General Motors Revamps Employee Performance Evaluation System to Boost Efficiency and Talent Retention

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General Motors (GM), a leading automotive giant based in Detroit, is implementing a significant overhaul of its performance evaluation system for salaried employees in the United States. This strategic change aims to better reward high-performing employees while motivating underperformers to improve or transition out of the company. The initiative is part of GM’s broader effort to adapt to the rapidly evolving automotive industry, particularly the shift towards electric vehicles (EVs).

According to an internal memo obtained by Reuters, GM will now provide its top 5% of salaried employees with bonuses amounting to 150% of their target bonuses. This marks an increase from the previous system and is designed to attract and retain top talent crucial for achieving the company’s ambitious goals in the competitive EV market. The memo emphasizes the need for a more intentional process that sets clear performance expectations and holds employees accountable for their results.

Traditional automakers like GM and Ford have been revising their performance evaluation systems for salaried employees in the U.S. to remain competitive with EV-focused companies such as Tesla and Rivian, which often offer stock-heavy compensation packages. GM’s new performance ranking system categorizes employees on a five-point scale, ranging from “significantly exceeds expectations” to “does not meet expectations.” Employee bonuses are directly linked to their performance ratings.

A GM spokesperson stated, “GM is proud to have a culture where we foster and reward high performance, which will help us attract and retain top talent in a competitive industry environment. That includes everything from ensuring employees know what is expected of them, providing feedback so they can develop, and rewarding them for their performance.”

The updated rankings will be used during the year-end performance reviews for GM’s approximately 53,000 salaried employees in the U.S. The new system adds a top and bottom tier to the previous three-category structure, which included “partially meets expectations,” “achieves expectations,” and “exceeds expectations.” Kristine Bhalla, a partner at consulting firm ClearBridge Compensation Group, noted that the five-point scale allows for a more precise evaluation of employee performance.

“Having a five-point scale is a common approach, and allows companies to differentiate performance in a more nuanced way than a three-point scale,” Bhalla explained. Under the new system, GM estimates that about 70% of employees will fall into the “achieves expectations” category, receiving 100% of their target bonuses. Meanwhile, the bottom 5% who “do not meet expectations” will face “appropriate action,” which could include termination.

The changes come as major automakers are focusing on cost-cutting measures to conserve funds amid the costly transition to electric vehicles. This has led to reductions in white-collar staff across the industry. In March 2023, GM offered buyouts to most of its salaried employees, and by May of that year, the company had cut several hundred full-time contract workers. Similarly, Ford and Stellantis have also reduced their workforces over the past year.

Bhalla pointed out that the new ranking system might not result in significant long-term costs related to bonuses or severance packages. “While sometimes these types of changes can result in incremental cost, in many cases, there is not necessarily an additional cost to the company. It just allows them to spend their dollars in a more targeted way to pay employees commensurate with their performance,” she said.

By revising its performance evaluation system, GM aims to align its workforce with the company’s strategic objectives and maintain its competitiveness in the dynamic automotive landscape. The focus on rewarding top talent and encouraging improvement among underperformers is expected to drive greater efficiency and innovation as GM continues its transformation towards an electrified future.