The problem with annual performance reviews

Esther Derby has a great post on an alternative to the yearly performance review.

She also gives a great suggestion for dealing with what most employees want out of a review, money. I'm sure if it wasn't for the salary tie-in, employees would revolt at the notion of going though the typical annual review.

I wonder what would happen if salaries were treated like mortgages and you could choose a base salary plus a fixed annual increase, say 2% or an adjustable rate salary, say median salary + 5%.

Ken Auer of RoleModel Software told me once about the system he uses at his company. New hires can choose to have a market rate salary and minimal/no bonuses or a low salary and a proportionate percentage of revenue sharing. So a programmer could sign on for a $90,000/year salary with no bonuses or a $30,000/year salary + 10% of annual profits.

The only issue I have with either of these systems is that the rest of your life dictates which of these is acceptable, and some people will need to switch at some point. Allowing people to renegotiate their employment agreement would allow that, but doing it to often leads to people speculating on the business climate. I'm not sure if this is good or bad for the employee, but I can see it being an administrative and budgeting challenge for the employer.

Has anyone participated in a salary scheme such as these? How did it work and what did you like and dislike about it?

5 Comments

  • "Has anyone participated in a salary scheme such as these? How did it work and what did you like and dislike about it?"



    I got a job offer a few years ago from a company that did something like this.



    Their compensation model was that each employee got a particlar base salary and no bonus at all. For more risk tolerant employees, there were two ways to convert base salary dollars into riskier forms of compensation. First, up to 25% of your salary could be put into a bonus 'fund'. At the end of the year, based on the performance of your group and your own ranking, you got anywhere from 0x to 5x the amount you put in the bonus 'fund'.



    The other alternative was a little more controvesial: you could convert up to 100% of your salary into stock options. If you were really risk-tolerant, you could therefore take all of your salary as stock options. Unless you really believed in the company's valuation

    the economics of this were a little dodgy. You still had to pay the strike price of the option when you exercised it, there was not a definate date to go public, and you had to be willing to find another way to fund your life, as well as pay the opportunity costs of not having the cash around.



    A side note to all of this is that there was one group in the company that went through years of hard times, lots of attrition, and no bonus payouts. At the end of the dry spell, there were only three or four of the original people left. As a sort of bonus, the company randomly awarded _one_ of them a Jaguar XK8. The idea was to maximize the impact of the compensation spend by focusing it.



    Anyway, years later, most of the company's staff has been laid off, for those still there, the word is that the base salaries got cut in half, and the company never went public.

  • The way I see it, salary is how much the company values your future contributions. A bonus is a reward for your work in the past year. A great year deserves a great bonus, but not necessarily a great raise. However, consistently good-to-great work deserves high raises.

  • Eric, you wrote:



    <i>I think that devs/engineers should be more like the sales people of a company whereas more work translates directly to more money... then the typical engineering block gives way to developing what the Customers want, instead of what some arbitrary project manager wants to implement </i>



    I'm not sure what you mean. How do the engineers know what the customers want directly, and how can they respond directly?

    Can you tell me a little more about what this looks like. It sounds like a great idea.





  • I have issues with the sales people idea as well. Having worked as an internal developer and as a contractor in a pro services firm I can't see this working.

    As an internal developers I build systems that are an indirect cog in a large machine. I'm at least 2 levels removed from direct customer contact.

    As a contractor I'm in direct contact with the customer, but all the details have been "worked out" ahead of my appearance.

    As an independent consultant I get both sides, but my salary package is $0/year and whatever I can get as bonuses.

  • your stupid dumbass

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