Insights on Performance Reviews: Week of April 5, 2022
I’ve been researching the performance review process and talking to customers about what they like and don’t like about the process. Here are the key insights from the week of April 5, 2022:
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Inside Amazon's complex employee review system, where workers feel left in the dark and managers expect to give 5% of reports bad reviews
A detailed description of Amazon’s employee review system. The most fascinating part of the article is the acknowledgement of a North Star metric called “Overall Value (OV)” ratings. Here are the three most relevant paragraphs about the OV metric. Bolded emphasis is mine:
Employees say the more important performance measure is what Amazon calls "Overall Value (OV)" ratings because they have a bigger impact on compensation. An internal document seen by Insider says OV ratings are used as an "input into the annual compensation planning process."
Under OV ratings, Amazon managers group their employees in three broad buckets of performance grades — Top Tier (TT), Highly Valued (HV), and Least Effective (LE). Starting this year, Amazon expanded the "HV" rating with "HV1," "HV2," and "HV3," to add depth to each evaluation, Amazon's spokesperson confirmed in an email to Insider.
An internal document provided to managers states: "We expect 20% of Amazonians are TT," 15% are HV3 (the highest of the HV ratings), 25% are HV2, 35% are HV1, and 5% are LE. Another document shows how these OV ratings correspond to pay. Amazon employees are each put in a pay band with a range for their total compensation, made up of base pay and stock options. The OV ratings are one of the key factors used to determine what percentage of the pay band an employee will get. One internal doc says those placed in the top performing group can reach 100% of their pay target, while those on the HV1 grade get zero upside.
Why ranking employees by performance backfires
This article from the Financial Times focuses primarily on stack rankings’ effect of decreasing morale.
It does attempt to acknowledge the benefit of stack ranking, where one’s outcomes are more closely tied with compensation. Bolded emphasis is mine:
There are circumstances where it works. One former accountancy trainee said he had only been willing to tolerate the long hours and grinding work if he was likely to be promoted. “In that context you really need to know if you’re in the 25th percentile or 75th percentile,” he told me.
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