Managing Employee Performance and Rewards in a COVID-19 World

The world is changing because of COVID-19. I’m not just talking about for those who contracted the virus and their friends and families. As many of us are now experiencing, the steps taken to deal with the virus (stay-at-home orders, social distancing, travel restrictions, and the like) have changed life for businesses and their employees. Many employees find their day-to-day work lives upended, with disruptions to what they are doing and how they are doing it. Some employees are doing different jobs altogether. Others are doing the same job, but their responsibilities and priorities have changed dramatically. For most employees, regardless of what they are doing, the way they are doing it has changed, becoming more virtual. Others have been removed completely from their workplaces, laid off or furloughed, missing weeks or months of opportunities to contribute. And these are the lucky ones; many have lost their jobs permanently.

These changes are forcing companies to revisit how they manage their people and their performance and rewards. These processes have gone from squeaking, creaking and bulging at the seams to hemorrhaging, seemingly overnight. What do you do when nearly everything your employees contracted for at the beginning of the year has changed? How will you adjust your performance management (PM) and pay processes? Should you continue to evaluate employees and assign them ratings? How will you evaluate them? With the disruption to their responsibilities, what criteria should you use? What does performance even mean now? Do you continue to differentiate performance and pay despite these disruptions? Many human resources professionals are asking these questions in the face of these unprecedented disruptions.

CHOICES

If you consider the central elements of PM--evaluation and differentiation of performance and rewards, you have 4 choices:

1. Evaluate and Differentiate. Double down on your current PM and pay practices. Either you can measure performance, or you can’t. Things change for employees during the year all the time; change isn’t new; businesses don’t stand still today. Soldier on; measure, evaluate, and differentiate, and account for the changes to roles, objectives, and goals as best you can. This assumes you have money to distribute or, if you don’t, that ratings are important for other purposes beyond reward distribution.

2. Evaluate but Don’t Differentiate. There may be a middle ground where you don’t have money due to budget cuts, but you still want to evaluate performance to motivate employees, send messages, and drive other downstream decisions (e.g. talent identification, promotion). Run your PM process normally but suspend the pay process, freezing salaries and suspending bonuses. Maybe you adjust your rating scale to acknowledge the difficulties of evaluating performance and move from a 5-point scale to a 3-point scale to make things easier on supervisors.

3. Don’t Evaluate but Differentiate. If you have money to spend (you are in an industry unaffected by or even benefiting from COVID-19 disruptions), you might suspend the rating process acknowledging evaluation and differentiation of performance will be difficult given the changes to employee responsibilities. Differentiate rewards based on criteria other than current performance (pay position, market changes, retention risk, past performance and performance history, level of potential, etc.).

4. Don’t Evaluate and Don’t Differentiate. Suspend your current process, stop ratings and differentiation, and give everyone standard pay increases and bonuses based on current salary or company results (if you have money). Decide for yourself whether to have reviews for feedback and development purposes.

STEP BACK

Setting aside for a moment the practicalities of being trapped by your current PM process (and the thinking behind it) and needing to do something quickly, now may be a good time to step back and reflect on what you are doing. If your current process breaks with disruption, perhaps it really is broken. Maybe you should go with Option 4…permanently.

COVID-19 and the disruptions it is creating is exposing the flaws in our process and logic. If you are getting cold feet today, maybe it’s a sign…a sign that something needs to change. Disruption in business will be the rule going forward, not the exception. It was clear before COVID-19 the foundation of PM is crumbling (see this recent article by John Boudreau describing some of the changes affecting HR). Job descriptions are disappearing. Jobs are becoming more complex as simple jobs are automated and outsourced. And the environment organizations face is chaotic, so stable performance contracts with employees are becoming more difficult to create. And more work is being done in teams with more fluidity and flexibility in roles and responsibilities, so running PM with individuals in isolation increasingly won’t be optimal. And work teams are increasingly comprised of people who aren’t even employees of the company and these people are scattered all over the world; they aren’t sitting next to each other in an office. These changes were wreaking havoc for traditional PM and pay processes before COVID-19.

MOVING FORWARD

Now, back to your choices. What’s happening today is a gut check. Either you have faith, or you don’t. You either believe that evaluating and differentiating performance is doable, motivational, and important or you don’t. You either believe money motivates or you don’t. If you still believe, (and most HR professionals and business leaders do), then pick Option 1 and stay the course. The disruptions caused by COVID-19 aren’t new…the scale is just larger. Things have always been changing and rewards budgets have been tight and highly scrutinized since the financial crisis in 2008. Stay the course and adjust the best you can. This is no time to get cold feet if you are a true believer. And if you are a true believer, it makes little sense to pause what you are doing and then restart again next year, assuming all will be back to normal next year.

But if you are getting cold feet, maybe you are having a crisis of faith. Maybe it’s time to question your faith and change your processes (and your thinking) permanently, not just this year. Maybe you can’t evaluate and differentiate performance anymore. Maybe you will never have the money to differentiate rewards enough to make a difference, or maybe individual differentiation isn’t practical anymore given the fluid and team-based nature of the work. Maybe the differentiation you are imposing on your workforce is proving to be too disruptive, since you can’t do it fairly and since the inequality it causes creates other problems. Or maybe money isn’t doing it anymore. Your compensation budget hasn’t grown, and you underspend it every year anyway as a hedge against future cost reductions anyway. And merit budgets have been shrinking for decades and bonus payouts have gotten more sporadic. It’s clear you aren’t getting more money for compensation in the future, and maybe it isn’t all about money. Despite these changes, employees continue to show up and work hard.

It’s also important to realize the changes you are contemplating probably won’t be just for this year. As Alec Levenson points out, we are not going back to normal anytime soon, if at all. COVID-19 disruptions will be with us for a while, and they are adding fuel to flames already being created by other issues festering in the workplace and in society in general. And, after this massive experiment with working from home, I am skeptical employees will all come running back to the office.

Maybe it is time to admit our current practices are no longer sustainable. We need to take a hard look at what really motivates employees to come in every day and work hard, especially in times like these. We are witnessing firsthand what really matters as physicians, nurses, truckers, delivery drivers, and grocery store staff are working day and night, in many cases without increases in pay. Maybe it isn’t about carrots and sticks, ratings, and differentiation. The disruptions caused by COVID-19 aren’t new, but they are a stress test of our current PM and reward practices, and they are failing.