The 6 Vital Elements Of Effective Performance Management Systems

Occasionally when I’m with a large group I ask two questions. The first, “Who had a performance review last year?” will result in most hands going up. I follow up by asking, “Who had a really positive experience in that performance review?” Unexpectedly, only a few hands will go up.

What’s wrong with performance management?

Performance reviews tend to focus on the past. They are a look in the rear view mirror instead of through the windshield and planning for a brighter future. Research has shown this results in negative outcomes over 30% of the time and can also damage people’s self-esteem. Employees lament that these reviews focus primarily on recent events rather than performance over time. They note that managers will often carry a bias, as well. Indeed, other research shows that often immediate colleagues have a more accurate view of a person’s performance than does the manager. Finally, results have shown these reviews will rarely improve performance, although the process is a huge investment of managers’ time, besides being an emotional drain for many.

Due to these problems, organizations have experimented with a number of fixes. Some have eliminated rules altogether and let people manage themselves. They recommend only positive feedback and eliminate traditional appraisals all together. Others have taken the opposite extreme, with detailed quarterly plans and frequent reports by employees on their activities and results. Still, others have tried different techniques for appraisal, asking about whether you would want this person to be a permanent member of your team, or should this person receive a maximum bonus.

When a performance management system is done well, there are positive outcomes. With no system in place, feedback between leaders and employees is less frequent or often non-existent. Organizations need systems that set objectives and define work plans. Compensation requires an underlying rationale for its administration. Additionally, the periodic appraisal provides legal protection for the firm in cases of demotion or termination. Even more importantly, employees want feedback on their performance and need to know how they can improve performance and further their career.

Every organization needs to find a middle ground because performance management, in some form, is required to stay, while at the same time there is a clear mandate for change.

Building A Successful Performance Management System

The following are some key elements that can improve the quality of your performance management system.

1. The system must be accurate and fair. A manager does not always see an employee’s performance accurately or comprehensively. Only by obtaining multiple perspectives can the system achieve fairness and accuracy. Individual performance is always a combination of the skills and capabilities of an individual put in the context of a job. Some jobs are easy and others are difficult.

2. The system must be efficient. In some cases, systems can take an inordinate amount of time. They end up detracting from performance instead of elevating it. The program must be more than a “box checking “ process or a flurry of paperwork. Bottom line, it should improve the way that people perform.

3. The system should elevate performance; not just measure against lower limits. Traditional performance management practices have focused on insuring that subordinates were meeting minimal performance expectations, rather than looking at the potential upper limits. An effective system should clearly link the individual’s performance to the organization’s strategic objectives and current initiatives. It should emphasize a culture of taking responsibility, which goes beyond making people merely feeling accountable.

4. Compensation decisions should be a by-product of performance management.Compensation decisions should not be the main reasons for its existence, nor should compensation be in the driver’s seat. We would argue that only one discussion each year should deal with compensation. Furthermore, the reality is that the great bulk of salary increases are driven by the changes in the cost of living. The differences in increases for the great bulk of people in the middle of the curve are minuscule. Yes, there are a few people at the extremes whose compensation will be strongly influenced by the performance management system. A few poorer performers will get minimal or no raises. At the other end, a few top performers will get large raises. Organizations are beginning to realize that many groups of people inside their firm are not neatly distributed on a normal curve.

5. The system should use multiple data sources. Every system should use some form of multi-rater feedback. Managers who rely solely on their perceptions of a person’s performance will introduce a certain amount of “rater bias.” The manager can informally collect multiple inputs. The manager can also use some instruments to collect this data. When the manager’s view is augmented with two peers and two subordinates, rater bias is erased, allowing the system to evaluate performance accurately.

6. The process should include the formal development of coaching skills. The common element in the great majority of recently implemented performance management systems is frequent coaching conversations. However, coaching and providing feedback to others are skills that don’t come naturally to everyone. The good news is that managers can acquire these skills through formal learning methods that include:

? Clarifying the outcomes being sought from coaching conversations.

? Understanding the specific action steps required.

? Observing others' coaching correctly (live or on video).  Nothing compares to watching someone do it right.

? Practicing and rehearsing those skills until you gain competence and confidence in using them in real situations.

In summary, performance management needs to be remodeled, not thrown away. It should encompass new processes that take advantage of more than the immediate bosses’ views and that emphasize the future more than the past. It should explore the upper boundaries of performance instead of measuring against the minimum. To succeed, the remodeling should preserve the positive elements of past systems, eliminate the major problems of current processes, and meet the objectives of a more modern and effective approach for achieving performance management goals.

More about Me and Zenger Folkman

I am a best-selling author and speaker on leadership development and organizational behavior. Since 2011, I have had the pleasure of contributing a library of articles that share my thoughts and research on Harvard Business Review and Forbes.com. If you need more help from me or from our team, feel free to reach out to us at www.zengerfolkman.com. While you’re there, check out our Resource Center for eBooks, and White Papers. You can also sign up for our monthly Leadership Webinar Series. These webinars are complimentary, active learning experiences that include assessments and development plans that can boost leadership skills for individuals and organizations.