conversation.  Manager gives examples, “Your error rate is less than .03 percent, almost a ten percent improvement over last period.” “I like that you went out of your way to help our new engineer learn our software tool.”

Sum up by reporting, “Shelly, you are in the top twenty percent of our employees, and I’ll recommend a good pay increase.” Or, “Jackson, your overall performance puts you in the solid seventy percent of our team and your raise will reflect that.  I would like to see improvement in meeting deadlines and reducing errors.  I’ll help you with those.

Or, “Alford, I’m disappointed that, after considerable training, your response time is still the slowest in our group.  Let me help you find another position that is a better fit.”

Conduct these interviews at least twice a year and allow about thirty minutes for each session.

Celebrate Accomplishments, Not Pay


(Part 5 of 5 on Employee Pay)

Of course, you should pay employees well.  Money may not be a good motivator but it can certainly be a treacherous turn off.  Decades ago, Professor Frederick Herzberg, identified pay as a dissatisfier.  For example:

“Surveys say that pay is not a motivator.  Why are you upset?”

“Because you told me I was a good hand but my merit increase average.”

“I like your product but I can’t join your company.”

“Why not?”

“Your pay scale is about fifteen percent below the market.”

Laszlo Bock, of Google, Inc., agrees that you should pay well but put the focus on celebrating accomplishments.

For example, a supervisor promised her team pizza after work for completing a project.  A superintendent created a watermelon party for achieving a performance metric.

Managers, after a good year, organized a steak dinner for employees.  One manager asked his group if they would like anything special.  “Yes,” said an employee, “we like for the management team to serve the steaks.”  They did.  All had a good time.

The manager of a service department organized a pancake and sausage breakfast for improved customer service scores.  Think celebratory events, concert tickets, VIP parking, free books and seminars, and of course hand written notes.

 

Managers Should Not Discuss Salary During Appraisals


(Part 4 of 5 on Employee Pay)

“I think annual merit pay increases should be tied to employees’ productivity,” stated a manager.

“I agree,” I responded.

“I also think,” the manager continued, “that appraisal interviews should focus on employee development.  But it seems that during my appraisal interviews, all employees want to talk about is the amount of their raises.”

While many organizations consider both performance appraisals and salary reviews on an annual basis, they should not be combined.  Pay raises, or lack thereof, communicate strong messages to employees.  Salary discussions during appraisal interviews bury attempts of meaningful employee development conversations.

Consider appraisals and salary reviews to be related but separate.  I like quarterly appraisals where managers discuss where employees have performed well and what they might improve upon.  The appraisal at the end of quarter four builds on feedback given and received during the first three appraisals.

Approximately two weeks after the fourth appraisal, managers can report annual merit increases individually to employees.  There is no need to mention appraisal information when communicating pay increases.  Employees are very insightful.  If managers have been candid during appraisal interviews, employees will connect the dots between productivity and salary.

 

Pay Your Top Producers More–A Lot More


Part 3 of 5 on Employee Pay

After a rousing success, an entrepreneur decided to sell his company to a large conglomerate.  Negotiators from the purchasing company, marveled at the entrepreneur’s achievement but gasped at the vast differences in pay among his employees.

Suspecting favoritism, a negotiator commented, “Your pay scale seems to be out of whack.”

“What do you mean?”

“You are paying some people a whole lot more than others, although they are doing the same jobs.  Why is that?”

“Well, some people produce a lot more than others.  I take care of my stars.”

The entrepreneur spoke truth.  Research by professors O’Boyle and Aguinis shows that top producers in most groups do indeed produce more—a lot more—than average employees.  A few high producers pull the average up, making most employees below-average.

Still most pay distributions follow a normal curve which makes the pay scale unfair to the very best producers.  For instance, assume twenty employees in a group. In most departments, about ten employees would receive above-average pay and ten would receive below-average pay.

You want to pay fairly?  Then pay your very top producers at least three to four times more than you pay average producers.

 

 

 

 

 

Be Wary of Using Financial Incentives to Motivate


Part 2 of 5 on Employee Pay

I believe in “pay for performance.”  That is, higher performers deserve greater pay.

However, financial incentive and bonus systems often result in less performance plus other unintended consequences.

Psychologist Sam Glucksberg, in his famous candle experiments, predicted that cash awards would motivate teams to produce better solutions faster.  However, the opposite occurred.  Teams that had opportunities to earn larger cash awards actually took longer to complete their work.

A number of studies in actual companies show that financial incentives often lead to less, not more, performance.  Additionally, incentives may encourage jealously, turnover, and cheating.

In an effort to improve food quality, a large canning company offered bonuses to employees who found insect parts in their food products.  Guess what happened.  Employees started bringing insect parts from home, tossing them into the process and later discovering the parts and claiming bonuses.

For very repetitive work, incentive systems may actually increase performance.  But for assignments that require problem solving, incentives change the focus from “get the best solution” to “do what you have to do to get the award.”

What then is the best way to reward high producers?  How about just paying them more based on managers’ judgements?

Does Your Pay System Encourage Your Best Employees to Quit?


Part 1 of 5 on Employee Pay

After receiving notice of his merit increase, Maddox said to Julian, his manager, “I really like working here, but I guess I don’t understand why my increase is so small.”

Julian responded, “You are an excellent producer but you are already one of the highest paid members of my staff.”

“I’ve heard we’re paying a couple of new employees at salaries that are pretty close to mine.”

“There may be some salary compression due to a tight market for skilled recruits.”

“Then it seems like the rational thing for me to do would be to quit.”

Most merit pay systems are zero sum, meaning that if you give higher percentage increases to some employees, you have to balance that by giving lower percentages to others.

Zero sum systems encourage managers to avoid high percentage increases.  Managers do not like explaining to disappointed others why their increases are only average or perhaps below.

Most internal pay systems compound the issue by setting upper limits for particular skills and by paying more for new hires.

Laszlo Bock, author of WORK RULES, says “In a misguided attempt to be ‘fair,’ most companies design compensation systems that encourage their best performers and those with the most potential to quit.”