April 22nd, 2014 by Jim Cotterman
There are a variety of views on this topic of linking pay and performance evaluations. My general response is to link the two because pay proportional to performance(r) is a critical element of best practices in lawyer compensation. They are both part of the ongoing cycle of plan, train, do, coach, assess, reward. The plan and assess elements often occur concurrently — assessing prior performance and planning for future (including career development). And it is important that the feedback from the performance evaluation and the compensation decision be consistent and understood by all, including the individual’s team leader.
But to decide, first assess a number of factors. Ask:
1. To what extent are the compensation decisions based on performance evaluations? For example, if the associate compensation system is entirely an automatic lock-step and bonuses are tied exclusively to a billable hour formula — then there is little reason to connect the two. The subtleties of a proper performance evaluation are not connected to changes in pay in this example.
2. Are there other dimensions to the pay decision outside of the individual’s performance (team, practice group, department, office, firm performance) and how important are each in the overall compensation philosophy? In this situation, the performance evaluation and the pay decision should both assess and discuss the same dimensions, how they interrelate and the relative importance of each in the overall compensation decision.
3. Is there sufficient flexibility in the compensation program for material differences in pay between high and low performers? Even if pay decisions are heavily influenced by the performance evaluation, if there is an immaterial pay differential opportunity between those judged high performers and those judged low performers, there is little reason and high risk to connect the two.
4. Is the performance evaluation process properly designed, implemented and supported so as to be effective? Are both performance and career development properly balanced? Is the review cycle the proper interval? Is there a need for a mid-period formal check-in and/or are there opportunities for informal review available? Are the metrics sufficiently descriptive to mitigate against differing views of performance (this generally rules out the simplistic “Does Not Meet, Meets and Exceeds Expectations” systems). Is the evaluation thorough, yet focused (remember that the partners have many, many of these to complete)? Are the reviewers trained in completing the evaluations? Are the individuals who aggregate the individual evaluations into a comprehensive assessment trained? Are the individuals providing feedback trained? Are prior year evaluations available to note progress and to provide continuity?
5. Have the stresses that highly integrated performance evaluation and pay programs create (tendency for less open communication, more conservative setting of performance goals, heightened focus on short-term performance rather than career development, grade inflation to achieve a desired compensation result — protection of ones key team members) been considered and mitigated to the extent possible?