Making the Performance Management Process Click

The performance-management process in many companies continues to create a lot of hysteria. Organizations are trying different things like removing ratings, continuous feedback etc. to make this work. But if you read research published by leading consulting firms like Deloitte, PWC, McKinsey, etc., many organizations still do not see any impact of performance management process on company’s performance and they do not see a positive ROI for the time spent on the process. While many of the challenges shared by the organizations are real, I believe that the process can provide great value if we get some of the basics right. These basics will help achieve 3 things – Clear Objective for the performance management process (PMS), fairness and simplicity. 

Let’s start with defining clear objectives. While reviewing the same research I came across multiple objectives that the organizations are trying to achieve with PMS. Some of them include building a high-performance culture, development of employees, basis for compensation decisions and engaging the employees. While these may be the byproducts, we need to look at why performance management came into existence.

• 1900’s - Leaders from different fields of work like the army, business, etc. measured performance to ensure they achieve their defined goals.
• 1950’s - Management guru Peter Drucker came up with Management by Objectives which revolves around creating clear goals and defining an action plans to achieve them.
• 1990’s - John Doerr came up with OKRs which again revolves around cascading and achievement of goals.

Do you see a common trend? All of these revolve around a common theme, “Achievement of Business Goals.” Hence the first essential is to set a clear objective that is in line with what the process was designed to achieve. It is also important to note that this is a business process that the leaders need to own and drive in the organizations.

Some of the other practices that we can use to make the process simple and fair are given below:

Build a Performance Philosophy: Performance philosophy helps define the common rule of the road to manage the performance of employees. The philosophy defines who is a high performer or a low performer, how long is it ok to be a low performer, how transparent will the organization be about the process, how much with the organization differentiate its rewards and who will be accountable for driving the process and what will be the consequences for missing out. These questions are answered by the leadership team using a survey and the data is presented to the team and a discussion is facilitated with them to reach a common agreement. This is then socialized with employees by the leadership and HR team. Doing this ensures everyone in the organization understands the expectations and every leader makes a decision using these common rule bringing more fairness and objectivity to the process.

(Source: “What’s your talent philosophy? by Marc Effron, author HBR best seller One Page Talent Management and Founder, The Talent Strategy Group)

Link to Organization Goals: Since the whole objective of the process is to achieve business goals, this becomes the most critical aspect. The first critical aspect is to understand how frequently should the goals be revised. Organizations that are in early stages of evolution and work in dynamic market conditions should typically relook at their goals quarterly or bi-annually whereas others can look at an annual process as well. This helps ensure critical business goals are defined and refreshed as per the leadership priorities. Once this is in place, next step is to ensure these goals are cascaded to every employee in the organization. While many organizations define the organization goals well (using cross-functional leadership workshops, etc.) they miss out on the cascading part. Either they assume employees know their jobs or they do not want to spend much time in getting this right. Considering everyone in the team is working towards achieving organization successes, this process should be given the due weightage that it requires. Typically, this process doesn’t require more than a week to 10 days for a 1000-2000 employee’s organization, if due consideration and importance is given to the same. Also if done right, most of the anxiety during the evaluations will go away as the goals will be objective and directly linked to organization success.

Ongoing Coaching by Manager: Once the goals are defined, tracking ongoing progress, guiding and coaching employees can have a great impact. In a recent survey by McKinsey, 74 percent say their performance-management systems are effective, and 62 percent say their organizations’ performance is better than that of competitors when managers effectively coach and develop their employees. In many conversations that I have had with leaders and managers, they feel that sharing ongoing feedback takes a lot of time and many times employees do not come out happy after these conversations so it’s better to avoid them. This is a common case of managers not have the right capabilities and avenues to share feedback. This is where the role of the HR is critical in building a case to invest in building these capabilities in managers and providing them simple tools and processes to provide feedback. Some such tools that I have seen are Impraise, Zugata, Karma Notes, Small Improvements, etc.

In case you are not looking to invest in a software, a simple tool that can be shared with a manager (inspired by Agile Methodology) is to ask the manager to have a monthly conversation with each team around the following:

• What all have we achieved so far against each goal?       
• What do we plan to achieve in next one month?        
• What is getting in the way?

Differentiate Rewards: Next critical element build fairness in the process it to differentiate rewards shared with high, medium and low performers. While this sounds easy, it’s not always the case. This is because most of the roles today are interdependent where collaboration is critical, and results can’t easily be traced to individual efforts. In such cases, the performance philosophy plays an important role as you have already a clear definition of a low or high performer in your organization's context. Along with this applying the right benchmarks and sharing this with managers can make the overall process more efficient. This also helps the managers in clearly explaining the reasons for a pay decision and employees can also understand them.

Remove the Extra Weights: Many times HR is also at fault for running after shiny things without paying dividend to the real problems that need to solve for. The performance management has also been a victim of this. Some of the elements that should clearly be avoided are:

•  Kill the Ratings: While this has been debated enough and many companies that let go of ratings have reintroduced them, just wanted to keep it here to reinforce that a rating less system reduces the fairness in the process and makes it difficult to differentiate performance.    
• Use Fancy Rating Definitions: To reduce the anxiety caused by rating, organization have also experimented with fancy rating definitions like the valued contributor, start performer, etc. While these look soft, it is difficult to communicate if the employee actually achieved the goal or not. Hence sticking to basics with definitions like doesn’t meet expectations, meets expectations is more effective. Another learning from my experience is when sharing with employees communicate the text and not a number as many times 3 out of 5 looks bad to employees which is not the case.       
• Self-Review: If you are having regular conversations with the employees, self-review is something that can be removed as employee already has a lot of opportunities to share his/her views. In case you want to keep this, definitely avoid the self-rating as science has proven that all of us have an elevated view of ourselves and will definitely give a higher rating to our performance.

Performance management is one of the most critical processes that many times becomes a tick in the box activity and most of the dissatisfaction from employees comes as organizations do not do justice to the process and/or use it solve problems that it is not intended to solve. Many organizations also believe that using the best software for PMS will solve their problems. While technology can enable the process, it’s important to get the above basics right to make the process is fair and simple. 

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