Performance Calibrations at Tech Companies: Part 1
The reasons for performance calibrations, budgets, bucketing and stack ranking approaches.
Performance reviews and promotions are coming soon at many tech companies, within a month or two. We’ve already covered Preparing for performance reviews ahead of time and Preparing for promotions ahead of time in previous articles. But in this issue, we dive into a topic highly relevant for engineering managers, which is also helpful to understand for individual contributors: performance calibrations.
‘Performance calibration’ refers to the meeting when managers gather and decide which rating – and bonuses and pay rises – to assign to people. So, what really happens inside this crucial meeting?
For this question, I’m bringing my own experience of being in many calibration sessions at Uber, as well as input from half a dozen engineering directors, CTOs and senior engineering managers at tech companies.
It’s hard to appreciate how performance calibrations work without understanding their purpose and the constraints by which they operate. Today, we cover these topics:
“Why?” Why do performance calibrations exist at most companies? Which places operate without them?
Companies operating without formal performance processes. For how long can this setup work at places with no standard performance processes, and therefore no calibrations?
Budgets. Why budgets are important to understand, and how they relate to performance calibrations and budget distribution strategies.
Performance calibrations. Goals of the calibration process and the various types of calibration across the tech industry.
Bucketing. How does this work, and what are the typical performance buckets at tech companies?
Stack ranking approaches. How this works and its relation to calibration.
Additionally, Part 2 also covers:
A “typical” Big Tech calibration. What happens? Why do calibrations take weeks to complete?
Preparing ahead of time. As a manager – or a manager of managers – how can you prepare for calibration?
Inside a calibration. Politics, deadlocks, strategies, allies. What are the typical situations which arise, and how can you respond to them as a manager?
Biases during calibration. Common biases at play during calibration, how to spot and counter them as a manager in the room. Also, ways you could help promote fairness by pushing back against biases.
Advice for managers. How can you set up your direct reports to get better feedback from others during the calibration? Also, what should you share with your directs and what should you keep private?
Advice for individual contributors (ICs) in preparing for calibrations, ahead of time. It turns out, you can tip the scale in your favor by helping your manager, if only by a limited amount.
1. The “why” of performance management
If you’ve worked at a larger company, you’ll know that formal performance reviews – together with a promotion process – are usually parts of how these workplaces operate. But let’s take a step back and ask the question: why? Why is there a performance process at pretty much every company? To find out, let’s do a thought experiment about a company with no performance management process.
Let’s assume this business starts as a small startup with a few cofounders who are friends, who work hard, and then hire the first few employees. Those colleagues also work hard and the company thrives.
However, as the company grows employees start to ask questions, like:
Why does Employee X or Y make more money than me, when we do roughly the same work?
How big a raise will I get? Will everyone get the same raise? If so, how is that fair when I worked longer and harder than some others? If the raises are not equal, who decides and based on what, who gets the bigger raise?
Why does a new hire get paid a lot more than me, when we do roughly the same job?
These questions are common and are about two things:
Expectations. What’s expected from me, versus what is expected of others?
Rewards and compensation. What can I expect if I do an okay job, a great job, or if I put my heart and soul into this role?
In our thought experiment, a few things happen when these questions go unaddressed:
People grumble more and more, usually that:
Things are opaque as everyone’s compensation is different, and compensation levels boil down to an individual’s negotiating skill.
Things are unfair when everyone is paid the same and raises are identical, as those who do more or better work are rewarded the same as those who slack off.
Employees who feel they work harder than others but don’t get rewarded for it, may often leave. These people are often the top performers.
Those who don’t pull their weight and do far less work than others, often stay with the company. Such people make it harder to get things done, pull down team morale, and drive some higher performing colleagues to eventually seek opportunities at workplaces where they don’t have to put up with low performing co-workers and are better rewarded.
Without performance management in place, a company will find it close to impossible to identify who’s a top or low performer, or at least will have trouble doing so fairly:
The low performers. Those doing less or poorer quality work than expected. They might be slacking off or coasting, or they might lack the skills needed for their job.
The top performers. People who stand out for their contributions. Among software engineers, these are the ones who tend to ship things faster, get things done with fewer bugs and regressions, take actions which reduce the effort of shipping, and lift up colleagues in their team and around them.
Those who are ready to be promoted to the next level. Above a certain size, companies introduce levels for roles like software engineer and engineering manager. The higher the level, the greater the compensation and the bigger the expectations are. Making it clear where people are relative to the next level, becomes an important way to help them grow, to motivate them, and to keep them grounded – especially early during careers. Read more about promotions in the issue Preparing for promotions ahead of time.
Low performers are folks who need to hear this feedback and to improve. Top performers also should get feedback and support for career opportunities and growth.
A performance management process helps identify low and top performers. Conveniently, it can also resolve compensation questions by providing a predictable, systematic answer to the question: “why has person X got a higher/lower raise.”
2. Companies operating without formal performance processes
There are some companies that operate with no performance management process. I talked with a software engineer working at one such business, who shared: