Performance Management Systems is one of the most misunderstood initiatives in an organization. Yet it is the fundamental cornerstone, the basic building block from which many other people initiatives in the company are built from. When clearly understood and articulated by senior leadership and executed well, an organization is well on its way to becoming a people-centric workplace with a reputation for fairness and managing its talent management system impeccably.
Performance management systems come under many names, some of which include performance appraisal, individual development planning, managing for achievement, performance planning and development, to name a few. Some companies choose to label or brand the exercise, but essentially it refers to the performance management system.
Of late, there have been reports of companies ditching the entire performance management program or process, claiming that it does not serve its original intended purpose. In this article I will attempt to explain why there is such a damning view of performance management and why it is critical for viewing people initiatives in the organization as a SYSTEM, of which performance management forms your fundamental building block.
MY STORY
- Managers in many organizations I have been with or consulted for, are loathe to start the annual performance review cycle (one part of the performance management process/system) until training is provided for them at the start of the annual cycle as a refresher. Really? You want the Human Resources team to give you training ANNUALLY for something you should be doing daily – managing your team, their performance and development? Really?
- 95% of managers and executives (yes, executives) say that performance management is done to determine the merit increase (MI) percentage for the following year and calculate the bonus pay out for the past year – of the employee. Furthest from the truth. Or at least, it should be.
- When it comes to development options, preserving the budget takes highest priority and therefore development becomes something of low priority. How about asking for this in the budget for the following year? Little wonder that the rating for talent that a company like this attracts, retains and call their talent is pretty much a 4 – 5 out of 10.
- Many companies love to give new employees an average rating for the first two years, regardless of how good their performance many have been. It is part of the company’s DNA. It is how things have been done for many years. Talk about disillusioned employees.
The Components of the Performance Management System
The components of the Performance Management System are:
- Objective Setting for the new/forthcoming year
- Development Planning for the new year (together with the Objective Setting) and Career Discussion
- Check-in reviews
- Annual Performance Review of the objectives/KPIs for the year passed/completed
If I were to talk this through as a story with an employee, it would go like this:
“At the beginning of the work year, you need to know what your objectives/KPIs are for the year. It is a discussion you have with your manager to mutually agree on those objectives. Naturally, your objectives are derived from your manager’s objectives/KPIs. If you happen to know your manager’s manager’s (2 levels up) objectives/KPIs and priorities, well and good, that ensures that you know the BIG PICTURE of what you are doing and why. If you know your CEO’s priorities for the year, you get to know exactly why you are doing what you have agreed to do and how your job adds value to the overall organization. This is Objective Setting.
I assume that some of the things you have been asked to do and agreed to do this year may be different from what was expected of you last year. I certainly hope so. This then means you might need to pick up a new skill or enhance some of the skills you already have. What might your development plan look like for the year? This is Development Planning. If you have been in your role for a while, you may want to know what is next for you in the company in terms of your career. Having that discussion together with your development options for the year is called Career Planning.
Once in a while, as the work year progresses, you would want to know how you are doing. It is a perfectly reasonable request. The number of times you require feedback is something you discuss with your manager unless there is a formalized process (e.g. monthly, quarterly or half-yearly) in the organization. This is your Check-in Reviews or periodic reviews.
At the end of the given year, you would want to know how you did against what you agreed with your manager at the beginning of the year. If you have had your check in reviews, the end of year / annual discussion should not be a surprise at all. This is the Annual Performance Review. The cycle then restarts with Objective Setting for the next year.”
That’s it. In four short paragraphs, I have explained to you the entire process of what happens and why it happens. It does not change yearly, it does not include or exclude anything else. This is it. There is no real need for an annual refresher is there?
Objective Setting – How to Do It?
Many organizations use the S.M.A.R.T. acronym for setting objectives. This acronym works out as follows:
S – Specific
Keep the objectives specific and short with no room for ambiguity or misunderstanding
M – Measurable
That which does not get measured does not get done. Add measures or targets in your objectives.
A – Attainable
Keep it within the reach of hope. Let it not be unattainable form the get-go. This also refers to the number of objectives and employee is expected to fulfil. I would not advise more than 5 – 7 objectives per year. Otherwise, an employee is spread thin and ends up doing work that is non-value add.
R – Relevant
The objective has to be in line with the manager’s priorities or the department/organization’s priorities. It should not be a stand-alone goal, as far as it can be avoided.
T – Timely
Add a deadline to ensure completion, but be flexible if the situation changes and the timeline needs to moved forward or backwards.
A Mindset of “Feedback = Development”
If we see ALL feedback through the lens of development each and every time, I believe that both the recipient and the giver of the feedback will benefit immensely from that discussion. In turn, the organization benefits from having additional (or improved) skill sets within the company.
For example, Ronald who works for me knows a little of how to manage an Excel spreadsheet, but his current competency with spreadsheets is nowhere near where I need it to be. Mary, on the other hand, who also works for me, is a spreadsheet wizard. I can give this feedback to Ronald immediately, or wait for a time when periodic performance check-ins are done. I prefer immediate feedback. The conversation might go along the lines of this:
“Hey Ronald, you have now joined my team from your previous team for about two months? How have you been doing, in your opinion?” After the pleasantries, I might say….
“I wanted to give you some feedback, specifically about your spreadsheet skills. I know you can do spreadsheets, and that is a good thing. However, in this department, I have a need for you to have spreadsheet skills that include pivot tables, the ability to present graphs, sort and analyse data etc…. I need for you to develop yourself in this. Here’s what I plan to do, and I would like your feedback or reaction to my suggestion. You know Mary from our team right? She has some exquisite talent and skills when it comes to Excel spreadsheets. I’d like you to partner her for the next six weeks and learn the following (…..) from her. I will speak to her about partnering with you and coaching you. Would that be OK with you?”
In one discussion, I have managed to do the following:
- Identify a clear area for an employee to improve in
- Clearly state where the gap is and what is the development needed
- Provided an option for development – Mary as a coach
- Clearly outlined what Ronald needs to learn from Mary (or what Mary needs to transfer to Ronald)
- A specific timeframe for this to happen – 6 weeks
- Make the connection for Ronald with Mary
- Have not depended on an external classroom training for development
- Saved some money on external training (if that is what it valued)
What if we all diligently looked at feedback as an opportunity for development and learned to master the art of doing this? Wouldn’t giving feedback become a joy to both giver and receiver? Wouldn’t it be less of a scary thing at the end of the year when the performance review is just another feedback session that leads to development options? Wouldn’t it increase the skill set of the manager to give feedback in good faith and improve as a manager? Wouldn’t the collective management benchstrength of the company improve over time? Might an improved benchstrength mean something for the talent pipeline?
Oh, and by the way, Mary is seen as a team player and I would have mentioned her willingness to help in her annual performance review. A win-win all around.
Feedback = Development Option. Simple as that.
Development Options
Q: Who owns an individual’s development? The choices are:
- A) The employee’s manager
- B) The Company CEO
- C) The department budget
- D) The employee
A: It is ALWAYS, ALWAYS the employee, regardless of the size of the company, the headcount, the budget, company culture or geographic culture.
Many managers and employees are very comfortable with blaming the Human Resources and Finance functions for the lack of funds for training. Training in this context refers to external, classroom training. However, recent trends tend to show a move away from huge training budgets traditionally held by the HR function. Today, these budgets are allocated to business units that include monies for training and development. It puts the onus on managers to determine development needs, who gets it and in what form.
As a general rule, development can be broken down in the following ratios:
- On-the-job training 70%
- Seminars, networking, conferences, agile projects 20%
- Classroom training, internal or external 10%
The practice of performance, development and promotions based on seniority in the company or age is outdated in this day and age. Technology has levelled the playing field and knowledge is no longer the prerogative, or held in the domain of a person who is older or has been in the company longer.
Training and Development options will be covered in detail in a separate chapter.
Ratings and Links to Rewards
In its current form, at the end of every performance review is a rating of the employee’s performance for the year. Some are done on a scale o f 1 – 5 and looks like this:
1 – Exceeded Expectations
2 – Above Expectations
3 – Met Expectation
4 – Below Expectations
5 – Needs Improvement
Some filter this down to a three-scale rating.
In most organizations today, whatever the scale looks like, the rating is meant for the following purposes:
- Assigning a percentage number for one’s Merit Increase (MI) for the following year and/or
- Calculating the bonus payout of the previous year. The individual rating forms one component (individual performance) of how the bonus is calculated
It is little wonder then that employees see the entire performance management process and system as an exercise in monetary reward and distribution. The fairness of execution, the timing of payment – all take centre stage and the primary and core reason for the performance management system is forgotten. And that is – DEVELOPMENT of the employee.
Sometimes, employees agree with their manager to achieve 6 objectives (for example) for the year. Upon completion of the agreed 6 objectives, they expect an Exceeded Expectations rating. Did you not agree at the beginning of the work year to these 6 objectives with your manager? Why are you an “Exceeded” then? You have MET the objectives you agreed to do. That is all. When you overlay the realization that this employee’s merit increase percentage suddenly looks significantly lower than they expected, you can see why the performance management system is seen with disdain.
Similarly, when an employee says that they did not have time for any development as they were busy trying to achieve their objectives, it just tells me that they are not keen to own their long-term careers. I manage this expectation upfront with my employees.
Where can Performance Management lead to?
A performance management system, well-articulated and executed in a company allows for clarity and execution in the following areas:
- Identification of talent Talent Management
- Hiring the best external talent Talent Acquisition
- Identifying the talent pipeline Talent Management
- Succession planning Talent Management
- Retaining top talent Talent Retention
- Identifying and managing HiPOs Talent Pipeline
- Identifying the right development for talent Talent Development
- Parting with non-performing employees Talent Renewal
Leadership Pitfalls of Performance Management Systems
When a performance management system seems to feel like a burden and “yet another thing to do at the busiest time of the year”, there are a few reasons for this.
- A collective apathy at the leadership level at getting performance management done in a rigorous manner. It is common to see such leadership teams articulate performance management as an enabler to merit increase determinants and bonus determinants.
- Leadership teams who do not understand talent management in the company as a system of integrated initiatives. They see the initiatives as stand-alone items that need to marked off as the calendar year progresses. For example:
- December – January Performance Management Cycle
- March Merit Increase and bonus payouts
- April Talent Reviews/Succession Plans
- July – Budgets (that may or may not include budgets for development)
- October-Stock option handouts for select individuals
- When executed in this chopped up manner, there is no integration of initiatives into a system where doing the basics effectively leads to a tidal wave of results down the line.
- A weak Human Resources team
- A leadership team that is worried only about their own department and their own KPIs and not about the organization’s success or future. This is silo mentality at its best.
All initiatives work as part of a system where the benefits of the collective far outweighs going through the motions of the individual initiatives.
Where are all these outcomes kept?
Data with regards to development undertaken, promotions earned, achievements attained and the reason for being classified as a High Potential or a High Professional needs to be stored in an organization memory bank, whatever that software may look like. It is critically important for purposes of continuity and fairness when important decisions are made around talent.
Incorporating the Values of the Company into Performance Management
Most companies have a set of values for employees to embrace and follow as their guiding principles when working for the company. These are clearly expected to be reflected in the day-to-day behaviours of the employees as they represent the company. These values act as a reference point to how the employees go about achieving their objectives and KPIs for the year.
For example, a salesperson overachieves on his/her sales target for the year. Unfortunately in doing so, he/she has soured the long-term relationship with the client and has berated several colleagues internally to ensure that the results were impeccable. Do we reward or praise this person on this behaviour? Has this person set a good example for others in the company to follow or will others now start to emulate this behaviour, seeing the potential success and rewards it has brought to this individual? In this case, the achievement needs to be tempered with the values articulated or published by the company and the employee needs to be held accountable for his/her actions and counselled.
So why are organizations moving away from Performance Management?
For many companies, the conduct of performance no longer serves a purpose as the shift has moved from the focus and intent of renewal to that of financial reward (MI, bonus) and that of punitive measures. As financial incentives have become razor thin in today’s business environment, this too has taken the shine off performance management.
In the last decade, companies such as PwC, IBM and GE have moved to models that look something like:
- Forget the annual cycle
- Give immediate feedback to employees on areas that need improvement. When the required level of change has happened, reward them with a small bonus.
- Give department heads a budget from which to make annual Merit Increments for their employees, based on performance. This is divested from the Performance Management cycle.
While this is a good short-term measure to decouple feedback and development from the financial reward aspect, talent management and development still needs a foundational bedrock from which to establish itself, and in my opinion, that is still the performance management system.
Learning Points
- Performance Management is a basic building block of the entire talent management ecosystem.
- For every feedback, use it as a reason to provide development options.
- Find various avenues for development and not rely on classroom training or external vendors alone.
- Delink, where possible, the links of performance management to financial rewards or punitive actions.
Note:
Forced Ranking Exercises
This is an activity that sometimes follows the Performance Management Cycle. More of this in another chapter.