Performance Ratings

• Self Appraisal: This initial step in the performance review cycle requires employees to complete a self-assessment by answering a set of predetermined questions. Most are familiar with this part, so we won’t delve into specifics here. However, if you seek guidance, my article on crafting an effective self-appraisal may be helpful.

• Manager’s Evaluation: While many assume this is the only additional step, it is just one among many. Managers typically keep their own notes and gather feedback from various team members. They synthesize this information to produce a documented evaluation and establish the “proposed” or “initial” rating.

• Next Level Evaluation: Here’s an intriguing aspect that may surprise early-career programmers. This step involves aligning the ratings with the next-level manager or executive to mitigate bias and ensure appropriate performance distribution. If the higher-level manager disagrees or has a different perspective, changes to the ratings can occur at this stage.

• Department Roundtable: I refer to this as a "roundtable," a term used in a previous company I worked for, where managers convene with the department head. During this meeting, managers discuss the ratings of their direct reports to ensure that employees in comparable roles and performance levels receive similar evaluations and promotions. Managers often need to justify their ratings and explain why their candidate deserves a higher rating compared to others in similar roles.

  If you have submitted a strong self-appraisal, it can significantly assist your manager in justifying a higher rating.

• Bell Curve: One aim of department-level alignment is to ensure ratings fit a bell curve distribution. Although unacknowledged, management often strives to align ratings closely with this model. Typically, around 70% of employees fall within the mid-range, which corresponds to a rating of 3 on a five-point scale. Companies may describe this rating as "highly valued" or "meets expectations," but in reality, it represents the median rating allocated to most employees. To conform to the bell curve, management may need to adjust ratings up or down.

• HR Calibration: After the department finalizes the ratings, a calibration session with Human Resources typically follows. The goal is to address exceptional cases and make any necessary adjustments. From HR's perspective, it is crucial to guarantee that ratings are equitable and adhere to company policies.

Once this stage concludes, the final management approval occurs, and the ratings are set!

Promotions

For a select few, the promotion process runs concurrently. Two primary criteria determine eligibility for promotion:

• Job Readiness: To qualify for the next level, you must have consistently performed well at your current level and demonstrated the competencies expected at the next tier. You may feel prepared, but your manager must agree as well.
• Business Need: While this factor may not be significant at junior levels, as you progress, most companies require a business justification for senior-level promotions. Ultimately, it falls on your manager to substantiate a business case for your advancement if you genuinely deserve it.

Compensation Increase

Once ratings are confirmed, the next phase involves determining compensation increases. It is vital to recognize that this is a separate process influenced by multiple factors. While salary increases are linked to ratings, higher ratings do not automatically guarantee a larger increase. Let's explore the various factors that affect compensation decisions.

• Budget Allocation: The primary determinant of compensation decisions is the annual review budget. This allocation varies yearly and hinges on numerous factors, such as last year's revenue, profit margins, and projected expenses. The finance department and upper management engage in extensive calculations to establish the budget for various expenses, including performance reviews. When a company performs well, the budget may increase, leading to larger salary increments across the board. Importantly, each department and manager operates within a fixed budget that cannot be exceeded. Think of it as a pie that must be shared among all employees; while individual slices can vary in size, the total cannot exceed the pie's size.

  Percentages may fluctuate, but the overall total must remain within budget constraints.

  It's possible to receive a high rating but a low salary increase if the yearly budget is limited. This scenario was prevalent during the recession years in the U.S. (2008–2012), when numerous companies struggled to provide annual raises.

• Salary Midpoint: Each role has an established salary range or midpoint determined by HR. The objective is to align employee salaries closer to this midpoint. Your current salary's position within this range influences compensation decisions. If you are significantly below the midpoint, you might receive a more substantial increase for the same rating compared to someone already at the midpoint. Conversely, if your salary is above the midpoint, you might see a smaller increment. While the variation may not be substantial, it is noteworthy.

  Another reason for lower compensation increases despite higher ratings is when the current salary approaches the maximum of the established range.

• Compensation Recommendation: Modern HR management systems are designed to consider all of these factors when generating compensation recommendations. Essentially, what first- or second-level managers see are the fixed budget allocations and salary increase suggestions from the HR system (e.g., Workday, PeopleSoft). Managers can adjust the increments for their direct reports, but only within set limits. If a manager opts to give one employee a slightly higher increase than recommended, they must reduce another employee’s increase to maintain budget balance. Typically, the HR team conducts the intricate calculations to devise system-generated percentages for each rating, similar to the illustration below.

  Promotions carry a separate percentage increase from the promotion budget, typically ranging from 2% to 8% in the U.S.

• Next Level Calibration: Similar to ratings, all compensation evaluations are reviewed at the next level before submission to the department head. Adjustments can occur at each level, but everyone must remain within their overall budget.

• Finance Approval: All compensation decisions are ultimately subject to approval by the finance department to confirm the overall budget distribution. Once approved, details are communicated to employees by their managers.

• Performance Review Meeting: Everyone is familiar with this concluding step, where managers provide employees with feedback on their evaluations. Some managers hold separate meetings for performance reviews and compensation discussions, while others prefer to combine them.

What I have outlined represents one of many common practices related to performance reviews in large organizations. Another prevalent approach is to use a three-point scale without aligning with the bell curve. In this system, the constraints are lifted, allowing any number of employees to receive any ratings. However, budget limitations still apply, necessitating an average percentage distribution for each rating. The disparity in increases across different ratings is less pronounced in this framework.

Final Thoughts

Regardless of your position, performance reviews can be a source of considerable stress. Many managers grapple with this process, feeling pressured to meet the expectations of their direct reports. Often, they cannot secure the desired ratings or increases due to factors beyond their control. As discussed, numerous variables and layers of engagement influence the decision-making process, so it may not solely be your manager's fault if you do not receive the anticipated raise. As previously mentioned, there are countless methods for conducting reviews, and efforts are ongoing to enhance their value and transparency for all employees.

I hope this article offers you some clarity on the performance review process or at least equips you with fundamental information to pose the right questions to your manager. Please feel free to share your thoughts or inquiries, and I will do my best to respond. Thank you for reading!

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5 Tips To Make Your Self-Appraisal Stand Out

A guide for software engineers to excel in performance reviews.

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