Performance Management is not an HR system

As we approach the end of the year, you're likely to start getting emails from HR teams reminding managers and their teams to prepare for the year-end cycle. Critical work, to be fair. It's the input to the yearly merit and bonus decisions to ensure people are paid fairly and equitably.

While HR teams are responsible for running the cadence of performance and reward cycles, performance management is NOT an HR system...it is a BUSINESS system, and it should be designed to drive what is most important for the business to align individual and team incentives with what drives the most impact for the business.

The problem is, we design performance systems to function as an administrative process, which ends up feeling too heavy and burdensome and doesn't add much value along the way.

Start with the business

The most effective performance systems I have seen are developed first and foremost with the business, creating focus on the most important business drivers. Start with narrowing down to the 3-5 metrics or KPIs that, if you were to see these rise, you would have a high degree of confidence in the long-term performance of the business. These are your business drivers.

Most companies already know what these are but perhaps haven't laid them out explicitly. Perhaps some companies have too many metrics and haven't created a specific focus on the most important indicators of success. And maybe you start with a set, but then learn something to further inform which ones are the most critical.

In any case, narrow down and then communicate, communicate, communicate on the progress throughout the year, and especially at the end of the year. Everyone should be driving towards these in some way.

Next is the culture

First, tell people WHAT results are important. Next, tell them HOW they should go about achieving them. If you don't, you'll find that people will chart the quickest path to performance, even if it compromises the business, ethics, principles, and fairness.

What are your values? Is collaboration important to your success? Are you looking for innovation, or is operational excellence the most critical? Are you looking to drive influence through consensus or would you prefer people move fast and make decisions in the best interest of the business?

These details matter, and if you don't communicate the HOW, you'll miss an opportunity to shape the right culture for your organization.

Create alignment and accountability

The next step is determining how to align on who is doing what, and how everyone will feel a sense of accountability and (eventually) accomplishment for their work.

• Clarity: Whether goal setting or objectives or whatever you want to call it, people need clear priorities to understand how their work individually contributes to the bigger picture, both their team and the broader organization.
• Agility: Clarity is great, but if people are clear on the wrong things, they need to understand how to pivot to the right things. How are you building in a culture of agile and responsive teams who adjust priorities based on what is emerging and what they have learned?

All too often, performance management systems have built-in goal setting mechanisms that go stale just as quickly as the goals are published. At the end of the day, it's not about whether you hit the goals you set at the beginning, but whether you were able to drive the right results and impact for the business by staying in tune with the biggest needs.

Finally, the incentives

The biggest mistake most performance systems make is to put people in boxes. If your rewards are based on a rating, I can almost guarantee your incentives are not aligned with the actual performance and impact of individuals.

Performance is multi-faceted and can take many forms. Yes, there are the obvious high performers who get noticed over and over in every performance and talent cycle. But how about the people who work silently behind the scenes to boost the performance of the team by creating clarity or harmony or engagement or psychological safety?

The key is to gather signals from multiple sources to inform how people are contributing to the greater good, including metrics/KPIs, skills/growth over the cycle, along with feedback from peers, project team members, managers (direct and dotted line), stakeholders, direct reports, etc. Direct managers will never have the whole story (and shouldn't be expected to know everything!), so how can you open the aperture to paint a more holistic picture of people's performance?

The tie to rewards should not require that people write a book on themselves or their team members. But it should feel fair, and it should be easy to articulate to create a clear link from an individual's performance to their bonus/merit/equity.

Oh yeah...and the tech

The technology that underpins performance systems should not come first, because it will unduly influence the design of any performance system. However, it is perfectly healthy to do loads of demos to understand what is out there, how tech could help drive what you are looking to do (and how it can hinder). Be inspired by it, but don't be inhibited by it.

Also, be open to the possibility that you may need a tech stack of a few niche providers to do different things. Just be mindful of integrations and the user experience. The goal is to minimize the friction and make it as easy as possible for people to use the technology. It should add value and make people's jobs easier.

If all of this feels overwhelming, my overall advice is to keep it simple. Start with focus on the business drivers, strip everything else back, and just watch how this kind of clarity will already bring a stronger focus on performance across the organization.

If your performance system needs an audit, a refresh, or even an overhaul, I work with organizations to build powerful, simple, and pragmatic performance systems WITH the business to drive the right impact. Reach out to learn more.