General Motors Revamps Employee Performance Evaluation System

General Motors (GM) is overhauling its performance evaluation system for salaried employees in the U.S., aiming to better reward high performers and address low performance more directly. The new system introduces significant changes to how employee bonuses are calculated and performance is assessed.

Enhanced Bonus Structure:

According to an internal memo by Reuters, GM is now offering 150% bonuses to its top 5% of employees—an increase from the previous system. This change is intended to attract and retain top talent crucial for the company’s goals amidst the competitive automotive industry shift toward electric vehicles (EVs).

The memo highlights the need for a more intentional process that clearly defines performance expectations and holds employees accountable. GM’s updated system reflects a broader trend among legacy automakers, including Ford, to adjust performance evaluations in response to the stock-heavy compensation packages offered by EV competitors like Tesla and Rivian.

New Performance Ranking System:

The revised GM performance ranking system uses a five-point scale:

• Significantly Exceeds Expectations
• Exceeds Expectations
• Achieves Expectations
• Partially Meets Expectations
• Does Not Meet Expectations

Bonuses are tied to these rankings, with about 70% of employees expected to fall into the “achieves” middle category and receive 100% of their target bonuses. Employees in the “does not meet expectations” category, estimated at around 5%, may face “appropriate action,” including potential termination.

Industry Trends and Comparisons:

GM’s shift to a more nuanced evaluation system aligns with industry trends. Ford CEO Jim Farley emphasized linking bonuses to shareholder value as part of their business transformation. The changes reflect a broader move among major automakers to streamline their workforce and adapt their performance management systems to remain competitive.

Kristine Bhalla of ClearBridge Compensation Group noted that the new five-point scale allows for more precise differentiation of employee performance compared to the previous three-category system. This nuanced approach helps companies allocate resources more effectively and reward performance-based employees.

Financial and Strategic Implications:

The new system is part of a larger cost-cutting strategy as automakers navigate the costly transition to EVs. GM has already undertaken significant workforce reductions, including offering buyouts and cutting contract workers.

While Bhalla suggests that the new ranking system may not significantly increase costs, it enables GM to allocate funds more strategically, ensuring that compensation aligns with performance.

GM’s updated performance evaluation system aims to enhance talent management and drive performance in a highly competitive and rapidly evolving industry.