Make Your Performance Management System Work

We hear all the reasons why performance management doesn’t work and wonder “are there companies that are doing this well?” I am happy to report that there are companies that take the process seriously and have an effective program in place.

There is an insurance company headquartered in the Midwest that has an effective program in place. It started with the promotion of one of its officers to the CEO role and one of his first initiatives was to meet with the new head of human resources (CHRO) to get feedback on how to make the process an integral part of management. The CEO and CHRO along with the management team wanted a system that:

  • Delivers fair, honest, and defensible performance feedback that could be used for all human resources decisions, and
  • Drives organization performance

The process that was implemented is championed by the senior leadership team and supported with ongoing communications and training for participants. This organization has done an excellent job at communicating the different performance levels and the expectation that not all employees will exceed expectations. Finally their program is built around the company’s strategic plan.

Human Resources is an active participant; each review is read by human resources and questionable reviews are discussed with the manager in the spirit of understanding not “gotcha.” There is an expectation that most ratings will be “meets expectations” and any review that results in a different rating is read by the CEO, the CFO, and the CHRO. One of them meets with the manager in question to discuss the review and the rating. It is very clear that senior management takes the process seriously.

Research from the Institute of Corporate Productivity suggests the best practices for effective performance management:

  1. Includes developmental plans
  2. Managers are trained on conducting the performance evaluation meeting.
  3. The quality of performance appraisals is measured.
  4. There is a system to address and resolve poor performance.
  5. The review includes information other than that based on the judgment of managers.
  6. The process is consistent across the organization.
  7. Employees can expect regular feedback
  8. Multi-rater (360 reviews) input is used to support the process.
  9. Includes ongoing goal review and feedback

You can make performance management more effective and in further articles we will provide suggestions.

By Martha Glantz - Senior Director at Total Compensation Solutions

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Why Doesn't My Performance Management System Work?

Performance management is the scourge of most managers in this country. In my 30 plus years in human resources working in corporations and consulting, one of the most frequent complaints is that the current performance management system just doesn’t work. Why? The two more frequent reasons we hear are:

  • “The merit increase budget is too small so why bother to rate someone very good or not so good when the dollars I can award won’t make much difference.”
  • “We have a five point rating scale, and I don’t care what you call it, that translates to an A, B, C, D and F system and none of my employees are “C” students.”

What is particularly intriguing to me is that these exact same arguments have been made since the late 1970’s. Even with a merit increase budget in the 10% range and increase opportunities that ranged from 5 to 15%, managers were unwilling to make real distinctions in performance and the actual increase amounts.

I always thought of myself as a pretty good student, but I got some “C’s” along the way and I suspect so did a lot of these managers and employees. If I got one of those “C’s” it made me think about what I need to improve to get myself back to the “B” or “A” that I knew I could achieve.

Managers make tough decisions all the time about what to pursue, how much to spend, what projects to drop. What is it about performance management or performance appraisal that makes managers unwilling to provide honest feedback to their employees?

Over the years I can point to several factors:

  • Most of the managers I see have not been trained to be a manager of people. They were selected and promoted based on their technical competence and then given people management responsibility. Few companies have a robust management training program and with the current economic environment this is not likely to improve.
  • Few managers are paid based on how well they manage people. It is not unusual to read manager’s job descriptions and not see accountability for people management. Furthermore, I have rarely seen a manager’s bonus/incentive linked to people management.
  • There are no real consequences for the employee. Employees that are rated highly tend not to get significantly larger increases than those rated “meets expectations.” And even with minor differences in the increase percentages, employees will argue over a tenth of a percent. Managers tend to fall back on rating most employees the same and granting similar increases to all employees.

In the next article, we will provide some ideas for how your company can move your performance system to one that actually works.

If you would like to learn more about developing a performance management system for your organization, call Martha Glantz at Total Compensation Solutions at 914-730-7300.

Martha Glantz is a senior director at Total Compensation Solutions (TCS). TCS is a full service compensation consulting firm specializing in Executive Compensation, Board Compensation, Performance Management, Bonus/Incentive Plan Design and Broad-based Compensation.

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