eliminate ratings : keep bonuses

Great news! At long last, the argument against annual performance reviews appears to be winning. Organisations that have already moved to ratings-free performance evaluations are showing no signs of turning back, and the number of businesses following these trailblazers are swelling fast. However, there still lurks one sticky dilemma that HR professionals are wrestling with... How to eliminate ratings but keep individual performance bonuses.

The typical argument goes something like this: “Our annual performance management process is entirely ineffective, but at the very least it provides us a transparent way of distributing the bonus payments.” However, this argument too will eventually and inevitably leads to grief. We feel we should have a selection method to show objectivity so we hang onto the ratings, the gradings, the bell-curves, and the rest of the trappings associated with an annual performance cycle in order to provide justification of the bonus payment distribution.

Let’s take a moment to reflect on this long-established folly…

We realise that ratings do not work. They restrict conversations on exceptional performance; they suffer from rater-bias; and they pare what should be on-going and affirming feedback into an annual event.

We know from all of the businesses that have progressed past this 1980’s construct that a ratings free atmosphere leads to fewer grievances and more effective communication between employees and managers.

We appreciate that performance ratings are actually a numerical expression of a very subjective judgement from the Line Manager (occasionally supplemented with a few agonizing calibrations and perhaps a authoritative-looking apportionment curve).

Nevertheless, when we think about removing ratings and replacing them with the Line Manager’s justifications for the extra award, we worry about appearing arbitrary.
So, we contest any new strategy which would save manager and employee frustration and time, enhance the quality of performance conversations, etc, just to keep up the pretext of objectivity.

In the cold light of day, we would all agree that this practice is little more than a structured folly. Right?
That being the case, let’s say the decision is made to eliminate ratings, but circumstances dictate that the existing bonus scheme must be retained, at least for the time being – what can be done? 

Honestly there is yet to be an infallible means of eliminating ratings and keeping the same performance bonus distribution standards. However, it is widely understood that the least effective methodology applied by HR professionals is to allow the operational need to administer the distribution of the payments, to dictate the approach employed to reward the very best employee contibutions. With that reasoning, surely the anticipated positive impact of eliminating performance ratings would suggest a goal worthy of some exploration?  When eliminating ratings with the intent to continue individual performance bonuses, there are three non-mutually-exclusive alternative bonus distribution practices that might be considered.

1. continuous assessment

You could choose a consistent assessment process, comparable to the manner in which schools have moved away from one-off examinations and towards regular grading throughout the term. This appears to work well for organisations that have regular and frequent performance periods as well as constant performance data – Sales organisations, for example, or project based businesses, like consultancy companies. By assessing often, the demand for a grading at the conclusion of a particular focus period is avoided and bonus amounts are distributed depending on the typical performance across the entire focus period. For many businesses however, contiuous assessment may be viewed as much more arduous compared to a once-a-year performance assessment, so for that reason continuous assessment tends not to be all that broadly appealing.

2. contribution calibration roundtable

You could choose to distribute payments via a contribution calibration roundtable in which Line Managers come together to agree who deserves what in terms of the bonus. Rather than a regular calibration bunfight in which administrators wrangle over who gets what grade, they talk about how much each individual has contributed and how great a share of bonus they deserve to get, relative to one another. As well as the inescapable contention, there are several upsides to this method. A number of high-quality discussions about the organisation’s people are had, and opportunities to challenge Line Managers that use bonuses as a means of forgoing their development responsibilities are presented. A contribution calibration roundtable can also be a helpful means of creating discussions about the worth of individuals in terms of the marketplace – paticularly helpful for quickly growing start-ups and tech businesses where spend amounts fluctuate rapidly. The roundtable sessions can also factor in discussion around alternative ways in which individual employees may wish to be rewarded. Promotion or stretch assignment for example. A contribution calibration roundtable, despite all prudence, can be viewed as partisan or lacking transparency by bonus recipients when quality performance discussions have not taken place regularly throughout the year.  Bare in mind, however, that in actuality, such perceptions are no different to the perceptions that abound organisations administering traditional bonus distribution systems now.

3. Line Manager discretion

You could choose to just apply Line Manager discretion and allow managers complete independence as to what they provide their people, within a capped financial framework. This is the direction that the majority of businesses that eliminate ratings tend to favour. If regular, quality feedback between the Line Manager and their employees is happening consistently, and the bonus payment is actually an extension of those talks and is thus anticipated, this particular strategy can work well. If these conversations are not happening, any bonus payment is likely to appear to arbitrary or unfair and could result in accusations of favouritism and possibly, discrimination. But again, this is virtually everything you risk currently and whilstever a method which focuses on a single major feedback discussion is held in place, it is difficult to have regular check-ins progressing to a fully integrated component of a performance-driven culture. 

In a nutshell

Progressive businesses have moved on from the 1980’s construct of placing individuals into performance containers and are questioning whether their bonus schemes are truly working and providing a satisfactory return on investment. Perhaps a mix of paying their people well and recognising excellence and effort through timely, personalised and well-considered incentives may be the more compelling option. If eliminating ratings entirely feels like too concerning a leap of faith for today, it is certainly well worth keeping in mind as you plan the future.

If you could do with some help, WINC HR consultants really shine in employment arenas. We pride ourselves on being our clients’ most valuable partner in the attraction, retention and engagement of their current and future staff members. We offer quality end-to-end strategies and solutions including resource managment, hr operations and change communications, especially within the Organisation Design and Development space. Find out more about what we’re up to on the WINC website – and keep up-to-date with our latest news and views on FacebookLinkedIn and Twitter.

Share these insights

Share on facebook
Share on twitter
Share on linkedin

about the author


Karl Wood is a global HR and employment professional who has an impeccable record in delivering HR solutions for industry leading firms. Known for his charachteristic creativity, Karl champions ideas that promote growth, profit and a positive organisational identity.