GM changes salaried performance and bonus plan to attract top talent, thin poor performers

General Motors is changing its performance rating system for white-collar workers by expanding the performance rating scale, setting better-defined targets and pushing managers to identify a targeted number of their top and bottom performers within their organization.

GM is also adjusting bonus payouts to allow the best performers to earn more than 100% of the company's target bonus.

In an email sent to the global salaried workforce Thursday that was obtained by the Detroit Free Press, GM said it was making these changes to better compete in an increasingly challenging autos market.

"The automotive industry is experiencing a multiyear transformation, and we're seeing new competition enter the market both in the U.S. and abroad," wrote Ken Fendick, head of GM Global Talent. "In order to win as a company, we must continue to evolve so we can meet the challenges ahead. That means setting high standards, holding each other accountable and providing clear expectations when it comes to performance."

GM spokesman Kevin Kelly said the new performance plan is intended to nurture the best talent inside GM and attract top new talent by offering higher performance incentives.

“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," Kelly said in a statement to the Free Press. "That includes everything from ensuring employees know what is expected of them, providing feedback so they can develop and rewarding them for their performance." 

A new five-point rating system

In the email to the salaried workforce, GM said it is moving from a three-point to a five-point performance rating scale effective for the year-end performance review cycle, which typically starts in November. GM has used the three-point rating for at least the past decade, two people at GM told the Free Press. They asked to not be identified because they are not authorized to speak publicly about this subject.

This means that GM's old performance rating of needs improvement, meets expectations or high-performing, will now change to the following:

• Significantly exceeds expectations
• Exceeds expectations
• Achieves expectations
• Partially meets expectations
• Does not meet expectations

GM said research shows that many top-performing companies, including banks and Silicon Valley companies, use a five-point system.

As part of the new plan, GM expects each organization's manager to rate 5% of their team as significantly exceeds expectations, 10% as exceeds expectations, 70% achieves expectations, 10% partially meets expectations and 5% who do not meet expectations, the email said.

"This will allow us to recognize those making exceptional business impacts, and effectively manage those failing to drive our business objectives forward," the email read, adding it will hold team leaders to those target objectives, including identifying their bottom 5%.

For the 5% who do not meet expectations, GM wrote, "we expect appropriate action to be taken, up to and including being exited from the company."

This sent shudders through some of the white-collar workforce who view it as a way to reduce headcount, said one of the GM people. But another person familiar with the plan said the organizational targets are not quotas and if a manager rates all of his or her people as "achieves expectations," that is fine. GM's human resources department, however, would push that manager to explain why no one exceeds expectations or no one needs improvement.

The objective is not to reduce headcount, this person said, adding, "The purpose is to provide better definition to the salaried employees on what the expectations are."

Bigger payouts possible

GM is also increasing the financial rewards for those top performers.

The email outlined that employees who significantly exceed expectations will now get 150% of the target bonus; those who exceed expectations get 125%; those who achieve expectations get 100%; those who partially meet expectations get 50%; and those who do not meet expectations get nothing. In the past, managers had discretion to pay more than 100%.

Here's how that works: GM has a formula for determining the target bonus payout. As the Free Press reported in February, starting this year, the automaker will include the performance of electric vehicle sales, software and services, and autonomous vehicle programs in the formula that determines the white-collar workers' payouts. Previously, the formula was solely based on GM's annual earnings before interest and taxes and its free cash flow. Free cash flow is the cash GM makes after accounting for costs to support operations and maintain its capital assets.

So if GM's target bonus, based on that formula, ended up at say, $5,000, then the person who significantly exceeding expectations would get 150%, or a payout of $7,500.

The bonus program for GM's hourly employees is different from that for salaried workers. The hourly profit-sharing plan is based on a negotiated formula with the UAW. It is $1,000 per every $1 billion in annual EBIT, or pretax profits for North America. About 45,000 U.S. hourly workers will receive a profit-sharing check of up to $12,250 for last year, GM reported in January.

GM said in its email that 85% of employees would qualify for the full payout or additional payout, which is expected to be more than previous years, when about 75% to 80% of people hit those targets, one of the people told the Free Press.

"GM needs to have a high-performing culture to succeed and win," the email reads. "Our new performance management rating system will also reinforce our pay-for-performance culture, incentivize top performers, and help clarify expectations and feedback for employees' growth."

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Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.