Pay and performance management in the age of COVID-19
As COVID-19’s impact on the market and workplaces lingers on, companies are facing a range of unprecedented questions. Among them: What should we do with performance management? And should performance link to pay for this year?
Lori Holsinger, senior principal with Mercer in Atlanta, explains that these are logical questions because, for more than a decade, at least 85% of companies have been linking performance and pay decisions, and 70% of companies link the two by assigning performance ratings, according to Mercer’s 2019 Global Performance Management Study.
“Some proactive companies have already taken action to separate rating and pay decisions until the pandemic is contained and the market stabilizes,” she says.
From a legal perspective, decoupling traditional pay and performance decisions during the pandemic may help employers mitigate future wrongful-termination cases due to poor performance.
Typically, she says, an employer strengthens its position by maintaining a track record over time of employee-employer feedback discussions, adequate training and coaching, and documentation to support termination due to poor performance. Holsinger says this “track record” becomes even more critical the longer the tenure of the employee.
“Companies that are automatically assigning ‘meets’ or ‘exceeds’ ratings during COVID-19 may be inadvertently increasing their future risk for wrongful-termination cases due to poor performance,” she says.
Holsinger says that, in what would be considered normal times, employers set performance goals and expectations that define how a given role will contribute to the team and company’s success, based on historical data for the company, team and role. The process helps establish the baseline for the role and set performance targets that are realistic, clarifying what meeting and exceeding expectations looks like.
“With COVID-19, all these normal planning elements have gone out the window,” she says. “While some companies are thriving financially due to the pandemic, such as home-improvement businesses, gaming and beauty products, many other companies are struggling, particularly retail and hospitality.”
In addition, forces outside the employees’ and employers’ control are at play. With the anticipated “ping-pong ball” effect of openings, closures and modifications until the pandemic is contained, even setting modified expectations for the rest of the year is tricky, Holsinger says.
For example, imagine an employee that “got lucky” due to the pandemic’s positive financial impact on their role and team. Should this employee be rewarded more for their 2020 results? What about 2021, when businesses will begin to right-size? Should that same employee get “dinged” because their year-over-year results went significantly down from 2020 to 2021?
“On the flip side, should an employee that traditionally performs well be caught in the crosshairs of the pandemic and get a poor rating for 2020 due to something outside of their control?” she says.
Holsinger says some employers recognize they would rather send the message of acknowledging 2020 is an unusual year, which should be extracted from their pay-for-performance approach and handled completely differently.
“Many of these same companies see this as a temporary adjustment that is more fair, authentic and transparent with their employees,” she says.