How Do Performance & Compensation Management Impact Motivation?

[Originally published on 3/8/2016 on the Wekudo Blog]

For the past 5 years, around this time of year, I get flashbacks as we help our clients buzz through the performance and compensation management processes. Whether we’re defining requirements for a future system (our Phase New), implementing the one they’ve already chosen (our Phase Now), or simply helping with them get through the periodic cycles using their existing system (our Phase Next), we’re right there by their sides. That’s the fun part…helping. The not-so-fun part is reliving the years I was subjected to the same processes as part of corporate America, because the memories aren’t always pleasant.

Don’t worry, I’m not going to rail on everything that performance and comp represents. Some of it is necessary, and besides, there are plenty of others smacking these long-standing processes upside the head.

However, let’s spend a little time focusing on the dimension we’ve included in the title of the article. How do performance and compensation management impact motivation? Having hung around the HR Tech ecosystem and Corporate America long enough, it seems like that particular question is not often explored.

The 6 R’s and a Suggestion for a 7th

Take the following, fairly standard process:

We work with our clients on executing performance reviews through technology, which in most cases leads to some sort of rating of the employee. That process then feeds into compensation management whereby through as much automation as possible we work on the technology that will arrive at the recommended bonus and raise.

Rejoice” was inserted for effect, because it’s true that most companies falsely assume that employees go through the process and emerge happy and motivated. Then what we see happen almost invariably is that despite the absence of true rejoicing, the whole process is lightly rinsed and thoroughly repeated each year.

If your management, or you as management, are assuming that your employees are rejoicing in the process, then maybe it’s time to add a final “R” to the mix: revisit.

Poor Jill

First, let’s acknowledge that there has been progress:

  • There is less of an emphasis on what happens during this 1-2 two month period, and more on the other touch points needed throughout the entire year of an individual’s contributions
  • There are more and more techniques and tools being employed in order to address and evaluate that overall work experience.

That said, in about 75% of our clients, the process still lives on just as it did 10 years ago. Employee Jill is still subjected the following:

  1.  Her anxiety builds as she realizes that somebody somewhere is writing something about her.
  2. Jill does her part by writing about herself, and how she thinks she did in this challenging, and not always exciting job. Writing about herself isn’t fun.
  3. She reads the manager’s review, wondered if some of the content was true, moderately disagreeing with most of it, and vehemently disagreeing with the rest.
  4. She sits in a room for 55 minutes of uncomfortable praise and awkward feedback.
  5. For the remaining 5 minutes (worthy of a separate bullet point) Jill hears about her fate relating to:
  • a letter (rating), maybe an “E” (Exceeds) that she feels should have been an “O” (Outstanding).
  • a percentage (merit increase), maybe a 3% that she feels should have been a 5%
  • a dollar amount (bonus), maybe a $5K that she feels should have been $7K
  1. She goes back to her desk, feeling guilty about how unmotivated she is by       the additional monies heading her way

There’s a lot going on there. Most blatant is that we’ve demotivated a highly performing employee. What about those that were told that their performance “meets expectations?” How are they feeling for those weeks and months following the process? Then, if you’re daring, consider the “does not meet expectations” crew. While many would argue that some of them could end up in the “good turnover” bucket, the chances of those that could turn things around turning things around have been drastically decreased by their mental state after this process.

That which demotivates makes people leave, and those companies that have [the wrong] employees leave, lose. 

The Experts

In other words companies are ignoring the sage advice of industry scholars like Marcus Buckingham, who explain the importance of identifying your strengths, and those of your team, and acting on them. You’ll notice that nowhere in that advice does it say “write some stuff about your direct report, paint a letter on his forehead indicating their performance score and throw some cash in his bank account (or don’t).” Also amongst his lessons are that there is so much subjectivity in the performance review process, that you’re never truly getting an unbiased view of the employee. Oh, and then there’s the obvious lesson he used in his book title.

Dr. Michael Moon (with whom I hope to present with on this very topic at conferences later this year) is one of those who studies and writes on the impact of the performance process on the worker psyche. She concurs that “performance reviews are laden with subjective measures with biases and judgment errors. The impact that annual performance reviews can have psychologically on employees has most likely added to the serious disengagement problem we have seen cited by major management and analyst firms.”

But why is this happening? Why are employers stuck? From my perspective, the reasons are threefold:

1) They see no way around arriving at a rating to get to merit and bonus (and other comp) decisions

2) There is no one size fits all to performance and talent management. Huge variability can exist in terms of what will best serve employees…both between companies and even within different functions/departments/locations of a company.

3) As a result, the road to change is challenging, and there are so many other key business challenges that always end up being prioritized ahead of these components of talent management.


In a managerial position in a former job, I created my own version of the performance process for my direct team…above and beyond the standard, painful process. It was simple, based on commendations and constructive feedback. I gave it a quirky name: the 2C4P plan (Commendations and Constructive Feedback for Performance). Throughout the year I’d e-mail commendations and constructive feedback to my team, and I had email rules that placed those emails in a folder. At the end of the year, I’d review all of that feedback with the team member and see what it taught us…both about how the employee performed, but how we interacted as a team.

The Role of Technology

Luckily, in addition to the mini-trend of employers that have had that an “aha” moment that change was needed, software vendors have also begun to catch on. Sage People, offers a “menu” of talent management options, from the standard performance reviews, to objectives management, competency assessments and development plans. This means that clients can decide what process works for them, not what they need to cram into their technology. cFactor, aka VibeHCM, accurately touts itself as a “System of Engagement,” allowing for the collection of feedback notes, coaching notes, social media contributions, and endorsements from peers throughout the year. Other vendors like Ultimate Software, Ceridian and more each have created their own solution to the Performance Management process.

At Hive Tech, we track objectives and to talk about whether or not they’ve been met on a system called Small Improvements. We used to incorporate a cool tool called Teambay which, once a week, asked team members one question about life at the company, allowed them to thank a fellow Hiver, and lastly to make a suggestion to the company. Management sees anonymous results. Simple…like my 2C4P.

And Finally…

Motivation is elusive. However, you can be on the road to improving it if you really look at what you have in place and find some strategic enhancements. Revisit that old process and there are invariably going to be improvements you can make. The times I’m most happy reliving the compensation and performance processes is when we start working with a client early enough to positively impact the process.



I constantly review the “performance” of the ecosystem of companies and software vendors I come across…and revisiting my corporate days when it isn’t too painful. I’m CEO of Hive Tech HR, which helps create HCM strategies and find/implement HR technology. Contact us to help you through comp/performance cycles. We call that service #PhaseNextHR/

Come hear me talk about Mission Impossible 2018: Making a Big HR Impact Without a Big HR Budget at LEHRN in March.

And follow me on Twitter @JeremyAllynAmes

And follow Hive Tech @HiveTechHR

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