Most US multinationals conduct regular pay equity audits, but for further insights into promoting equity and removing potential bias in compensation, companies are increasingly exploring adding performance ratings audits to the standard review cycle.
Performance ratings can often have a large impact on an employee’s rate of pay and/or bonus compensation. However, for many companies, performance ratings are discretionary, given by managers without specific guidelines or training to follow and without many (or any) checks and balances. In addition, considerations regarding leveling of job descriptions, both at the time of hire and as employees matriculate, may impact performance ratings. Because the results of a pay audit are only as good as the data inputs, it makes sense to take a closer look at how the underlying data comes to be.
Another important factor to consider is how bias may be embedded in a company’s systems and processes, thereby creating structural barriers to equal opportunity and fair pay. Although it is widely recognized that we all possess our own unconscious or implicit biases, described by psychologists as thoughts and feelings outside of our conscious awareness that our brain uses as information-processing shortcuts; the concern is when these shortcuts are both inaccurate and influence our behavior. Performance management is one critical place to examine the impact of bias in the workplace to ensure that biased performance reviews are not impacting the way people are compensated.
Performance Review Audits — How They Work
At a high level, a performance review audit in partnership with legal counsel looks similar to a pay equity audit, only, instead of pay, it examines how performance ratings differ amongst protected categories of employees. After controlling for legitimate, non-discriminatory factors, the next step is to dive into any unexplained disparities, before setting compensation for that particular pay or bonus cycle. This does mean adding in time to review the results of the analysis under privilege and remediate any outlier performance reviews that cannot be explained.
Equalizing Performance Management — 5 Quick Tips
- Ensure that comparable data is drawn for all employees; rely on multisource feedback with real-time data.
- Check to be sure goals are set at the same level of difficulty for people doing similar jobs. Define specific criteria up front what successful or excellent performance will look like for each goal. Calibrate goals across managers to support equitable evaluations across employees in similar roles and to set expectations on what different levels of accomplishments would look like.
- Be wary of “open box” questions. “The trouble is, when the context and criteria for making evaluations are ambiguous, bias is more prevalent. As many studies have shown, without structure, people are more likely to rely on gender, race, and other stereotypes when making decisions – instead of thoughtfully constructing assessments using agreed-upon processes and criteria that are consistently applied across all employees.” (“Why Most Performance Evaluations Are Biased, and How to Fix Them,” Harvard Business Review. Read more here.) Instead, try to require more specific and evidence-based feedback.
- Time your unconscious bias training close to performance review seasons, or provide refresher courses at the commencement of the rating season.
- Partner with counsel to proactively and regularly audit performance ratings under privilege.