Why Performance Management Systems Are Broken

Executive Summary

For over two decades, I have been supporting the C-Suite with its complex journey in Talent Management. I have seen executives build incredible cultures that create productive, high performing teams. I have also seen the most toxic, unimaginable leadership tragedies. This experience has inspired me to share those stories with others so they can hopefully take a “lessons learned” workshop beyond the typical lessons written down exercise to implement meaningful change.  

I share my thoughts on the Talent Trifecta (Performance, Culture, and Leadership) often, and those thoughts are met with various responses from shock, defensiveness, and even occasional virtual applause. While I believe what I am saying out loud reflects the truths that stare executives in the eyes, it is hard to face those deeper, systemic issues that in large part are created by those same executives. So I am respectfully offering a new way of thinking about a very old issue.  

I believe in performance and leadership and the power that a good culture has over productivity and the results of a business. I know that leading people is hard and leading through change and chaos even harder. But I continue to read all the literature, keep up on the latest research, and wonder why these issues are not being solved when it can be quite simple.  

How is avoiding these issues and not making tough decisions and changes harder than the pain that is felt with decreasing stock prices, EBITDA misses, and growing shareholder concerns about performance and talent.  

Changing the Mindsets about Performance Management

In short, Performance Management is a process of communication between an employee and a leader that results in the achievement of a strategic business objective. Written out like this, it sounds quite easy. But truth be told, it’s one of the hardest things for CEOs and CHROs to execute. Real Performance Management is a complex system of objectives, incentives, rewards, bias, and behaviors spread across hundreds of different leaders who are expected to execute consistently and fairly. Performance Management can be destructive and actually create behaviors and outcomes that are the opposite of what the executives intended. Let’s face it… it involves money, pride, ego, and livelihood.  

This constant revamp on performance management systems is not only costly, but it is not yielding the returns on organizational performance. We have to acknowledge that Performance is so intertwined with Culture and Leadership and must be addressed as one system.  

First, we need to ask why it even matters.

Why do we have performance management systems? 

Has your Performance System become so administratively burdensome, people have lost sight of the objectives? Are people waiting for reductions in the workforce to handle poor performers? Have you fallen victim to the sexy new technology that promises automation of the process right down to the conversation? 

Second, we need to define what success really means.

What does an effective performance management system look like?  

Do you have high performers, to begin with? Are they aligned with the strategy and skilled to execute? Are people crystal clear on the metrics of success? Do they have access to the metrics daily to adjust and pivot or are you looking at data from the past? Are bonuses still paid out when targets are not met? Are leaders skilled to lead the performance of their teams? Have you intertwined performance and development so much that people are confused about performance and career paths?

Finally, we need to acknowledge what is going on today that is stopping us.

What are you willing to do about the real pain points in the Performance Management System?

If some of these answers are alarming, what are you really willing to change to make it better? Are you willing to consider that prior hard work might need to be unwound and redone? Are you willing to ask all the stakeholders for their feedback and implement it?

Why Performance Management Systems Fail

I always think it’s wise to take a look at some of the main reasons things don’t work out before considering ways to make them better. Performance Management systems typically derail for the following reasons.  

• They are not integrated with Culture and Leadership - Redesigning performance processes or implementing a new system to track ratings and create nice reports often lacks a deeper consideration of the overall culture. If you have a culture where people don’t like to give feedback and leaders are not skilled to do so, then you are about to flush thousands of dollars down the drain on the sexy new technology. If you have a pay for performance culture but deep down what that really means is that people will rate and pay fairly but are equally comfortable overpaying if a tough conversation needs to happen or someone's feelings might get hurt because of a rating. And if you have a culture where leaders send their employees off to dream up their annual goal plan in a vacuum and come back with a nicely completed form for approval, something is seriously broken. You cannot separate Performance from Culture and Leadership. 
• They are delegated to Human Resources - The CEO is the champion of Performance Management. Many CEOs actually hate performance management systems, but I’ve never met a CEO that didn’t care about strategic results and profit. The CEO must define performance outcomes, standards, and expectations and must always be in charge of deciding about any changes to Performance Management. So let me clear about what I mean by changes. CEOs don’t care about what system HR uses or what the ratings are called. CEOs care about whether the process, policy, or program gets all their employees aligned with their strategy and executing consistently towards meaningful objectives. Why does this matter? Because CEOs want comfort knowing that all the money they invest into base pay, short, and long term incentives is being allocated to reward those that actually performed. CEOs want to be confident that people are productive and executing the right things regardless of the carrot or the stick philosophy.  So while HR has a major role to play in Performance Management, the real executive sponsor and leader of any performance management program is the CEO.
• They have the wrong measurements - Real Performance Management shows up in hitting the metrics that really matter. Things like money and time. How efficiently is the workforce producing value? Things like process efficiencies (which equal money savings), customer satisfaction (which leads to revenue generation), and having fewer people being more productive to produce valuable work (which leads to money savings) rarely show up on goal plans. The chase, however, continues for metrics like “on time” and “on budget” with very little focus on whether the benefits realization occurred for which the money was initially allocated and the timeline was established. Or a date on the calendar as a measurement instead of quantifiable impact measurement. Also, this concept might rock the boat to consider, but performance can occur before December 31st.  

So consider looking at integration, role clarity, and effective measurements as foundational before jumping on why you would even have a Performance Management System, to begin with.

The Why of Performance

Why have Performance Management?

Organizational Performance should never be confused with performance ratings. As I’ve shared in previous papers, individual performance and individual performance ratings may not mean the organization is performing. However, you do have to have alignment from the C-Suite on what organizational, department, team, and individual performance means. And not the fluffy meaning. The hardcore numbers that mean you know performance actually occurred. And this is not only the first “break” in the Performance Management system but the one that will trickle through the rest of the system and destroy it.  

You have to define the Performance

So let’s take money out of the equation for now, especially since not all companies offer large, lucrative bonus plans. But all companies do engage in these “informal agreements” with employees. This agreement means that employees come to work and perform assigned duties and in return, the company puts money into their bank account. When an offer is accepted by an employee, the performance agreement begins. They show up, do the work the company needs them to do, and 26 times a year a deposit shows up in their checking account. Where has this concept gotten lost? 

I had an employee once that was dropped from the short term bonus pool and questioned me on why she needed to continue to complete performance objectives. We had a good relationship and she was a good performer. I certainly understood her feeling frustrated for losing her bonus and welcomed the chance to discuss this informal performance agreement. I thought highly of her and her work. I didn’t want her discouraged or demotivated but I also had to have the courage to speak transparently and candidly about an organizational decision.  

What did I say? I shared something along these lines. “I agree it can be frustrating to lose a compensation opportunity and that is why we baked some of that money back into your base salary. The decision to tighten up the pool was a broader business decision around funding. Now, I firmly believe that performance can and should happen regardless of whether the organization can afford to pay bonuses. These are two separate issues. That aside, let’s talk about why I am passionate about every single employee having a performance plan. First, as a leader, I have to make decisions about how to allocate money to employees. Whether it’s a bonus or base salary bump, I give more money to people that produce valuable results. And to do that fairly, I need to know what the performance is, whether you achieved it, and how you achieved it. Second, 26 times a year the company deposits money into your account for your completed work. I need to understand your work and your performance capability so I can decide if you are going to be invited back to continue to do that work. We both chuckled at my candor. And lastly, I need to ensure your performance objectives are clear so you stay focused on the things the department needs to accomplish, and your performance goals and objectives are a great way to do that.”

My point of the story is that the work must be defined with metrics and measurements. For every employee, all the time. People want to be successful. People want to contribute value. The problem is that it isn’t always clear how that’s measured. That’s why Performance needs to be defined by leaders before you even determine if performance was achieved.  

Defining performance isn’t always as easy as it seems. You have to have a strong strategy that is clearly connected to the right goals. Then you need to set up the right tracking and measuring to ensure performance occurred. It’s about the work an organization needs executed and that should never be a guessing game or an exercise that takes months to complete. Leaders must do this within the first month of the year and it really shouldn’t be difficult if you know the handful of things that need to be done to move the strategic needle.  

Some basic terms:

Strategy

The specific course of action that will take you from where you are now to where you want to be. How the ends (goals) will be achieved by the means (resources).  

Goals

Short-term objectives that an employee is expected to achieve within a set period of time.

Key Performance Indicator (KPI) 

A measurable value that demonstrates how effectively a company is achieving key business objectives.

Leading Indicator

Any measurable or observable variable that predicts a change or movement in another data series, process, or trend before it occurs. 

Performance Metric

Data allowing a basis to be formed supporting the achievement of overall business goals.

Ask yourself these questions when considering your “why”

• Have I clearly defined the strategy in a way that people know how to execute? 
• Have I clearly communicated to every employee how their work connects to that strategy? 
• Have I defined the value and the performance of the organization and each department in a way that is measurable?
• Have I clearly defined the performance to employees regardless of whether they get a bonus or not?
• Have I set, aligned, and audited each employee’s goals under my watch to ensure they are clear on performance objectives on January 1st? 

The What of Performance

What does an effective Performance Management System look like?

Now that “why” - to achieve the strategic objectives has been established you need to look at the what of an effective performance management system.  

You have to lead all the elements of the Performance Environment 

The Performance Environment is a complex system involving employees, leaders, total rewards, communication, culture, and a series of events throughout the year that can enhance or inhibit individuals, teams, and organizations from performing. So let’s talk about the “what” of the performance environment.  

• Skills / Willingness - The briefcase each employee brings to work each day. They can and will do the job. Capability and desire may or may not be aligned to do the work.  
• Tools - This is the training, resources, enablers the employee has to complete the work at hand. 
• Goals - The clearly defined objectives and metrics that define “why” they are doing the work.  
• Rewards/Consequences - Bonuses, praise, promotions, or any incentive, reward, or consequence that drives performance.  This is the complex connection to “pay for performance”.  
• Information - Data and information needed to enable the work, the work processes, and the work expectations. 
• Support - The systems and structure that are in place to support the performance.  
• Interference - The blockers to getting the work done. This can be anything from inefficient processes, unclear roles, team dysfunction, or lack of tools and information to do the job.  
• Feedback - This is the information about the progress towards achieving the goals.  It could be in the form of metrics updating on goal execution, development coaching about how to complete the work, or feedback on what not to do. This should be frequent, clear, and actionable.  

As you can see I’ve not once talked about HR systems, forms, policies, mid and end of year reviews, or rating scales. I am talking about analyzing and diagnosing the larger systems issues in the performance environment. And this is the second-biggest bust in performance management systems today. Not paying attention to the larger performance environment before re-designing a process, technology, the form, the rating scales, or the other procedural pieces. The elements in the performance environment must be addressed before you can begin to tackle the “how” of having an effective performance management system. So let’s break down the Performance Environment into things you need to consider when you want a more effective performance culture.  

Ask yourself these questions when considering your “what”

• Does every element of the performance environment support execution of strategic objectives?
• What parts of the performance environment need to be more effective to enable organizational performance?
• Is it clear to leaders and employees what is expected for each piece of the performance environment?

The How of Performance

What are you willing to do about the real pain points in the Performance Management system?

Performance management systems ensure that leaders are skilled to lead the performance environment. The only way to pull together an effective performance environment is to prepare the organization and its leaders to do so. This is this third break in the Performance Management System. Leaders exist for one reason only and that is to ensure a group of people is executing strategic objectives. They are in charge of the performance of others first and foremost.  

Performance Management actually has nothing to do with technology, ratings, or when you complete forms

We are so caught up in traditional performance cycles that we forget performance goes on all the time outside the annual process, the sexy new HR system, or whether you’ve written it down first. Performance Management is about focusing on a few key things to drive the effectiveness of the overall performance environment. By paying attention to each element you will finally crack the code to the third break-in performance management system. You have to focus on the whole system and not just the pieces.  

So here are five tips to help build the right performance management systems.  

1. Scout the right talent
2. Show the Scoreboard daily
3. Train your team at the same training camp
4. Have a clear playbook
5. Have frequent huddles

Want a better performance management system to address skills / willingness?

TIP #1  - SCOUT THE RIGHT TALENT and put better performers into it.

Consider this:

• Are you starting with high performers? 
• How strict are your recruiting processes to screen, reference check, and validate you are getting a high performer to begin with?
• Are you assessing competency and skill with valid, reliable tools to ensure the employee is skilled?
• Are you assessing whether someone really wants to do the work?

TIPS** 

1. A bad performance environment beats a good performer every time.
2. Skill and willingness become interference if they aren’t present. 

Want a better performance management system to address goals, rewards/consequences, and information?

TIP #2 - SHOW THE SCOREBOARD DAILY and Reward those performing and have consequences for those that aren’t.  

Consider this:

• Do the goals have clear metrics flashing in front of the employee every day? 
• Are rewards going to those who executed the valuable work?
• Are you willing to not reward (whether it’s ratings, pay, or something else) those who didn’t?
• Are people who aren’t performing facing immediate consequences?

TIPS ** 

1. Pay for Performance programs become interference when performance is not defined, incentivized and rewarded appropriately.  
2. Unclear goals or goals that are not set early are really interference.

Want a better performance management system to address skills / willingness, tools, information, and support?  

TIP #3 - TRAIN YOUR TEAM AT THE SAME TRAINING CAMP

Consider this:

• Is everyone being trained on the same standards and expectations? 
• Is there consistency in information and support for employees to know how to do the work most effectively? 

TIPS ** 

1. Lack of information and support becomes interference.
2. Training should be implemented early to close any skill gaps.  

Want a better performance management system to address tools, information, support, and feedback?  

TIP #4 - HAVE A CLEAR PLAYBOOK

Consider this:

• Are processes efficient and clear to inform employees how the work is connected?
• Are roles clear on who is doing what?
• Are leaders consistent in how they deliver feedback to employees?
• Are leaders skilled to “call the plays” to ensure all their employees are on track?

TIPS ** 

• Lack of clear work processes becomes interference. 
• Clear, consistent approaches to work processes can become a tool to perform.

Want a better performance management system to address tools, information, support, and feedback?  

TIP #5 - HAVE FREQUENT HUDDLES

Consider this:

• Are leaders having frequent, effective meetings that cover key information, removal of blockers, decisions and support? 
• Is performance being directed daily or just doing performance reviews? 
• Are leaders removing blockers to work quickly? 
• Are leaders capable and enabled to make decisions that are effecting the work?

TIPS ** 

1. Lack of decision making becomes interference quickly.
2. Communication is critical to ensure information and feedback are embedded into the work environment, the work, and the worker.  
3. Frequent, quick meetings are important and having effective meetings is even more important to ensure meetings do not become interference.  

The reason I like to use sports analogies when talking about leadership and performance is that when you look at sports team coaches you can see how they pull these elements together with purpose and accountability. In sports, the coach gets fired. In organizations, the employees do. More focus and accountability on performance needs to be put onto leaders to drive the performance environment.  

“Performance is more than hard work and lots of effort. It means you achieved the outcomes you set out to”

It might seem like this is a lot to manage. And that is because it is. But you have to start here and never with technology, policy, rating scales, or form design. You have to start with the why, the what, and the how to ensure you are building the most effective performance management system.  

 5 Steps to Get Started on Building an Effective Performance Management System 

1. Have a robust and effective recruiting system -This is the most important job of a leader. Think about a sports coach. They invest hours and hours in scouting talent and only pick the very select few. They look at prior performance, data, and even go watch the performance to ensure they have proof the person is really capable to perform the role. No compromising or rushing. No pushing it off to HR or someone else on their team. They know their job is at stake with every player they bring onto the field.  Start with an “A-Team” Roster. 
2. Put more energy into the Goal Setting and Measurements - Spend more time here than anywhere else. Stop chasing ratings and forms. Spend more time with leaders and teams setting the objectives, auditing goals to ensure strategic alignment, and making sure it’s all measurable frequently. No more terms in goal plans like “TBD” or “At Management’s discretion”. Think about a sports coach. They have at least two giant scoreboards so every single person can see from every angle, at any time what the score of the game is and how much time is left. What gets measured gets done so check that it’s being done well.  
3. Train your teams together - Do not train your leaders on how the technology works. That’s a quick reference guide they can on-demand learn when they need it. Train leaders on how to onboard and train their teams consistently on performance expectations, the performance environment, and performance standards of the company.  Think about a sports coach. They spend hours training their team and practicing.  And they never send the quarterback to a different training camp than the wide receiver. Teams that are trained together as a team, perform together as a team.  
4. Do better process work - Bad processes create bad performance environments. Spend more time on designing, changing, and optimizing better business processes. It is hard for high performers to succeed if roles are unclear, undocumented, and inefficient. Think about a sports coach. Coaches design plays that quickly and efficiently help the team put points on the board. Teams that have clear, lean processes realize valuable outcomes quicker.  
5. Train leaders on the most important things - Stop bringing leaders into a room to train them on how to input goals into the technology. Train leaders on how to lead the performance environment and all the elements. Train leaders on how to conduct more effective meetings. Train leaders on how to deliver feedback. Leaders exist to drive performance so they need to know that’s why they exist and how to do it.  Invest in training Leaders on how to lead the Performance Environment not the forms and technology.  

Summary and Conclusion 

Decades of research have been dedicated to understanding and solving the issues related to performance management systems. Yet, CEOs and CHROs continue to struggle with having comfort that the performance management system actually drives performance. Total Rewards programs continue to be tweaked to achieve that “ideal” human behavior. And reports continue to show Boards and CEOs remain frustrated with the effectiveness of Performance and Total Rewards plans. In many cases, technology, forms, rating scales, competencies, and timing of reviews are at the crux of revamping systems instead of why you have performance management, to begin with, what performance really is, and how to best deliver an effective performance environment.  

We must look beyond our traditional ways of thinking to take a deeper into the systemic issues that exist in organizations. By challenging the mindsets and considering a newly of working, we can disrupt and change the ingrained ways of working that are stifling the performance of individuals, teams, and organizations.  

About the Author - Tonia Emery

As the Founder of Results with ACT, Tonia Emery provides products and services that help organizations deliver on their performance, culture, and leadership strategies. Tonia has over 20 years of experience in organizational effectiveness, leadership development, human performance, and strategy development. Tonia has worked with organizations in various industries including retail, healthcare, energy, technology as well as supported organizations at various stages of growth and maturity. Tonia holds a Bachelor of Science in Psychology, Master of Science in Counseling, and Ph.D. (ABD) in Organizational Psychology with a focus on Organizational Effectiveness. Blending the academic knowledge with hands-on Human Resources executive-level experience allows Tonia the opportunity to take the complex people issues and make them simple and easy to implement to help businesses achieve results faster.

          www.resultswithact.com  

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I wish you the best of luck with your talent management journey. Thank you for your respectful and appropriate use of this White paper and all the materials created by the author.  

Tonia Emery

Houston, Texas

www.resultswithact.com