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Feb. 8 — A recent lawsuit by a Yahoo! Inc. employee claiming the company manipulated performance evaluations to justify mass layoffs highlights how performance reviews and rankings can expose a business to legal risk, attorneys say.
“Performance issues are always really hard issues for employers to deal with,” Tamara Devitt, a partner in the Orange County, Calif., office of Haynes and Boone LLP, told Bloomberg BNA Feb. 4.
On the one hand, Devitt said, they're necessary because they provide a good way to give employees feedback. The pitfalls, however, are multiple, she said. Employers run a big risk if they don't have any sort of performance review process, but they also have to ensure that the reviews are appropriate, objective and balanced, Devitt said.
The lawsuit against Yahoo was filed by Gregory Anderson, an editor for some of the company’s online news content, who alleges, among other things, that he and about 600 others at Yahoo were unfairly fired in 2014 after managers retooled a numerical ranking system to downgrade their performance (Anderson v. Yahoo Inc., N.D. Cal., No. 5:16-cv-00527, complaint filed 2/1/16; 34 HRR 122, 2/8/16).
The complaint alleges that employees “were never told their actual metric numeric ranking or how it had been determined.” The quarterly performance rating process “therefore permitted and encouraged discrimination based on gender and any other personal bias held by management,” according to the complaint.
This scenario revolves around a ranking process in which managers were forced to pick the best and the worst employees, Devitt, who isn't involved in the Yahoo suit, said. While such ranking systems aren't “inherently unlawful,” they've been considered controversial, especially when it comes to employee morale, she said.
Employers should establish objective criteria for performance review programs, although it may “be easier said than done,” David Baffa, chair of Seyfarth Shaw LLP’s Workplace Compliance Solutions group in Chicago, told Bloomberg BNA Feb. 5. The ideal program would have objective measures or criteria against which a manager rates employees.
Devitt recommended that HR manage and monitor performance programs to make sure they're effective, consistent, nondiscriminatory and non-retaliatory.
She added that systems should also reflect the unique makeup of a company to be most fair to the employees. There also needs to be training, communication and oversight, she said. “It’s a lot of work,” Devitt added.
Baffa commented that there are ways for employers to build in safety measures. Performance ratings can be used in workforce reductions, he said, but legal counsel should have input to make sure that there aren’t any disproportionate layoffs of protected groups.
Many employers that previously embraced the concept of pay-for-performance now say their programs aren’t accomplishing what they were designed to do: drive and reward individual performance.
Survey data released Feb. 4 by Willis Towers Watson found that only one in five (20 percent) of 150 North American companies find merit pay effective at driving higher levels of individual performance. In addition, only about one-third (32 percent) say their merit pay program is effective at establishing bonuses that reflect individual performance.
Similarly, employers gave their short-term annual incentive programs low marks. Only half (50 percent) said these programs are effective at boosting individual performance levels, and even fewer (47 percent) reported that resulting bonuses effectively reflect performance.
“Employers continue to make significant investments of time and money in their traditional pay-for-performance programs, primarily annual merit pay increases and annual incentives,” Laura Sejen, global practice leader of rewards at Willis Towers Watson, said in a Feb. 4 press release.
“Unfortunately, these reward programs are falling short in the eyes of many employers. It appears that organizations are either trapped in a business-as-usual approach or suffer from a me-too mentality when it comes to their programs.”
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