GM Introduces New Performance Rating System to Reward Top Employees and Pressure Underperformers

General Motors (GM) is revamping its performance evaluation system for salaried employees in the U.S. This new approach aims to better reward high achievers and encourage underperformers to improve or consider other options.

According to an internal memo obtained by Reuters, GM will now offer its top 5% of employees a 150% bonus. This significant increase is designed to attract and retain the exceptional talent needed for GM's transition to electric vehicles (EVs).

"To ensure GM has the talent needed to achieve our ambitious goals, a more intentional process is required that sets clear expectations for performance and holds people accountable," the memo stated.

Legacy automakers like GM and Ford are adjusting their performance evaluation systems to stay competitive with the stock-heavy compensation packages offered by EV companies like Tesla and Rivian.

GM's new system evaluates employees on a five-tier scale: "significantly exceeds expectations" to "does not meet expectations," with bonuses linked to these ratings. GM employs about 53,000 salaried workers in the U.S.

A GM spokesperson highlighted the company's commitment to fostering and rewarding high performance. "This will help us attract and retain top talent in a competitive industry environment. It includes setting clear expectations, providing feedback for development, and rewarding performance," the spokesperson said.

Employees will be assessed using the updated system during their year-end reviews.

Ford CEO Jim Farley emphasized the importance of aligning performance reviews with creating shareholder value. "The right talent alone isn't sufficient. We needed a performance management system that supports our business transformation," Farley said during an earnings call.

GM's new five-tier system replaces the previous three-category one, adding more granularity to employee evaluations. Kristine Bhalla, a partner at ClearBridge Compensation Group, noted that a five-point scale allows for more precise performance differentiation.

GM estimates that around 70% of employees will fall into the "achieves" category, receiving 100% of their target bonuses. The bottom 5% in the "does not meet expectations" category could face "appropriate action," including potential termination.

As automakers navigate the costly transition to EVs, they have been cutting costs, including reducing their white-collar workforce. In 2023, GM offered buyouts to most of its salaried employees and later cut several hundred full-time contract workers. Ford and Stellantis have also made similar cuts.

Bhalla mentioned that the new ranking system might not significantly increase costs. "These changes often allow companies to allocate their compensation more effectively, rewarding employees based on their performance," she explained.

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