AP Photo/Lefteris Pitarakis
- Amazon's officer workers will get feedback on their performance and receive updated compensation statements starting this week.
- Amazon groups its employees into three broad buckets of performance rankings, but managers don't typically share the ratings with individual employees.
- Instead, employees say they use their compensation statement to infer their ranking. Some managers share it upon request.
- It's an unusual level of secrecy given other companies are typically more upfront about individual rankings, and how the ranking is the most important factor in determining the level of raise, employees tell Business Insider.
- Some managers say the lack of transparency is driven by Amazon's culture of focusing on results, not training or career development.
- Management experts say Amazon's system could cause unnecessary stress for its employees.
- Click here to get 'Trending,' BI Prime's weekly tech newsletter, in your email inbox.
For Amazon's corporate employees working from home to evade the deadly coronavirus, this week brings an additional cause for anxiety: the annual employee salary update, which is tied to the company's cryptic and all-important performance evaluations.
The bureaucratic-sounding Performance Compensation Statement outlines each Amazon employee's total compensation, including base pay and stock awards, for the coming year. Managers at Amazon review the document with each of their team members and give individual feedback.
But the PCS gives a clue to a more important metric as well: the employee's performance rating from last year.
Amazon groups its employees in three broad buckets of performance ratings every year to determine their compensation. But managers typically don't disclose what rating each employee received, according to over a dozen current and former employees who spoke to Business Insider under condition of anonymity because they were not authorized to speak about the company in public.
Instead, employees are supposed to infer their performance ratings from the level of raises they receive in the PCS, these people say. Some managers share it upon request, but most only give general feedback verbally, without any specific written appraisals or grades.
"We're not supposed to share performance ratings with employees," one current manager told Business Insider. "It's a poor process that focuses heavily on the negative."
While performance rankings are relatively common in corporate America, Amazon's policy of leaving employees in the dark is unusual, exemplifying its culture of secrecy, famously described in a 2015 New York Times article. For example, it's not rare for people in the same division to be unaware of each other's project because Amazon likes to work in small, disparate teams. In the latest tussle between Amazon and its warehouse workers, many employees claim the company is not being upfront about safety risks.
Peter Capelli, a Wharton management professor, told Business Insider it's "puzzling" that Amazon wouldn't be more explicit about each employee's performance, given most companies are transparent about individual ratings. Since they're not required to share specific letter grades, Amazon managers are able to shun difficult conversations during the feedback process, he said.
"Presumably Amazon is doing this because they think managers can give tougher grades," Capelli said. "It helps managers avoid the tough conversations."
The performance feedback also comes at a tricky time for Amazon. As the coronavirus is creating all kinds of challenges for Amazon, including supply chain lockdowns and worker complaints over safety conditions, the upcoming performance feedback cycle could create further unrest among its rank and file. This year's review adds a layer of oddity as almost all employees will get their feedback virtually, while working from home. Other tech giants like Google has pushed back its appraisals process to later this year, while Facebook is giving everyone good reviews amid COVID-19.
In an email to Business Insider, Amazon's spokesperson said most of its employees meet or exceed its high bar of performance expectations.
"Amazon has always had a high bar for performance – it's one of the things that makes Amazon an attractive place to work," the spokesperson said. "Our compensation philosophy is built on the foundation of long-term ownership and highly competitive total compensation that includes base salary, sign on bonuses, and stock awards, as well as highly competitive benefits."
Three-point scaleAmazon's performance rating is given in a three-point scale: Top Tier (TT), Highly Valued (HV), and Least Effective (LE).
In general, roughly 15% to 20% of the employees are put under the TT group, while the bottom 10% goes in the LE bucket. The vast majority of the workforce, or roughly 70% to 75%, are given the HV rating. And within HV, some employees get an "HV+" designation to be distinguished.
Managers typically complete reviews by early March, so most of the appraisals were submitted before the coronavirus hit the broader US economy. What's starting this week is the feedback of the reviews.
Several managers said they would spend hours discussing each employee's performance with other managers before assigning them into one of the three buckets. Those discussions, they said, were important because the letter grade is effectively the de facto determinant of each employee's new compensation.
"It's weird that we'd spend a lot of time about it, getting people in different buckets, and then not even tell them about it," one former manager said. "Especially when it determines their compensation."
But employees say they are able to piece together their rankings by looking at their raises. In general, a raise above 2% guarantees the HV rating. If the raise is significantly higher, in the range of 5% to 10%, it likely signals top tier.
Those in the lowest LE category, however, don't usually see any salary increases. Instead, many of them are expected to go on "dev plans," a less formalized performance improvement plan designed by individual managers. If they fail to prove themselves during the two to three month dev plan period, they're put on a program called Pivot, which gives a choice between taking a severance package or going on the official Performance Improvement Plan, commonly known as PIP at Amazon. They also have the option to appeal the PIP placement, but it rarely succeeds, employees say. The Daily Beast previously reported on a change in the appeals process.
A lot of this could happen without any formal notifications, employees say. For example, a manager could put an employee on the dev plan without telling the person about it. The same goes for top performers put up for promotions. In rare cases, some top performers could receive very little raise, if their salary is already above average, leading them to suspect they're underperforming — and to unexpectedly leave, one person said.
Amazon's spokesperson told Business Insider that it's possible to have "some individuals with ongoing performance challenges" given its giant workforce of almost 800,000 people worldwide. Managers are encouraged to have regular conversations with their employees to build "an open line of communication and to eliminate surprises," the spokesperson said.
Culture of focusing on resultsTo help improve its performance ranking system, Amazon launched a new peer review process called Forte in 2017. Through Forte, employees give individual feedback to each of their team members about their "super powers" and "growth ideas," highlighting their strengths instead of weaknesses. But a number of employees told Business Insider that Forte felt like a waste of time because it had vague comments based on Amazon's famous Leadership Principles, and no real impact on the performance rating or compensation.
Amazon also recently rolled out a new HR software called Focus for managers, employees say. Focus helps streamline the appraisal process and consolidate the data points related to different review systems into one place, helping keep track of every employee's performance.
Still, people who spoke to Business Insider said Amazon's appraisal process remains a giant black box with no clear guidance on how each employee is rated. Although every employee is given general goals, it's hard to measure their performance and put them into a single letter, they said. For example, salespeople may have more clear cut goals like monthly sales quotas, but engineers may find it difficult to have their work rated in a few measurements.
Some employees said the performance ranking is not something most people are obsessed with, and they're happy as long as they get a raise.
One person said, however, the lack of transparency underscores Amazon's culture of focusing on producing results. Amazon has a unique culture of allowing confrontation and active debates — even from its junior employees — in the spirit of making the company smarter and move faster. But the downside of the system is that it fails to develop a coaching and supportive work environment, this person said.
"What's valued at Amazon is getting things done and driving results," this person said.
Questions around performance reviews aren't just found at Amazon. According to a report by Gartner, 96% of managers are not satisfied with their current performance management system. Over 80% of HR managers said their performance management system is ineffective, and roughly half of the HR managers said they would consider eliminating employee ratings, the report said.
For Amazon, it's important to put a group of employees in the lowest performing bucket every year because it closely follows a metric called "unregretted attrition rate," according to managers. That number represents the portion of employees — across the whole company, not in individual teams — which Amazon would be unbothered to see leave the company, providing opportunities to refresh its workforce every year. But that number has dropped in recent years, below the 7% to 10% rate expected, forcing managers to put more people in the LE bucket, people said.
The Information earlier reported on the existence of "unregretted attrition rate" at Amazon.
Amazon's spokesperson declined to comment on the attrition rate, but said the company doesn't have a stack ranking system where individual managers are required to eliminate a certain number of their own team members each year. Managers are instructed to evaluate employees against the performance bar and expectations of the role, not by "comparing them to other employees," the spokesperson said.
Bradley Staats, a management professor at University of North Carolina, said there's no one-size-fits-all approach to performance appraisals, and it's a difficult problem every company is grappling with. But Amazon's system of not disclosing many aspects of the process could add unnecessary stress to employees, potentially reducing their work productivity, he said.
"The risk is you might be unnecessarily frustrating workers," Staats said. "Understanding how they're being evaluated and where that comes from is very important — a piece that really needs to be managed carefully by organizations."
NOW WATCH: Most maps of Louisiana aren't entirely right. Here's what the state really looks like.
See Also:
- Airbnb could run out of cash in one year, even with the $1 billion it just raised, because of how devastating the coronavirus is on its business
- Amazon has finally told sellers that it will not charge them for several fees after the company banned them from stocking non-essential items last month
- A team of coding experts built an AI-powered platform during a marathon 60-hour session to help this nonprofit supply medical equipment to fight coronavirus
