"Managers were furious. Employees were furious," says Deborah Marsh, director, worldwide human resources. "We had one person quit because he said he had never been called average before."
As companies like TriQuint implement more rigid performance-based compensation programs, many are being confronted with pushback from both managers and employees. The introduction of formal ratings to determine compensation is particularly hard for employees who have been meeting expectations but are rated as 3s, which implies mediocrity, says Ravin Jesuthasan, managing principal at Towers Perrin.
"Companies need to spend a lot of time communicating to employees that the definition of success has changed and this is what it means for you," he says.
Some employers are addressing this by divorcing the discussion about performance from the discussion about pay, says Steve Gross, a compensation consultant with Mercer Human Resource Consulting. "Otherwise, employees are just keeping a scorecard in their head while the manager is trying to talk about their goals," he says.
TriQuint, which is based in Hillsboro, Oregon, had a five-point employee rating system in place for years, but it was only when the company’s new CEO, Ralph Quinsey, joined the firm in 2002 that the company started applying it in earnest, Marsh says.
Under the program, 20 percent of employees could receive 4s and 5s, 50 percent could receive 3s, and the rest were 1s and 2s.
For employees, the change was significant because these ratings, along with how their managers ranked them within the organization, determine how they get paid.
Managers reviewed these ratings when deciding merit increases, stock option allocations and promotions, Marsh says.
"People were up in arms and many weren’t reading their reviews," Marsh says of employee reaction.
The issue was that employees were getting so wrapped up in their ratings that they weren’t paying attention to the content of the review, she says. "The ratings became demoralizing instead of motivating."
In June 2005, TriQuint took the ratings out of the conversation.
"Now the conversations are around goal setting and competencies rather than ratings," Marsh says.
Rather than hear about their ratings, employees talk to their managers about how their contributions are aligned with their business division’s goals. The compensation part of the conversation is held months later.
Managers still use employee rankings to determine their compensation, but those rankings are not shared with employees, Marsh says.
How well this approach works remains to be seen. Employees are going through the revised compensation process now.
To determine the program’s success, the company will review turnover among highly ranked employees and check on how well each department did in meeting its goals.
"The new process may not be as cut and dried as before, but so far managers seem to like it," Marsh says.
Workforce Management, April 24, 2006, p. 35 -- Subscribe Now!