Tag: performance review

Rewards and recognition

Introduction

An effective reward system can motivate employees and increase their work performance. It can have a very powerful influence on people’s behaviour and, therefore, many organisations implement it as an integral component of their compensation strategy. However, not all reward programmes are beneficial. Moreover, inefficient systems are counterproductive, destroy creativity, hurt morale and disrupt collaboration.

A reward system can serve multiple goals and identifying the desired outcome is critical in developing an effective bonus programme. A good system should include some or all of the following objectives:

  • Attract talented employees.
  • Motivate employees and shape their behaviour in the desired direction.
  • Promote personal growth and development.
  • Foster teamwork and collaboration.
  • Increase employee satisfaction with their work.
  • Prevent talented employees from leaving.

Types of motivation

Extrinsic motivation refers to a motivation that comes from outside an individual. The motivating factors are external rewards such as money, grades or praise. An extrinsically motivated person works on a task even when she has little interest in it because of the anticipated satisfaction she gets from some reward.

Intrinsic motivation refers to motivation that comes from inside an individual rather than from any external sources. The motivation comes from the pleasure one gets from the task itself and external rewards have little or none influence on it.

As you can see extrinsic motivation and intrinsic motivation are both important ways of driving employees’ behaviour. Many studies suggest that intrinsic motivation is better, but please bear in mind that it is not always possible in each and every situation. On the other hand, studies have demonstrated that offering excessive external rewards for an already internally rewarding behaviour can lead to a reduction in intrinsic motivation, a phenomenon known as the overjustification effect.

Bonus schemes

Bonus scheme is probably the most popular and widely implemented reward system. The main problem with bonus scheme is that it may work quite well for top-managers or sales-type roles where numbers are everything, but it’s not that good for creative workers that deliver results that are difficult to objectively measure or assess.

What’s more, as soon as a bonus scheme is applied a reward becomes expected. That is, it’s seen as a part of annual remuneration and not getting it (or getting less than anticipated) is a disappointment. Being expected makes also no room for a warm feeling of achievement when the bonus finally arrives which doesn’t make it work as a true motivator.

Furthermore, in many cases, a bonus is tightly bound with the employee’s performance review which usually results in some people not getting it at all. And this leads to having a group of employees that were told they were failing in their job which, from their perspective, doesn’t sound very motivating.

Finally, bonuses awarded based on the results of performance reviews create jealousy among employees and increase a risk of cheating. Instead of doing good work many employees starts focusing on bogus activities and getting a good bonus. The metrics often also ignore the soft side of good performance, including teamwork and collaboration.

Example of a bonus scheme that led astray

I worked for a company where the quaterly bonus was calculated automatically based on a number of hours you spent on billable projects (sickness leave, training, holidays or periods of time when no client-related work was available were obviously non-billable). Moreover, you were able to get up to 130% of your bonus depending on an amount of overtime work you presented.

It was supposed to be an objective measure that should lead to increased employees’ engagement, but the results were counterproductive:

  1. Creativity significantly dropped (it was against your personal interest to find better ways of doing things and deliver results faster).
  2. Tasks started to be overestimated.
  3. Quality declined (fixing bugs was considered as a billable work).
  4. Almost everyone started doing a lot of overtime work (but productivity didn’t necessarily increased).

As you can see implementing an objective bonus system is difficult, and in many organisations, it’s just a myth.

It’s not only about cash

Many people assume that money is the only motivator to make employees work harder and that it’s the only solution to address extrinsic motivation. Unfortunately, such an approach is wrong and long-term destroys intrinsic motivation which is usually more effective and more sustainable.

Please bear in mind that individual employees respond differently to a particular reward type. Some people are motivated by cash, but other can be more inspired by social rewards like praise or recognition. It’s, therefore, important to understand the motivational factors of each individual employee and distribute rewards based on employee’s preference and his resulting degree of motivation.

For example, you can reward employees by:

  • recognising personal or team achievement in front of others,
  • celebrating successes, organising events, etc.
  • delegating more responsibility to a team or an individual,
  • assigning an employee to a new, challenging task,
  • sending a team or an individual to a training,
  • offering perks or small gift cards,
  • giving additional time-off,
  • offering small gifts or services to employees’ families (tickets to SPA, a free babysitter for an evening, etc.).

The most important thing to remember is, however, that nothing will probably work until you create a friendly work environment and build a culture of trust. An effective rewards and recognition system is the next step, but definitely not the first one.

More ideas about motivating employees can be found here: 37 Ideas for Motivating Your Employees.

Involve peers

In a competitive, uncertain environments most of us work in, employees compensation plan should consist of two main parts – a stable, predictable salary and additional bonus that is dependent on how individuals, teams and a whole organisation are performing.

According to Jurgen Appelo a good reward system should meet the following objectives:

  • salaries are expected, but bonuses are not,
  • rewards should be based on teamwork and collaboration, not competition,
  • peer feedback the main driver in assigning bonus,
  • creative thinking and wisdom of the crowd should be used to grow and improve reward system,
  • bonuses should address intrinsic motivation.

The solution Jurgen suggests is a system (“merit money”) in which employees recognise performance and contribution of their colleagues by giving away a virtual currency to other team members.

Virtual currency

Virtual currency represents merits that employees can get from their colleagues and accumulate over time. You can use any name you think is fun and relevant (credits, points, hugs, etc.), but please make sure that no real money is used. For the sake of this post the term “credits” is used.

Sharing credits

Every month or so every employee gets an equal pool of credits to share. All the credits have to be shared with others, nothing can be kept for yourself. However, how the credits are assigned to others is a subject to individual’s decision – one can distribute all the credits to one person while others can spread it evenly among all their colleagues. Every person has his own definition of what the best performance mean, therefore, opinions of all employees are equal. At the end of the process, all the credits are distributed and people that efforts are valued the most earned the highest number of credits.

Cashing bonus

The credits people share and earn accumulate over time. From time to time (random intervals so that it’s not expected!) there is an option for credits to be cashed in using a fixed exchange rate.

A monetary value of the credits may depend on budget and company’s profitability, they can also be treated like shares on a stock market. Employees can have a choice – either they cash the credits or save them for the next round hoping for their value to increase.

The details of the process are a subject for a discussion with the team, but the idea is to make sure that credits are not routinely treated as money at the moment of sharing them.

Continuous improvement

Don’t be naive – people will try to game the system. But instead of cancelling it please involve employees in making it better. It’s in their best interest to have a fair and reasonable reward system, and I’m sure they will come up with many ideas worth implementing.

Evolution, not revolution

Please bear in mind that changing the current reward system doesn’t need to be a revolution, it can be done step-by-step. For example, 30% of the bonus budget can be assigned to a new programme while the rest is still distributed by managers based on employees performance reviews, goals, etc.

The main advantage of this system is that it involves employees by delegating to them a process of recognising performance of their peers. It’s people’s, not manager’s, decision who, in their opinion, contributes the most to the overall success of the team and what kind of behaviour is valued the most.

The process is motivating in 2 ways – delegation of responsibilities improves engagement and, in addition, it promotes optimal behaviours. Long-term, it enhances teamwork, improves morale and makes the whole organisation perform better.

Kudo cards

Bonus scheme or merit money is not the only solution that can be used to motivate employees. It makes sense to combine it with a simple system of saying “thank you” to other people in a nice, recognisable way.

Kudo cards sound like a good solution here. Kudo has a form of a handwritten card that you use to dedicate your appreciation or praise to one of your colleagues. The idea is that every employee can recognise any other person in the organisation and no approval from management is required. Kudo cards are stored in a box that is easily accessible by all the employees. On a regular basis, the box is opened in a kind of ceremony and kudos are handed over the receivers in front of all of their colleagues.

It’s a low-cost system that can have a huge influence on people’s behaviour. Of course, it can be organised online, there can be a small gift associated with a kudos earned, etc., but the idea stays the same.

Further reading

 

Performance appraisals

Traditional performance appraisals

Most organisations have a formal process for evaluating the performance of its employees. Usually, it has a form of an annual performance review where employee’s work performance and behaviours are assessed, rated and documented by direct managers.

The ultimate goal of a performance review system is to reward and retain capable employees by keeping them happy. Managers believe that this process:

  • Provides useful information for promotions and compensation decisions.
  • Motivates employees and enhances their involvement.
  • Improves overall performance of the teams.
  • Boots communication and provides valuable feedback.

Unfortunately, while HR departments are happy with growing documentation records, most employees hate performance reviews. A majority of people find this top-down process useless, counterproductive and, most of all, destroying teamwork.

They don’t see a performance review as an honest discussion based on trust, but rather a place where a superior communicates a pre-determined story and judgement and, in the best scenario, comes up with an already fixed salary raise proposal. Regrettably, it has nothing to do with performance, but largely is a result of the budget limitations and politics.

360-degree feedback

One of the most popular solutions you can use to improve your performance reviews is a concept of 360-degree feedback. It’s based on the assumption that multiple points of view are required to correctly assess somebody’s performance. It means that peers are included in the process and, therefore, everyone gets a more comprehensive picture of employee’s contribution to the organisation.

Suggestions

Changing from a very top-down reviews to a 360-degree feedback model is highly recommended, but it’s not enough to make you succeed. Also other parts of the process have to be adjusted to make it effective.

Set right atmosphere

You need to develop a feedback-rich culture and build trust among your employees. They need to believe that performance review is about learning and improvement they can honestly benefit from.

Get rid of fixed-scale, make it simple

Get rid of checklists or forms created by HR departments that forces you to evaluate employees in terms of a long list of predefined categories and a set of behaviours that are assumed competent people should show.

Please bear in mind that every person is different. Employees come with their own characteristics which include individual strengths and imperfections, and, therefore, applying same fixed-scale to different people makes little sense. Last but not least, it’s really unreasonable to measure the same way employees with different roles and functions which, regrettably, takes place in far too many organisations. It’s far better to concentrate on individual objectives and perform a review based on a short, but descriptive assessment.

Finally, make sure that a process of collecting feedback from peers is quick and easy. Please bear in mind that everyone is busy doing their work, and providing feedback to the peers shouldn’t be seen as an additional burden.

Do it frequently

Conducting performance reviews annually is a waste of time. Personally, I can hardly remember what I was doing a month ago, thus expecting anybody to recall actions from 12 months ago makes little sense.

To make the whole process relevant, you need to start assessing performance and giving feedback regularly. You’ll soon find that doing it on a regular basis (every quarter is a good start) is easier and far more productive.

Encourage self-assessment

Peer reviews are really beneficial, but it make also sense to match it with what employees thinks about themselves. People tend to have a pretty good idea of their own strengths and weaknesses – give them an open and positive opportunity to share it with you. Self-assessment can be a great start for a productive dialogue about goals and expectations.

Collect some quantitative data

Measurable goals and objectives are required, and you should collect and share all the metrics before the review. However, please make sure that the numbers don’t lie in the heart of the process – they should only be used to set a background for honest discussion.

Qualitative data are more important

It’s the core of the review. It’a bidirectional, honest discussion about what was great and what are the areas for potential coaching. You should concentrate on accomplishments and strengths rather than failures.

Please be aware that if somebody isn’t performing as expected it’s not necessarily his fault – the organisation should take responsibility for supporting them or helping them find a better fit if need be.

Foster teamwork and collaboration

The behaviours you should be encouraging are teamwork and collaboration, not individual achievements. Please take it into account while setting objectives and commenting on how your peers contributed to the organisation.

It’s not to say that exceptional individual achievements shouldn’t be appreciated, but it’s teamwork that you should value the most. Please note that in the absence of an understanding of how individual contributions compare to team achievements, self-preservation rules supreme. On the other hand, an ability to link individual performance with a team success increases job satisfaction and employee’s engagement.

Do not rank employees

Stack-ranking employees based on the results of their performance reviews may sound tempting, but it should be avoided. In large organisations even if you get a good score (i.e. second the highest rank possible) it may turn out that there are hundreds of people doing better than you. And it neither feels good nor increases your motivation. And above all ranking employees destroys teamwork by making everyone concentrate on their individual goals and achievements.

Separate from compensation and career plans

In many organisations, the results of performance reviews are explicitly used to decide about bonuses and salary raises. At first sight, it may look reasonable, but the reality is that you should separate the discussions about performance from discussions about compensation and career plans.

The performance review should be about learning and employee’s contribution to the team and organisation rather than a process narrowed down to getting a nice salary raise. It’s not to say that meeting goals or getting a very positive feedback should not be taken into account, but a direct link between performance review and compensation ends up in employee concentrating only on the latter.

Instead of doing good work many employees starts focusing on getting a good review. They spend more time on their “career” than on the actual work at hand. Instead of energising people and promoting teamwork such a process clearly leads to bogus activities, cynicism and employees spending time on cover-your-back actions. I’m sure it’s not what you’re aiming for.

Come up with actionable items

Identification of measurable goals and actionable commitments is critical to successful performance reviews. Open discussion lies in the heart of a good review, but in the end, some well-defined actions should be agreed on.

And the words “measurable” and “actionable” are significant. An accomplishment of measurable goals can be verified at next review, and actionable commitments are well-understood, have clear steps to completion and acceptance criteria.

Please bear in mind that actions may not be related only to the employee being reviewed – it can be also something that a manager has to take care of in order to support the employee, help him with his goals or make him improve his work.

Doesn’t it sound like a good retrospective?

When you look at suggestions discussed above it can be easily spotted that performance reviews are somehow similar to… good retrospectives. I think it’s worth noticing that Agile principles (like adaptation, strive for continuous improvement, teamwork, transparency, etc.) relate not only to software development but a whole organisation and its processes. It shows that you can’t have a high-performing software development teams without transforming other parts of the business.

Next steps

Building empowered teams that take responsibility for their results requires transparency and trust. So the next logical step towards this goal is to make performance reviews… open and public.

It may be difficult at company’s level, but you can try doing it within your team or department. The idea is to gather the team in one place and perform peer assessment of each and every team member together. Despite appearances such an approach reduces time required to perform the review and has several advantages:

  • everyone is evaluated at the same time in equal measures,
  • it’s less formal and, therefore, more open,
  • ability to see if a majority of the team shares same concerns,
  • ability to ask questions and clarify problems,
  • everyone forces themselves to be fair, honest nad more understanding.

Summary

Performance appraisals have a terrible track record. But the problem doesn’t lie in performance reviews themselves, but rather in the way they are implemented.

The process of how performance reviews are conducted has to change. It has to stop destroying intrinsic motivation and focus on teamwork. Most people seek for better performance and strive for continuous improvement. They can do that by getting meaningful feedback from their peers and managers, therefore frequent, honest and transparent reviews are desired.

It makes sense to involve employees in designing and establishing your new performance review process. Please bear in mind that a system designed in collaboration better serves all and engages employees. What it boils down to is that employees want to know how they are being evaluated and want to know that they’re making conscious choices.

Further reading

 

Setting goals: OKRs

I’ve recently come across a great video by Rick Klau about setting goals at Google.

OKRs stands for Objectives and Key Results and are used at Google for setting goals at company’s, teams’ and individuals’ level. A great advantage of this system is that individual goals are aligned with company’s goal, therefore, everyone is rowing in the same direction.

Key points about OKRs at Google:

  • Objectives should be ambitious, not straightforward.
  • Key Results are measurable, they should be easy to grade.
  • OKRs are public (starting from CEO).

Last but not least, OKRs are independent from employee’s performance evaluations. That is, promotions, salary discussions, bonuses, etc. should be separated from OKRs. They are used to make people contribute to company’s goals rather than evaluating how employees are performing.

More in Rick’s post: How Google sets goals: OKRs