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 Doing Things the Right Way Using Performance Management to Increase Business Execution

Ensuring that employees are doing the right things the right way is central to driving business execution. This is the primary pur- pose of performance management, although many performance management processes fail to fulfill this purpose. Performance man- agement refers to processes used to communicate job expectations to employees, evaluate employees against those expectations, and use these evaluations to guide talent management decisions related to compensation, staffing, and development. Performance manage- ment encompasses a variety of activities, including talent reviews, calibration sessions, pay-for-performance plans, performance feed- back, and other methods that measure employees based on the degree to which their actions and accomplishments align with the company’s expectations and objectives.

This chapter discusses how to use performance management to increase workforce productivity. There is a reason this chapter is the longest one in this book: designing and deploying effective performance management processes is not easy. It requires addressing highly sensitive topics related to measuring the contributions of individual employees and making decisions about their pay, promotions, and employment. Creating a successful performance management

S I X c h a p t e r

Hunt, S. T. (2014). Common sense talent management : Using strategic human resources to improve company performance. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2020-04-10 03:10:44.

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program requires attending to several big picture strategic issues and myriad specific details to ensure that the processes fit the culture and needs of your company.

There is no such thing as a neutral performance management process. People will either like it or dislike it. Many performance management processes are criticized as lacking business impact, creating unnecessary administrative over- head, and negatively affecting employee attitudes. But if done correctly, perfor- mance management is a powerful method for creating highly engaged, efficient, and productive workforces. The key to creating an effective performance man- agement process lies in thinking through the questions discussed in this chapter and designing a process that makes the most sense for your company.

The chapter is organized into five sections. Section 6.1 addresses the rea- sons that performance management is difficult to do well. Section 6.2 discusses the impact of performance management on business performance. Section 6.3 examines how to balance the often conflicting goals of performance man- agement. Section 6.4 addresses seven fundamental questions to consider when designing performance management processes. Section 6.5 explains different levels of performance management process maturity and how to increase perfor- mance management effectiveness over time.

6.1 WHY IS PERFORMANCE MANAGEMENT SO DIFFICULT? Performance management is not a new concept. There are references to it in the Old Testament, and the government of China used documented performance management processes as early as the third century AD.1 Despite or perhaps because of its longstanding use, performance management is frequently criti- cized as a process that is neither enjoyable nor effective. A recent Google search on “problems with performance management” returned over 21 million (!) sepa- rate entries. Many criticisms level particularly harsh accusations at performance appraisals, the portion of performance management focused on evaluating indi- vidual employee contributions. Some critics urge companies to abolish perfor- mance appraisals and scrap performance management altogether.

Most extreme condemnations of performance management are misguided (for more discussion, see the discussion: “Why Claims to Abolish Performance Appraisals Are Wrong and Dangerous”). Nevertheless, it is reasonable to ask why people have such negative attitudes toward performance management. It

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Doing Things the Right Way 153

has been around for thousands of years and almost every company uses it. You’d think that by now, we would have figured out how to do it well.

W H Y C L A I M S T O A B O L I S H P E R F O R M A N C E E V A L U A T I O N S A R E W R O N G A N D D A N G E R O U S

Most attempts to achieve weight loss through dieting fail. Does that

mean dieting is an ineffective way to lose weight? Should people

ignore their diet and just focus on exercise? No, of course not. Many

people struggle to follow healthy diets. But just because it’s difficult to

manage what we eat does not mean we should ignore our diet alto-

gether. This analogy applies to claims that performance evaluations do

not work and should be completely eliminated or replaced by processes

that rely solely on performance coaching.

Do Performance Evaluation Processes Improve Organizational Performance?

Rigorous empirical research shows that performance evaluation pro-

cesses work when they are appropriately designed and deployed.

Following is a small sample of evidence from researchers who have

studied this topic. With the exception of the passage by Eichinger et

al., these are from academics who to my knowledge have no financial

interest in what sort of talent management process a company chooses

to use. Some excerpts are taken from peer review journals and have

somewhat confusing language and terminology. But it is important to

present these quotes verbatim to emphasize that these are research

findings, not my personal opinions.

A performance management system can make the following

important contributions: motivation to perform is increased, self-

esteem is increased, managers gain insight about subordinates, the

definitions of job and criteria are clarified, self-insight and devel-

opment are enhanced, administrative actions are fair and appropri-

ate, organizational goals are made clear, employees become more

competent, there is better protection from lawsuits, better and

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Commonsense Talent Management154

more timely differentiation between good and poor performers,

supervisors’ view of performance are communicated more clearly,

organizational change is facilitated. (Aguinis, 2007 p. 4)

Researchers have begun to try to determine the return on invest-

ment of . . . using better selection methods, better training and development, and better performance management applica-

tions . . . At this time, the order from most to least is rigorous per- formance management, then training and development, then

selection . . . So the fastest way to improve performance of any unit is to set rigorous performance standards and get rid of those who

do not measure up. (Eichinger, Lombardo, & Ulrich, 2006, p. 208)

Results suggested that forced distribution rating systems of the

type we simulated could improve the performance potential of

the typical organization’s workforce and that the great majority

of improvement should be expected to occur during the first sev-

eral years. (Scullen, Bergey, & Aiman-Smith, 2005, p. 24)

The practice evaluation tool [measures the use of] eighteen key

management practices . . . The monitoring section focuses on the tracking of performance of individuals, reviewing performance

(e.g., through regular appraisals and job plans), and consequence

management (e.g., making sure that plans are kept and appropri-

ate sanctions and rewards are in place) . . . Better management practices are strongly associated with superior firm performance

in terms of productivity, profitability, Tobin’s Q, sales growth, and

survival. (Bloom & Van Reenen, 2007, pp. 1361, 1391)

Research shows that a well-designed and well-implemented perfor-

mance evaluation process is a key part of a high-performance orga-

nization. But research also shows that performance evaluation is a

double-edged sword:

Some negative consequences associated with low-quality and

poorly implemented systems [include] increased turnover, use of

misleading information, lowered self-esteem, wasted time and

money, damaged relationships, decreased motivation to perform,

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employee burnout and job dissatisfaction, increased risk of litiga-

tion, unjustified demands on managers’ resources, varying and

unfair standards and ratings, emerging biases, unclear ratings sys-

tem. (Aguinis, 2007, p. 7)

A well-designed performance evaluation process significantly

improves workforce productivity, and a poor process can severely

hurt productivity. The key question is not whether to do performance

appraisals, but how to do them effectively.

Should We Stop Doing Performance Evaluations Because People Don’t Like Them?

Claims that we should do away with performance evaluations because

people don’t like them are misguided. First, it is misleading to say that

people hate performance evaluations. To the contrary, many employees

express frustration when their company delays or fails to conduct their

performance review. What is more accurate is that people don’t like poor

performance evaluation processes. This is not the same as not liking any

performance evaluation process. Second, just because some people may

not like something is not adequate reason to stop doing it. Most people

I know don’t particularly like going through the financial budgeting pro-

cess, but that doesn’t mean we should stop creating budgets. Whether

people like it or not, having a consistent performance evaluation process

is critical to effective, efficient, and fair workforce management.

Should Companies Replace Performance Evaluations with Performance Coaching?

Performance evaluations are an important component of an effective

performance management system, but they are only one component.

Another equally critical component is performance coaching. Companies

need both accurate evaluations and effective feedback and develop-

ment to maximize workforce productivity. Just as you need to focus on

both diet and exercise to maximize your health, performance evaluation

and performance coaching are two separate but interdependent pro-

cesses that contribute to workforce productivity. Evaluation gives people

feedback on what they need to improve, and coaching provides them

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Commonsense Talent Management156

with guidance on how to improve it. For example, a manager might give

an employee evaluative feedback that his or her e-mail messages are too

long and as a result people struggle to interpret them, and then provide

coaching suggestions on how to write more succinctly. Each is valuable

in different ways, and one should not be used to replace the other. The

best results are achieved through using both in a coordinated fashion.

Can performance evaluations be improved? Absolutely! Are many

of the performance evaluation processes currently used by companies

causing more harm than good? Probably! Should companies invest

more energy into creating better performance coaching and dialogue?

Without a doubt! But this doesn’t mean performance evaluations don’t

work. Recommendations to eliminate performance evaluations are mis-

guided and harmful. Performance evaluations add tremendous value

when they are appropriately designed and implemented. The focus

should not be on abolishing them. The focus should be on how to

improve their design, use, and impact.

Sources: Aguinis, H. (2007). Performance management. Upper Saddle River, NJ: Pearson Prentice Hall. Eichinger, R. W., Lombardo, M. M., & Ulrich, D. (2006). 100 things you need to know: Best people practices for managers and HR. Minneapolis: Lominger. Scullen, S. E., Bergey, P. K., & Aiman-Smith, L. (2005). Forced distribution rating systems and the improvement of workforce potential. Personnel Psychology, 58, 1–32. Bloom, N., & Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. Quarterly Journal of Economics, 122, 1341–1408

Performance management is difficult for two reasons. The first challenge has to do with the basic purpose of performance management. To be effective, performance management must differentiate between more and less effective employees. Deciding whether someone is doing his or her job the right way is an extremely sensitive topic. Rather than explaining the psychological reasons for this, let us do a quick self-reflective exercise. Imagine you were given the follow- ing feedback by your boss (for the record, I am not advocating these statements as examples of effectively worded feedback):

a. “You are not getting the job you wanted because we are giving it to a per- son who is better qualified.”

b. “You are not focusing on the things that matter most to this company.”

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c. “You are not performing your job as well as your coworkers and that’s why you are getting paid less than them.”

d. “You need to start acting differently if you want to get what you want.”

Of these statements, which one would you least like to hear from your super- visor? My guess is they all felt somewhat unpleasant because they all focus on performance weaknesses. Yet all four statements reflect the kinds of comments that may arise from the use of rigorous performance management.

Effective performance management requires dealing with the reality that some employees perform at a higher level than others. Performance manage- ment would be easy if everyone performed at the same level, if people never felt insulted or threatened by critical performance reviews, or if they never acted overly entitled because they received a high performance rating. But people do not perform at the same level, and it is important to differentiate employees based on their relative contributions. Similarly, people do react emotionally to performance evaluations, and it is important to ensure that employees do not feel they are losers just because they received a lower performance rating than some of their peers. Performance management requires balancing behavioral feedback with motivational support. People need to understand what they are doing ineffectively in order to change their behavior to do things the right way. They also need to be given recognition, rewards, and respect that instill the desire and confidence needed to build on past successes to achieve even higher levels of performance. This requires providing a mixture of critical yet support- ive feedback on past performance, constructive suggestions for increasing future performance, and clarifying consequences and rewards associated with long- term performance accomplishments.

The second major challenge to performance management is that it is expected to do many different things that do not always align well with one another. Performance management programs often mix multiple, conflicting objec- tives related to coaching, evaluation, compensation, staffing, and development together into a single process. This can lead to processes that don’t do any one of those things particularly well. A key to designing effective performance manage- ment processes is to clarify exactly what the process is expected to accomplish. Only then can you make appropriate design decisions to ensure that your per- formance management process does what it is intended to do.

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6.2 WHY DO WE NEED PERFORMANCE MANAGEMENT? Performance management is used to ensure people are performing their jobs in the right way. Every company practices performance management, even if it does not have an official performance management process. Without some form of performance management, a company would simply be hiring people and hoping they did their jobs effectively. The question is not whether your company uses performance management; it is whether your performance management methods are appropriately designed, clearly defined, consistently applied, and effectively used to increase workforce productivity and support business needs.

Research has shown that companies that use rigorous, well-defined perfor- mance management processes to evaluate and make decisions about employ- ees tend to be more successful (see the discussion: “Why Claims to Abolish Performance Appraisals Are Both Wrong and Dangerous”). The value of per- formance management is rooted in one of the most basic laws of psychology: to increase performance, people need feedback on how well their behaviors and accomplishments match the needs of and expectations of the organization. There are many methods for collecting and delivering performance feedback, some more effective than others, depending on the situation. But the overriding prin- ciple is that some form of feedback is essential to improving performance.

There are significant risks associated with not having well-designed perfor- mance management processes. Companies that lack effective performance management lose top talent because they fail to recognize and reward high- performing employees. They are likely to suffer financial losses resulting from allowing people to perform their jobs in an incompetent or counterproduc- tive manner. In addition, companies that do not use standardized performance management methods to guide pay, promotion, and termination decisions often place themselves at considerable legal risk.2 Many countries have strict laws gov- erning processes used to hire, pay, promote, and terminate employees. These laws are based on the belief that it is unfair to deny someone his or her economic livelihood without evidence that such action is warranted. Just as many people believe it is unfair to evict someone from his or her home without due cause, many people believe it is unfair to deny someone employment opportunities without justification. Performance management plays a key role in providing the evidence companies need to justify personnel decisions should they be chal- lenged in a court of law.

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In sum, performance management helps maximize workforce productivity, minimize costs associated with employee underperformance, and manage risks associated with fair and consistent personnel decisions. Companies need perfor- mance management to:

• Increase productivity by ensuring employees are given feedback and incen- tives that help them learn from experience and motivate them to increase their effectiveness

• Identify and address employee behaviors that may be limiting or damaging organizational productivity and draining organizational resources

• Attract and retain high-performing employees through encouraging, recog- nizing, and rewarding performance contributions

• Provide a clear, consistent, and defensible set of standards for making deci- sions that have an impact on employee welfare such as pay and termination

• Comply with legal requirements and cultural expectations related to fair and consistent evaluation of employee contributions

Achieving these results depends on appropriately designed and deployed per- formance management methods.

6.3 BALANCING THE CONFLICTING GOALS OF PERFORMANCE MANAGEMENT The single biggest challenge to designing a performance management program is the need to support different activities that don’t necessarily align well with each other. These include:

• Evaluating performance. This is about accurate measurement of employee behavior and contributions. It requires using well-structured, consistently defined methods to rate employees based on their performance levels. The most accurate performance evaluations are done by people other than the person being evaluated. Most of us simply aren’t good at objectively and accurately evaluating our own effectiveness, particularly when it means com- paring ourselves to others. This is the reason most companies do not allow employees to evaluate their own performance without some form of manager review.

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• Providing performance feedback so employees know how well they are per- forming and understand the gaps they must address to increase their effectiveness.

• Coaching employees to increase workforce alignment and productivity. Coaching involves creating dialogue and discussion between managers, employees, and their coworkers. It is best done on an ongoing basis and does not require any formal performance evaluation or rating.

• Talent management decisions about staffing, promotions, pay, and termina- tions that are based in part on employee performance. Companies should invest more in employees who contribute the most to the company’s success. Linking pay and staffing decisions to performance strengthens a company’s overall workforce. Allocating resources based on performance increases the engagement and retention of high-performing employees, inspires average- performing employees to strive for higher levels of performance, and drives low-performing employees out of the organization.

Supporting all four of these activities through a single performance manage- ment process is difficult because it requires balancing competing interests. The most challenging is creating a performance management process that accurately identifies high and low performers while simultaneously giving employees a pos- itive, constructive coaching experience. The goal of sharing performance feed- back and coaching employees can directly conflict with the goal of evaluating performance. In fact, the accuracy of manager evaluations of performance often improves if the evaluations are never shared with employees.3

A recurring theme in this chapter is finding ways to balance the need to have accurate measures of performance that compare employees against one another with the desire to create nonthreatening coaching dialogues between employees and managers that emphasizes development over evaluation. The best way to do this is to approach performance management as a series of interconnected sub- processes. One subprocess focuses on evaluating employees as accurately as pos- sible, while another focuses on providing employees with performance coaching and feedback to support development. A third part focuses on using perfor- mance data to guide how the company invests its financial resources in terms of staffing and compensation decisions. The methods used to support employee coaching and feedback should not be totally independent of methods used to

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guide employee evaluation, pay, and staffing decisions. But there are times when steps supporting one performance management objective should be clearly and intentionally conducted separately from steps supporting a different objective.

6.4 CRITICAL PERFORMANCE MANAGEMENT DESIGN QUESTIONS There is no one best way to do performance management. What works well for a regional health care organization might be inefficient for a multinational software company. Processes appropriate for frontline hourly retail employees would be totally ineffective for senior executives. Organizations with rapidly growing work- forces and expanding markets may need different methods from organizations with aging workforces or shrinking profit margins. Fully leveraging the power of performance management requires designing a process that makes the most sense given your particular business needs, organizational culture, employee population, and resource constraints. The reason many companies struggle with performance management is they haven’t put enough time in critically thinking through key process design questions. Creating the right performance management process requires spending time thinking about what “right” looks like for your company.

The following questions are central to the design of effective performance management processes:

1. What are the primary objectives of your performance management process?

2. How do you define effective performance?

3. How will you evaluate performance?

4. How will you calibrate performance?

5. How are data from performance evaluations used? What is the relation- ship of performance evaluations, pay, promotions, development, and workforce management?

6. How frequently do you measure performance? How does performance management fit into your broader business cycle?

7. What training and incentives do managers and employees need to effec- tively use performance management processes?

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The answers to these questions depend on your company’s particular business strategies, the nature of its workforce, and its current talent management pro- cesses. The answers vary considerably from organization to organization. Failure to adequately address any of the questions can result in a suboptimal perfor- mance management process. With that in mind, let’s take a more detailed look at each question.

6.4.1 What Are the Primary Objectives of Your Performance Management Process? Developing an effective performance management process requires balancing different and potentially conflicting objectives (see the discussion: “Evaluating Performance for Classification versus Development”). Methods that strongly emphasize identifying high and low performers can hurt efforts to support the development of individual employees. Performance management processes designed solely to comply with legal regulations associated with pay, promo- tion, and termination decisions may have little impact on employee behavior or development. Performance management processes that provide rich, behavior- ally descriptive data to support performance coaching can have little value for guiding pay for performance decisions.

E V A L U A T I N G P E R F O R M A N C E F O R C L A S S I F I C A T I O N V E R S U S D E V E L O P M E N T

Figure 6.1 illustrates a conflict that is central to performance manage-

ment design. This conflict is rooted in the desire to use performance

management processes for two related but somewhat conflicting goals:

• Classification: Assessing employee performance to support decisions

about where to invest scarce resources such as pay, promotions, or

limited development opportunities (e.g., job assignments, expensive

training courses)

• Development: Assessing employee performance to provide coaching

feedback and advice to increase effectiveness

Both objectives require evaluating employee job performance. But

how employees should be evaluated is different depending on whether

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Doing Things the Right Way 163

the focus is on classification or development. Classification decisions

compare employees against one another to determine which employ-

ees deserve higher pay raises, development resources, or promotion

opportunities. This requires recognizing that certain employees per-

form at a higher level than others. Performance evaluation methods

that are effective for classifying employees use ratings, calibration, and

expected performance distributions to identify differences in perfor-

mance levels among employees.

Developmental assessments are about letting employees know what

they can do to be more successful. Performance evaluations used for devel-

opment focus on helping employees understand their personal strengths

and weaknesses to determine the best way to increase their individual

effectiveness. Rather than comparing employees to identify the “best per-

former,” these evaluations emphasize differences within each employee.

They may provide descriptions of employee behaviors with no overall eval-

uative information at all (e.g., “You have bias for action but may not spend

Used to provide coaching and feedback

About dialogue

Focuses on each employee’s relative

strengths and weaknesses

Guiding employee

development

Evaluating employee

contributions

Used to allocate limited resources (pay, jobs)

About accurate data Requires comparing

performance of employees

Figure 6.1 The Two Sides of Performance Management

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Commonsense Talent Management164

enough time on planning”). These assessments are useful for development

but provide no information about whether one employee is better than

another. For example, knowing that the weakest part of my golf game is

driving and the weakest part of my colleague’s golf game is putting does

not tell you whether I am a better golfer than my colleague. But it does

tell both of us how we can get better at the game.

Performance management methods that stress development tend to

avoid normative evaluations like ratings and rankings that directly com-

pare people to one another. There is evidence that normative evaluations

of performance can actually hurt development.a They may cause some

employees to give up rather than try to compete against their peers, cre-

ate infighting among coworkers, and lead to a sense of entitlement for

employees who are identified as the best. But purely descriptive, devel-

opmental evaluations will not help companies that are seeking to create

fair, consistent, and accurate methods to categorize high or low perform-

ers for the purpose of compensation, development, or staffing.

It does not make sense to argue whether classification is more or

less important than development. Companies must both evaluate and

develop employees to create a high-performance culture. The key is

to build a performance management process that effectively balances

both needs. This can be illustrated using an example from coaching

youth sports. Imagine you are coaching a basketball team of twelve-

year-old kids. During practice, you constantly evaluate the performance

of the players to provide encouragement on what they are doing well

and give tips on how they could improve their game—for example,

“You’re doing a great job running down the court, but you need to use

the backboard when shooting the ball.”

Good coaching feedback is highly descriptive and focuses on each

person’s strengths and weaknesses relative to his or her own perfor-

mance. It also downplays or completely avoids comparing players to

one another. A good youth basketball coach is unlikely to tell a player,

“You’re the worst shooter on the team.” Even if it is true, such a state-

ment is not going to help the child become a better player. In fact, it is

more likely to make him or her give up completely.

Now imagine you are asked to select your five best players for

an all-star team. Your player evaluations will shift from a focus on

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development to a focus on classification. You want to identify the best

players. You may start talking with your fellow coaches about who is

the best shot, who is fastest, and who is the best all-around athlete.

If you are a good coach, you will not share these evaluations with the

players. If a player who did not make the all-star team asks why, you

might tell him or her specific things needed to improve, but you are not

going to tell this player that he or she was the worst player to try out. It

is one thing to tell a player, “The best way to make the team next year

is to work on your speed.” It is quite another to say, “You are slower

than your teammates so that’s why we didn’t pick you.”

This example illustrates a fundamental dilemma of performance man-

agement. How can you create a process that supports coaching players

while also providing the data needed to make accurate decisions around

who should be on the all-star team? Start with an understanding that

there are two basic types of performance assessments: assessments for clas-

sification and assessments for development. Managers use both types of

assessments to evaluate performance, but there is a time to use one and a

time for another. Success lies in knowing when and how to use them.

aDweck, C. S. (1990). Self-theories and goals: Their roles in motivation, personality, and development. In The Nebraska Symposium on Motivation, 1990 (pp. 199–235). Lincoln: University of Nebraska Press. Roch, S. G., Sternburgh, A. M., & Caputo, P. M. (2007). Absolute vs. relative performance rating formats: Implications for fairness and organizational justice. International Journal of Selection and Assessment, 15, 302–316.

There are two keys to balancing the elements of performance management design:

1. Prioritize the objectives you want to support through the process, and make process decisions with these objectives in mind.

2. Recognize that processes that support one objective may have a negative impact on another, and modify your process design decisions accordingly.

Table 6.1 illustrates trade-offs associated with performance management pro- cess design. No performance management process can support every objective in the table equally well. If you want to increase alignment, you need to sacrifice effi- ciency. If you want to maximize efficiency, you need to make sacrifices to produc- tivity, alignment, or scalability. The art of performance management design lies

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in balancing these trade-offs based on your organization’s business needs. This starts by ordering the goals of your performance management process from most to least important. Is the purpose of performance management to improve iden- tification of high performers, support pay decisions, guide staffing and succession decisions, create coaching dialogue, support career development, ensure legal compliance, or something else entirely? How you answer this question will influ- ence how you answer more-detailed performance management design questions.

Business Execution Driver: “If you want to increase . . . “

Element: “ . . . then emphasize . . .”

Trade-off: “. . . but this may have a negative impact on . . .”

Alignment around common goals and strategies

Processes for setting, cas- cading, and aligning goals

Highly detailed compe- tency models that provide clear behavioral defini- tions of performance for different roles

Process efficiency by adding time to the goal-setting process and increasing the complexity of performance appraisals

Productivity by maxi- mizing individual performance

Rigorously evaluating employees against well- defined standards

Calibration methods that compare employees to one another

Differentiating high from average and low performers through pay, promotion, staffing, and development decisions

Rigorous use of perfor- mance improvement processes to manage out underperformers

Process efficiency by add- ing time to the evaluation process

Scalability and sustainabil- ity unless care is taken to also collect developmen- tally valuable perfor- mance data

Governance by increasing risk of complaints about unfair pay and perfor- mance decisions

Table 6.1 Performance Management Process Objectives,

Elements, and Trade-Offs

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Business Execution Driver: “If you want to increase . . . “

Element: “ . . . then emphasize . . .”

Trade-off: “. . . but this may have a negative impact on . . .”

Efficiency by stream- lining processes

Short, targeted definitions of performance

Minimal use of second- level reviews and peer input

Eliminating requirements related to ongoing evalu- ations or providing devel- opmental feedback

Alignment by decreasing the information contained in performance definitions

Productivity by decreasing the rigor and accuracy of performance evaluations

Scalability and sustainabil- ity by removing devel- opmental content and activities from the process

Scalability and sus- tainability by retain- ing and developing employees

Behaviorally descriptive competency models that define different levels of performance

Assigning business goals to employees based in part on developmental needs

Collection of qualitative, descriptive performance data

Extensive opportunities to create employee- manager dialogue

Process efficiency by add- ing length and complex- ity to the performance management process

Productivity unless efforts are made to also collect rigorous evaluations that compare performance across employees

Governance by insti- tuting standardized evaluation processes

Simple, standardized, and easy-to-follow per- formance methods

Clear definitions of effective and ineffective performance

Clear links between per- formance management data and pay and promo- tion decisions

Scalability and sustain- ability by decreasing the emphasis on collecting qualitative behavioral performance data

Productivity if manag- ers are not allowed to significantly differentiate between employee pay and promotion decisions based on performance

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6.4.2 How Do You Define Effective Performance? Performance is often treated like “socially appropriate humor”: everyone assumes we know what it is, but each person defines it in his or her own way, and we often have vastly different concepts of what it looks like. For the pur- poses of this chapter, performance will be broadly defined as “the degree to which an employee meets or exceeds the expectations of the organization given his or her role in the company.” Most companies would accept this as a reason- able definition of performance, but it still leaves a lot of ambiguity around what employees must actually do to display effective performance.

Good performance management processes create a clear definition of effec- tive performance across the company. This is a hallmark of high-performance cultures. In a high-performance culture, no one has to ask if someone’s per- formance is effective: the criteria are clear and obvious to everyone. Consider environments like the Olympics or Navy SEAL training. People in these envi- ronments know what they are expected to do. There are few arguments over whether a person succeeded or failed to meet expectations. Performance in most organizations cannot be defined with the level of clarity that can be found in sporting events or military training, but companies can vastly improve perfor- mance clarity through more effective performance management.

Defining Performance Based on Goals, Competencies, and Skills Most companies define performance using some combination of the following criteria:

• Achieving goals: whether people accomplished the objectives assigned to them

• Demonstrating competencies: whether people display behaviors expected of those in their role

• Building skills: acquisition of knowledge, experience, and expertise associated with their role

These three criteria correspond to the core elements of an integrated strategic HR system: what you accomplish on the job (goals) is a function of how you act (competencies), which depends in part on who you are (skills and other attri- butes). Creating clear definitions of performance starts with ensuring that man- agers understand the differences between goals, competencies, and skills. Most managers are fairly good at identifying goals, but it is common to confuse the difference between skills and competencies. Part of performance management

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includes training managers and employees to understand why it is important to treat skills and competencies as related but separate concepts (see the discussion: “The Importance of Clear Performance Definitions: Comparing Competencies and Skills”).

T H E I M P O R T A N C E O F C L E A R P E R F O R M A N C E D E F I N I T I O N S : C O M P A R I N G C O M P E T E N C I E S A N D S K I L L S

People often discuss employee performance using very vague terms

like “passion,” “team spirit,” or “a player.” Many of these terms sound

emotionally powerful but lack any common, agreed-on meaning.

Managers who discuss performance using these sorts of terms are likely

to frustrate employees. There is nothing motivating about being told

to “work smarter, not harder” or “give 110 percent.” All it does is tell

people that they are doing something wrong without giving them any

insight into what they should be doing instead.

Effective performance management requires that managers and

employees talk about performance using clear, well-defined language.

This includes understanding the differences between employee com-

petencies and employee skills. Table 6.2 lists ways that competencies

and skills differ from one another. Skills reflect knowledge and capa-

bilities that people acquire through formal education or on-the-job

training and experience. Skills determine what you know how to do.

Competencies reflect how you use that knowledge to get things done.

Competencies describe categories of employee behavior that drive suc-

cess within a job or work environment. Competencies, like behavior, are

not something employees “have.” They are things an employee displays

or has displayed. The concept of competencies calls attention to the

influence that employee behavior has on job success. It reinforces

the fact that job performance is a result of many behaviors, and there

are many ways to succeed and fail in a job.

One way to test if you are talking about a competency versus a

skill is to consider if someone would ever say, “I don’t know how to

do that.” People are willing to admit to not having different skills. In

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contrast, they may admit to being less effective at different competen-

cies, but it is unlikely for someone to say that he or she simply does not

have the knowledge or experience a competency requires. For example,

you can imagine someone saying, “I don’t know how to use Excel,”

but it is hard to imagine someone saying, “I don’t know how to build

relationships.”

The distinction between competencies and skills is important because

methods used to assess and develop competencies are much different

from methods used to assess and develop skills. Employees may have

skills associated with certain competencies, but you can never know if

an employee will actually display a competency until you observe that

Table 6.2 Comparing Skills and Competencies

Skills Competencies

Knowledge and experience required for jobs such as “HTML programming,” “employment law,” or “postmerger integration”

Behavioral categories that influence job performance such as “building relationships,” “managing stress,” or “planning and organizing”

People know or don’t know skills People are effective or ineffective at competencies

Over 1,000 skills are needed to describe the jobs in most large companies

Fewer than one hundred competen- cies can describe the jobs in most large companies

Skills needed for jobs can change significantly as new ones are cre- ated and others become outdated

Competencies associated with jobs tend to stay the same over time; they do not change much

Skills are developed through a mix of formal training, education, and experience

Competencies are primarily developed as a result of on-the-job learning

People can assess their own skills if given clear definitions for profi- ciency levels

People struggle to assess their own effectiveness with regard to competencies

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When designing a performance management process, it is necessary to decide how much emphasis to place on goals, competencies, and skills when evaluating employees. Most companies define performance as a balance of goals and competencies and do not put any direct emphasis on skills. For example, 50 percent of an employee’s overall performance evaluation will depend on whether he or she has achieved his or her goals and 50 percent on the degree to which he or she has displayed key job competencies. This ensures that people are eval- uated based on what they accomplished (goals) and how they accomplished it (competencies). By balancing these two concepts, companies seek to ensure that performance is about doing the right things the right way.

Some companies place more emphasis on goals than competencies since results are felt to be more valuable than behaviors (e.g., 70 percent weighting of goals versus 30 percent weighting of competencies). The decision to emphasize goals more than competencies can reflect the company culture and the nature of the job. For example, many sales and manufacturing jobs strongly empha- size goals because these jobs can be linked to clear and measurable outcomes. Some companies believe that employee performance should be based more on goals since they have a more direct impact on business results. Even if goals are

person in a job. Skills can be evaluated to some degree by observing

on-the-job behavior, but they can also be evaluated using standardized

tests or job simulation exercises. Competencies are primarily developed

through providing people with job experiences that increase their self-

awareness and self-management with regard to behaviors related to the

competency. In contrast, skills can be effectively developed through pro-

viding people with formal training, instruction, and education. Training

methods that effectively develop employee skills often fail when used to

develop employee competencies.

Making managers and employees aware of the difference between

competencies and skills can significantly improve the quality of perfor-

mance conversations. Managers will be able to more accurately evalu-

ate employee performance and provide more meaningful coaching

advice to employees. Employees will better understand what is required

to act on this advice.

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weighted more heavily than competencies, it is useful to always put some weight on competencies to ensure that employees carry out their jobs in a way that sup- ports the company’s norms and values.

Companies have developed performance management processes that base employee evaluations entirely on goal accomplishment. But this is risky because it can create a culture that rewards employees for “doing the right things the wrong way.” One of the most famous examples of this comes from the energy trading company Enron, one of the fastest-growing companies in the late 1990s. The company built a culture based on hiring ambitious and intellectually talented individuals, giving them challenging goals tied to significant financial rewards, and then evaluating and promoting them almost solely on their ability to achieve these goals. Over time the company developed a culture where the only thing that mattered was hitting financial targets, regardless of whether the methods used to achieve them might be ethically questionable. A famous example was a recording of Enron employees intentionally causing power shortages in California in order to boost up the cost of energy. This focus on “hit the numbers and nothing else matters” worked for many years but eventually led to major scandals, criminal investigations, bankruptcy, and the dissolution of the organization.

Another benefit of using competencies for evaluating performance is they tend to be relatively consistent across situations and over time. Competencies that are important for one job are usually important for other jobs as well. If a com- petency is important this year, it will probably be important several years from now. For example, if a competency like “planning and organizing” is important in one job, then it is probably important in other jobs and is likely to continue to be important over time. This makes competencies useful for predicting long-term employee performance and assessing employee potential to perform other roles. In contrast, goals change considerably from one job to another and from one year to the next. If a goal was important this year or in this job, that does not mean it will be important next year or in another job. Another advantage of includ- ing competencies in performance management is the role they play in employee development by providing language to support effective coaching conversations (see the discussion: “The Role of Competencies in Performance Management”).

Most companies exclude skills from the performance evaluation based on a belief that performance is defined by what you accomplish and how you act, not what you know. Performance may be influenced by the skills you have, but actual performance depends entirely on how you apply your skills to achieve job

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goals. However, there are some positions where it may make sense to explicitly include skills as an element of the performance definition. These are jobs where employees must demonstrate skill proficiency to be qualified for certain func- tions—for example, insurance sales jobs where people must pass licensing certi- fications to sell specific products, or health care jobs where employees are legally required to demonstrate certain knowledge and skill qualifications. Companies might also use skills as part of the performance evaluation if they are trying to encourage employees to build their capabilities for future roles and job demands. When skills are used to measure performance evaluation, they tend to be weighted much less than goals and competencies (e.g., basing 10 percent to 25 percent of an employee’s overall evaluation on skills proficiency).

T H E R O L E O F C O M P E T E N C I E S I N P E R F O R M A N C E M A N A G E M E N T

Competencies define behaviors that employees are expected to dis-

play in a job or company. Assessing performance based on competen-

cies provides detailed information about a person’s effectiveness in his

or her job. Because the best predictor of future behavior is past behav-

ior, measuring competencies also provides insight into what employ-

ees are likely to do in the future in either the same job or a new role.

Competencies also help create more effective dialogue between man-

agers and employees in these ways:

• Clarifying the behaviors that define what it means to be a high

performer

• Illustrating the values of the company in observable behavioral terms

• Giving employees specific feedback on behaviors they need to “start

doing” or “stop doing” to be more productive

• Defining the different behavioral requirements between an employ-

ee’s current role and other jobs he or she may be interested in pursuing

Competencies are particularly valuable for coaching employees.

Managers tend to describe employee performance in terms of goals

they have achieved or using broad adjectives or adverbs about their

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attributes. For example, managers will talk about employees being “top

performers,” “the A players,” “problem cases,” or “people who don’t

have what it takes.” These terms may mean something to the manager,

but they are highly subjective and provide little useful information to

guide employee development and performance. Competencies help

managers become better coaches by giving them descriptive behav-

ioral language to support performance management discussions. This

enables managers to provide employees with specific guidance around

what behaviors they can “do more of” or “do less of” to increase their

effectiveness.

To illustrate the value of competencies in the context of coaching,

consider this exchange between a manager and his employee before

and after the introduction of competencies into the conversation:

Manager: You aren’t hitting your goals

Employee (to himself): Thanks for telling me something I already knew.

Employee (to manager): Any suggestions on how I can be more

successful?

Manager: You need to work smarter, not harder.

Employee (to himself): So I’m a failure because I haven’t hit my goals,

and I’m an idiot because I don’t work smarter, whatever that is.

Employee (to manager): Is there anything I can do differently to be more

successful?

Manager [now using competencies]: I suggest you get some training on

planning and organizing your territory so you can spend more time

building relationships with customers.

Employee (to himself): Finally, some feedback that makes sense and

doesn’t just make me feel bad. Now I know how I should change my

behavior to be more successful.

This example is not that far off from conversations managers and

employees have every year during performance reviews. The tone

and results of these conversations can be quickly and vastly improved

by incorporating competencies into the discussion.

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Building Competency Models The first step in defining performance is deciding on the emphasis to place on goals, competencies, and skills for differ- ent roles in your organization. The next step is to determine what specific goals, competencies, and skills are relevant for each job. Because competencies play a particularly critical role in performance management, we will spend some time discussing competency modeling techniques. (For information on how to define job goals and job skills see the discussion in chapters 4 and 5 on how to get the right people [skills] and focus them on the right things [goals].)

A competency model is a predefined set of competencies that describe behav- iors that drive performance for a specific job, group of jobs, or organization. Competency models focus on critical behaviors that make or break performance. Competency models should not list every behavior employees must display to be effective. They should highlight behaviors that distinguish high performers from average or low performers. As one HR manager told me, “Competency models highlight the differences between employees that make a difference.”

Here are some questions to address:

• What does a well-defined competency look like? Figure 6.2 provides an exam- ple of a well-defined competency. The title of the competency in figure 6.2 is “Supporting Change.” Supporting change could mean a lot of different things to different people. What makes the competency in the figure useful is not its title but the behavioral anchors that define effective and ineffective performance. Based on the competency in figure 6.2, employees who are effective at supporting change do things like “enthusiastically participate in new change initiatives and programs” and “abandon outdated or obsolete practices.” These behavioral descriptions help managers and employees reach agreement on what “effective” looks like with regard to this competency. Employees who are good at supporting change consis- tently display the positive behaviors and rarely display the negative behaviors listed in the figure. Figure 6.2 is just an example of one way this competency might be defined. Other companies might define “supporting change” using different behav- iors, or they might use an entirely different competency. What is important is ensuring that competencies are defined using observable, job-relevant behaviors. These behaviors are things that people could be asked to “stop” or “start” doing.

Appendix A contains a library of competencies that can be used to build competency models. This library is based on research studying behaviors that influence job performance across a wide range of jobs. Competency libraries

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Commonsense Talent Management176

provide an efficient way to build performance definitions. Rather than devel- oping new competencies, companies can select content from competency libraries to quickly configure competency models that make sense for their par- ticular jobs. No single job requires all of the competencies listed in appendix A. However, the library is likely to contain the competencies that make or break performance in most jobs and organizations.

Clearly defined behavioral competencies provide several advantages for perfor- mance management. First, they communicate what people are expected to do (or not do) in their jobs. Second, they provide a set of criteria to assess performance, which helps create more consistent performance evaluations across managers. Third, competency definitions contain content that managers can use to provide construc- tive behavioral feedback to support employee coaching. To achieve these benefits, competency descriptions must include observable behaviors and should avoid sub- jective adjectives or adverbs whose interpretation might vary across people.

Figure 6.2 What a Well-Defined Competency Looks Like

Supporting Change

Enthusiastically participates in new change initiatives and programs; focuses on reasons that changes will work and how they will be beneficial

Negative Behavioral Anchors

• Views changes as ineffective or unnecessary

• Demonstrates resistance toward change; clings to existing methods and practicies

• Focuses on reasons that changes will not work

• Views change from perspective of how they will “take things away” or otherwise be unfair

Positive Behavioral Anchors

• Embraces and encourages new ideas and initiatives

• Looks for positive aspects of changes; focuses on reasons that changes will work and how they will be beneficial

• Enthusiastically participates in new change initiativies and programs

• Abandons outdated or obsolete practices; willing to try new things

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Doing Things the Right Way 177

• How many competencies should be in a competency model? It is ideal to limit competency models to between five and ten competencies. Models with more than ten competencies are difficult and cumbersome to use. It takes manag- ers too long to evaluate performance using so many competencies. Conversely, models containing fewer than five competencies are likely to overlook key dimensions of job performance or may contain competencies that are so broadly defined they lack clear meaning.

• How many competency models does my company need? Some companies use the same competency model for every job in the organization. Others build differ- ent models for specific jobs and functions. Using job-specific models makes it pos- sible to more accurately describe performance for different roles. Using a smaller set of generalized competency models makes it possible to compare the performance of employees across different jobs. It is also easier to build and manage a few general models as opposed to creating and maintaining multiple job-specific models.

Figure 6.3 shows an approach for balancing the trade-off between job-specific versus generalized competency models. This approach breaks competencies into three categories:

Supervisor and Manager Competencies Developing Others

Managing Performance

Senior Leader Competencies

Setting the Vision Global Understanding

Functional Competencies Analytical Thinking Showing Creativity

Functional Competencies Persuading and Negotiating

Navigating Organizations

Total Competencies per Role = 8 (ideal) to 10 (maximum)

Functional Competencies Planning and Organizing

Managing Budgets

Core competencies expected of all employees

Achieving Results Building Relationships

Showing Integrity Supporting Customers

Figure 6.3 Mix-and-Match Competency Modeling Approach

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• Core competencies expected of all employees regardless of their position. These are competencies that drive success across the organization and reflect core company values.

• Level-specific competencies that influence performance in jobs with different levels of responsibility (e.g., individual contributor, manager, senior director, executive).

• Functional competencies that influence performance for jobs in certain areas of the company (e.g., finance, sales, human resources).

Some companies evaluate all employees on the same set of core competen- cies and do not create level-specific or functional competencies. Other compa- nies create different models for different job levels or job functions. For example, many companies have a competency model for individual contributors, a model for managers, and another model for executives.

Another approach is to mix and match competencies across job catego- ries. The competency model for a specific job might include three to five core competencies, two or three level-specific competencies, and one or two functional competencies. The mixing and matching approach allows compa- nies to keep the total number of competencies to a manageable number. It also captures similarities across different types of jobs while providing flex- ibility to ensure performance definitions capture critical level or functional specific competencies. If you choose to use this mix-and-match approach, be sure to do it in a way so no employee ends up being evaluated on more than ten competencies.

Figure 6.4 illustrates a competency modeling approach that shows how the nature of job expectations changes as people move into higher-level positions. All employees are evaluated against the same core set of compe- tencies, but the behaviors that define effective performance for each com- petency shift depending on the job level. In the example in figure 6.4, the behaviors that define effective performance for the competency “Encouraging Innovation” are different for individual contributors compared to senior lead- ers. Individual contributors are expected to accept change, while senior lead- ers are expected to drive change. This approach lets a company use a single competency model across the whole organization that captures different per- formance expectations based on job level. It also helps employees understand

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Doing Things the Right Way 179

how job expectations change as people move into positions with higher levels of responsibility.

The approaches in figures 6.3 and 6.4 are both effective for developing compe- tency models. Which one is preferable depends on the nature of your organiza- tion and the goals you are seeking to achieve through performance management. If your primary goal is to accurately evaluate performance of people in their cur- rent roles, the more job-specific approach in figure 6.4 may be more useful. If you want to encourage career advancement, the multilevel approach in figure 6.5 may be more effective.

Companies can also build job-specific competency models that are rel- evant to only one type of job—for example, creating a unique competency model for “field repair technician” and a totally different model for “prod- uct sales representative.” Job-specific competency models can provide highly detailed descriptions of behaviors that influence performance in specific roles. This makes them very effective for accurately evaluating current job performance and providing detailed coaching feedback. The problem with job-specific competency models is they take a lot of time to create, do not support comparing employees across jobs since each job has different compe- tencies, and can be difficult to maintain.

Figure 6.4 Increasing Scope of Responsibility Competency

Modeling Approach

Competency: Encouraging Innovation Encourages people to question existing methods, practices, and assumptions; supports

people in their efforts to try new things

Makes continuous improvements Accepts change

Uses best practices from others Makes continuous improvements Accepts change

Challenges existing assumptions Uses best practices from others Makes continuous improvements Accepts change

Individual Contributor

Accepts change

Manager

Director

Executive

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It may make sense to build job-specific competency models when one or both of the following conditions exist:

• The job is so critical to business performance that it is important to make finely grained distinctions in performance levels (e.g., nurses in a hospital setting).

• There are large numbers of people in the job, and most of them are likely to remain in this same role during their tenure with the company (e.g., frontline retail or manufacturing jobs).

But in most cases, the limitations associated with job-specific competency models do not justify the benefits.

Once you decide how many competency models you need, the next step is to create the actual models. Entire books have been written on how to build competency models.4 Competency modeling projects can get quite complex, often lasting several months. But companies have also built effective com- petency models through a single one-day workshop. These workshops take subject matter experts through a structured process to select the appropri- ate competencies from competency libraries such as the one in appendix A. What competency modeling approach to use depends on factors such as the size of your organization, the goals of your performance management pro- cess, and the limits of your budget. Whatever approach you use, make sure the final competency models provide clear, relevant, and meaningful behavioral descriptions of what “effective” and “ineffective” performance looks like for jobs in your company (see the discussion: “The Devil Is Often in the Details in Building Competency Models”).

T H E D E V I L I S O F T E N I N T H E D E T A I L S I N B U I L D I N G C O M P E T E N C Y M O D E L S

Competency models are critical for performance management because

they provide clear, behaviorally based descriptions clarifying the differ-

ence among effective, average, and ineffective job performance. These

models communicate the behaviors that employees are expected to dis-

play and provide managers with a standardized vocabulary for discuss-

ing, evaluating, and coaching employee performance. Because the best

predictor of future behavior is past behavior, competency models also

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Doing Things the Right Way 181

give organizations a useful benchmark to assess employee potential to

take on future job roles and assignments.

Creating competency models has become fairly easy due to the

development of standardized competency libraries. Rather than devel-

oping new competency descriptions, companies simply pick and choose

from competency libraries to build competency models that highlight

key behaviors that are important to success in a certain job or set of

jobs. Many companies go one step further by modifying the standard-

ized content from preexisting libraries to create tailored competency

models that include language reflecting the unique culture and nature

of their organization.

Considerable advantages can be gained from using competency librar-

ies to build competency models. However, problems can also arise from

this approach. Following are four common problems associated with

building competency models and guidance on how to manage them:

• Missing the mark. This happens when competency models fail to cap-

ture key behaviors important to performance. It can be the result of

not having the right subject matter experts involved in building the

model or when companies focus too much on defining what effec-

tive performance looks like but do not pay adequate attention to

the behaviors that limit or derail success. I saw an example of this

when developing a competency model for a sales job. Much atten-

tion was paid to the behaviors that made high performers success-

ful. Then a veteran manager noted that one of the main sources

of performance problems was a failure to complete administrative

tasks to support sales forecasts and process contracts. As he said, “It

doesn’t matter how good they are at building relationships if they

don’t file the contract before the end of the quarter.” His comments

emphasized that poor performance is not just the opposite of effec-

tive performance. In fact, sometimes poor performance is a result of

overusing performance strengths (e.g., the person who is too asser-

tive in his or her efforts to drive results). The best way to avoid miss-

ing the mark is to have the right mix of subject matter experts in the

room and make sure they look at both effective and ineffective per-

formers when identifying competencies.

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• The kitchen sink. This happens when companies are unwilling to

prioritize what competencies are the most critical for performance.

Rather than identifying a few well-defined competencies, they

create vague or extremely heterogeneous competencies that con-

tain so many different types of behaviors that no employee could

possibly be good at all of them. A single competency may even

contain behaviors that contradict each other. I have seen models

with competencies like, “Getting things done: focuses on the big

things but also manages the details and little things.” This sort of

competency does not give managers clear, easy-to-use language for

accurately describing performance. It is likely to create inconsistent

performance evaluations since employees can be rated high or low

on these sorts of competencies depending on what behaviors a man-

ager chooses to emphasize.

• The generic model. This occurs when companies use off-the-shelf

competency libraries and do not modify the content to fit the com-

pany’s unique culture. The language used in generic models may

have little resemblance to the words managers and employees actu-

ally use when discussing performance. I saw an example of this when

working with a Norwegian company that adopted a competency

model based on a library created by a US consulting firm. One of the

competencies was called “Learning on the Fly.” When reading this

title, a manager responded, “What does this mean? It’s so stereo-

typically American.” The key to avoiding generic models is to change

competency titles and definitions so they use the language common

in your company. Often changing just a few words will have a signifi-

cant impact on people’s acceptance of the model.

• Emotional but meaningless. Many leaders give competencies emo-

tionally laden titles and definitions that sound inspiring but lack

behavioral detail. While the language may be inspiring, it provides

little value for accurately evaluating performance. In one company,

subject matter experts determined that one of the competencies

needed for a job was, “Responding quickly to customer issues.” The

CEO said this sounded too boring and changed it to, “Passionately

pursuing customer excellence.” When this model was rolled out,

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managers and employees joked about starting romantic liaisons

with customers to show them more passion. A little inspirational lan-

guage is fine when developing competencies, but it has to be backed

with definitions outlining clearly observable, job-relevant behaviors.

When building competency models, think about how the competen-

cies will be used. Managers will sit down with their employees and use

these competencies for serious and often difficult conversations about

performance, pay, and career growth. The managers may have person-

ally recruited, hired, and worked with these people for years. Some of

these people will be close friends. Others may not particularly like each

other but still need to effectively work together. In all cases, managers

will want to appear confident and credible when talking with employ-

ees about their performance, pay, and future career prospects. Now

look at your competency model. Does it contain words you can imag-

ine a manager using when explaining why employees are not getting

a raise or are being let go due to an organizational change? Does it

describe observable behaviors that differentiate poor, average, and

great performance?

The reality test I use for competencies is to imagine a manager look-

ing a long-term employee in the eye and saying, “I am not giving you

a raise this year because you don’t [insert the actual words from the

competency model].” If your competency model does not contain the

right terms to support this sort of serious conversation or contains cute

or emotional terms that would sound silly used in this context, then

change the model. A good competency model provides words that

clearly describe the difference between effective and ineffective perfor-

mance—take care to make sure these words are the right ones.

6.4.3 How Will You Structure Your Performance Management Cycle? When Will You Evaluate Performance? Performance management is best thought of as three interrelated cycles, which are illustrated in figure 6.5. The innermost cycle is about managing business operations through ongoing goal management. The next cycle is about man- aging employee effectiveness through performance measurement. It focuses

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184

Figure 6.5 The Performance Management Cycle

How should the company allocate its workforce

resources?

Performance Coaching

Goal Review

Goal Setting

Goal Review

What do people need to

accomplish?

How can employees be more effective?

How are employees doing?

(if needed) What must employees start or stop

doing to keep their job?

What have employees contributed?

Where should employees focus

development energy? Legend

Business Operations Employee Effectiveness

Workforce Resources

Performance Evaluation

Career Development

Performance Review

Performance Improvement

Workdforce Budgeting

Workdforce Planning

Succession planning

Staffing Decisions

Compensation

Learning and Development Investments

Commonsense Talent Management

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on assessing employees’ behavior and providing coaching feedback to increase effectiveness in their current role. The outermost cycle is about managing workforce resources through talent decisions. It focuses on evaluating overall employee contributions and using this to guide decisions related to compensa- tion, job transfers and promotions, and developmental resources.

Managing Business Operations The performance cycle starts with the manager defining what business goals need to be accomplished by their group. The manager then works with employees to agree on the specific goals they will achieve to support the group’s overall goals. The most frequent performance management activity is tracking and updating goals so employees have a clear sense of whether they are accomplishing what the company expects them to achieve. This is usually done through daily, weekly, or monthly operating meet- ings. The business operations cycle uses goal management to keep employees aligned on activities that are critical to the company’s business objectives.

Managing Employee Effectiveness The second cycle of performance man- agement involves assessing employee performance and providing coaching advice and feedback. It is about increasing employee awareness of what behav- iors to start, stop, or continue doing to be more effective in their jobs. Informal performance coaching should take place throughout the year as part of regular work discussions. Companies should also periodically conduct more formal, systematic assessments of employees’ contributions to the organization. This is usually done on an annual basis, although for many jobs, it makes sense to do it more frequently.

It is important to schedule performance assessments at specific times during the year for four reasons:

• Measurement accuracy. Performance management is used to measure the contributions employees are making to the organization. The foundation of accurate measurement is consistency. Part of consistency is standardizing time frames used to measure employee performance. Performance apprais- als can be influenced by environmental factors such as the company’s cur- rent performance and the manager’s work schedule. Even the weather could potentially influence how managers evaluate employees. Standardizing performance appraisals so employees are evaluated in the same time frame increases the accuracy of performance measurement.

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• Linking to business cycles. Virtually all companies manage financial resources and strategic objectives against an annual calendar. It is important to syn- chronize talent decisions with this calendar. There should be a clear link between the steps used to set business strategies and plan budgets and the steps contained in the performance management cycle.

• Manager accountability. Performance management is largely about assessing employee contributions and providing employees with feedback to increase their effectiveness. In a perfect world, all managers could be counted on to voluntarily meet with their employees to provide detailed, constructive per- formance feedback. We do not live in such a perfect world! Creating formal steps that require managers to assess employee performance and provide employee feedback is critical to ensuring that managers are doing the job of managing.

• Legal compliance. Many companies are legally required to formally document employee performance to justify decisions related to pay and employment. Formal, standardized performance evaluations are often a fundamental com- ponent for meeting these legal requirements.

A common question when developing performance management methods is whether to include formal midcycle reviews (e.g., by requiring managers to conduct a midyear performance assessment in addition to an end-of-year per- formance evaluation). The disadvantage of adding these reviews is they increase administrative burden. The advantage is they ensure managers are giving employees some feedback throughout the year and thus decrease the risk that surprises will occur during the end-of-year evaluation. Because midyear reviews are more about communication than evaluation, they may not include any for- mal rating. Managers and employees are simply asked to write comments about performance strengths and development areas. One company even reduced the midyear review to a single question: “Has your manager met with you in the past thirty days to provide you with meaningful coaching feedback about your performance?” Reponses to this question were used to remind managers of the importance of providing ongoing coaching throughout the year.

Most companies include optional steps in this cycle to address serious per- formance problems. Called things like “performance improvement plans,” these are specialized performance reviews that address employee behaviors that could lead to formal corrective action up to and including termination of employment.

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These plans ensure that employees are aware of the difference between develop- ment opportunities and serious performance issues. They can be important for complying with laws and regulations that govern compensation and staffing decisions used to address counterproductive employee behavior.

Managing Workforce Resources The third cycle of performance man- agement considers the overall value that employees are providing to the orga- nization. It focuses on determining where to invest scarce resource such as pay, promotions, and limited development opportunities. This cycle requires compar- ing employees against one another to determine which employees are the most valuable in their current roles, which ones may be ready for more responsibility, and which ones need to improve their performance or be managed out of their current position. This cycle is ideally timed to a company’s financial cycle and linked to the creation and allocation of workforce budgets.

Linking Business Operations, Employee Effectiveness, and Workforce Management Thinking through how the steps in figure 6.5 link together is central to building an integrated strategic HR approach that ties together the 4R processes of right people (staffing), right things (goal management), right way (performance management), and right development (succession, learning, and career development). This is critical to aligning business operations, employee effectiveness, and workforce management. Business strategies should guide the development of employee goals; employee goals should be incorporated into performance evaluations; performance evaluations should influence compensa- tion and staffing decisions; and succession management and career development conversations should incorporate all of these elements to integrate information about what employees have done in the past, what the company needs employees to do in the future, and what employees want to achieve in their careers.

A big part of performance management design is deciding on the frequency and formal structure of the steps in figure 6.5 and how they tie to each other. There are, of course, significant differences in how companies approach these steps. For example, some companies do not include formal steps for goal setting or midyear performance reviews. There is also considerable variation in the fre- quency and complexity of the cycles for different types of jobs. Jobs that com- pensate people based on weekly, monthly, or quarterly goals require increasing the frequency of certain steps. In some jobs, pay decisions are determined by

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contracts, tenure, or other variables unrelated to actual employee performance. These jobs may benefit from having formal performance reviews to support coaching and staffing decisions, but it does not make sense to tie performance reviews for these jobs to compensation.

Companies do not need to build out every step in figure 6.5 when imple- menting a performance management process. It is usually more effective and manageable to phase in different steps over several years. Start by determining which steps provide the greatest value with the least effort. Then focus energy around designing and deploying those steps so they are effective. Remember that you will probably want to build the other steps at some point. Think about how all the steps will ultimately come together, even if it takes three to five years to get the entire process up and running.

Additional Guidelines for Structuring the Performance Management Cycle The following are additional design guidelines to keep in mind when prioritizing what performance management steps to build and how they will fit together.

Goal Feedback Should Be More Frequent Than Performance Feedback Goal feedback is about progress toward achieving business outcomes. Performance feedback is about employee behavior. Managers and employees should be con- stantly talking about goals and what they can do to accomplish them. Much of this discussion will be about strategies, resources, market challenges, and other business issues that are not controlled by employees. These conversations about goal progress should be happening regularly. Coaching conversations about employee behavior should occur far less frequently unless there is an ongoing issue that the manager and employee are trying to address.

Performance Coaching Should Occur throughout the Year It is often said that there should be no surprises in an annual performance review. Employees should not wait for a formal performance evaluation to learn about their perfor- mance strengths and concerns. The design and communication of performance management cycles should emphasize the importance of managers’ meeting informally with employees throughout the year to provide recognition, share feedback, and discuss what employees can do to increase their effectiveness. This does not have to happen every day, but it should happen more than once a quar- ter for most jobs.

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Avoid Tying Performance Reviews to Employment Anniversary Dates Some companies conduct employee performance reviews based on when employees were hired, typically on the first-year anniversary of being hired and every year on that date thereafter. People like anniversary dates because they spread perfor- mance reviews over the course of the year so managers do not have to evaluate large numbers of employees at the same time. But there are three reasons that anniversary dates are often a bad idea:

1. Evaluating employees at different times of the year introduces inconsis- tency and potential measurement error into the process.

2. Conducting performance reviews based on anniversary date makes it hard to synchronize talent management activities with business operations.

3. It can be an administrative challenge to keep track of when different people need to have their reviews completed. This becomes even more challenging when people shift jobs internally and no longer have a clear employment start date.

To avoid these problems, companies often limit the use of anniversary date reviews to conduct probationary performance appraisals for new employees. Once employees have been in the company past a certain time, they are shifted to a common performance appraisal calendar. Shifting away from anniversary dates will create more pressure on managers to complete multiple performance reviews in a short amount of time. This concern can be addressed by design- ing efficient performance appraisal forms, providing managers with tools and resources to write performance reviews easily, and giving managers several weeks in which to complete the reviews.

Separate Performance Reviews into Descriptive Assessment and Normative Evaluation Encourage managers to start the performance appraisal by describ- ing the employee’s accomplishments, strengths, weaknesses, and developmental needs. Then move to a separate step of evaluating the employee’s overall perfor- mance compared to others in the company. Separating the action of describing performance from the action of evaluating performance will lead to more effec- tive reviews.

Keep Compensation and Staffing Decisions Distinct from Performance Evaluation One of the uses of performance evaluations is to guide compensation

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and staffing decisions. But there are several reasons to keep these actions separate. First, performance reviews provide a lot of value outside staffing and compensation decisions. This includes providing employees with coaching feedback and support- ing employee career development. Second, a number of factors influence staffing and compensation decisions that are unrelated to employee performance (e.g., over- all business performance, salary freezes). Third, if you tie performance management too closely to compensation, people will start to think of it solely as an exercise to justify compensation decisions. Never design a performance management pro- cess that might lead a manager to say something like, “Why should I complete my employees’ performance reviews if there is a salary freeze?”

Keep Performance Appraisal Feedback Separate from Communication of Compensation Decisions If performance appraisal feedback includes information about compensation decisions, employees may focus only on their pay without pro- cessing what the review is saying about their behavior. Communicate performance reviews in a manner that encourages employees to understand what the reviews say about their performance strengths and development areas independent of how it affects their compensation. I typically recommend that companies conduct perfor- mance feedback discussions at least a week apart from communication of any com- pensation decisions, although this is not always possible.

6.4.4 How Will You Evaluate Performance? Determining how to evaluate performance requires looking at three things. First, how do you define performance? What do you need to measure to deter- mine if someone is effectively performing their job? Second, what is the reason for evaluating performance? Is it to provide coaching, determine compensation, assess career potential, or some mixture of these and other things? Third, how much time and effort do you want to put into the appraisal process? In general, the more time and effort put into the evaluation process the more accurate it will be. But how much accuracy is necessary? Let’s look at these in more detail:

• How is performance defined? If performance is defined in terms of objective, clearly measurable goals, then performance evaluation is largely just a matter of accurate goal measurement. For example, some jobs are evaluated entirely based on the amount of revenue generated through sales. The only thing required to evaluate performance in these jobs is keeping track of sales numbers associated

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with each employee. If, however, performance is defined using behavioral com- petencies or goals that cannot be measured in a purely objective fashion, then more thought is required to create an effective evaluation method. Most jobs fall into this category. There are also jobs where managers may not have the exper- tise needed to evaluate the technical performance of employees. For example, many health care administrators do not have the training required to evaluate the performance of the doctors or nurses they manage. In situations where job performance is less well defined or more difficult to measure, the most common approach used to evaluate performance is through a standardized performance rating process.

• What is the reason for evaluating performance? Performance evaluations can be used for multiple purposes, including providing coaching and feedback, determining how to allocate pay and other scarce resources, or providing a con- sistent, fair, and legally defensible basis for making personnel decisions. If the sole purpose of performance evaluations is to support coaching and feedback, then you may choose to limit the evaluation to highly descriptive, qualitative measures. If performance evaluations will be used to guide decisions related to pay, staffing, or allocation of development resources, you will need some method to categorize employees based on different performance levels. The only way to do this is to rate employees, although this does not necessarily mean using numeric rating labels. I discuss ratings in greater detail later in this chapter.

• How much time and resources will you invest in evaluating performance? Performance evaluation methods can be as simple as asking managers to place their employees into general categories of “good versus bad” or as complex as lengthy calibration sessions where managers work together to systematically categorize employees using highly detailed performance benchmarks. Typically the longer and more involved the method is, the more accurate the evaluation is, although there is certainly a point of diminishing returns. An important question when designing performance evaluations is, “How important is it to measure and categorize employees accurately?” The answer will influence how much time is spent on the evaluation. Evaluation methods that take a few hours per employee are typically fine for most jobs. For critical roles such as senior executive, it may make sense to use more extensive methods that could take several days to com- plete. And for relatively unskilled jobs such as frontline retail sales clerks, the evaluation methods may take as little as ten minutes per employee.

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Like most other aspects of talent management, there is no one best way to evaluate performance. What makes sense for some roles may not be effective for others. However, most methods use some version of rating scales, multirater input, and performance calibration. For that reason, we discuss each of these in a bit more detail.

Designing Rating Scales Most performance management processes include a step where managers categorize employees to indicate their overall level of per- formance using a standardized scale. This does not necessarily mean assigning a numerical rating such as 1, 2, 3, 4, or 5. It may mean labeling employees based on their contribution to the organization using such descriptors as “valued contrib- utor,” “exceeds expectations,” or “not achieving goals.” What is important is that employees are placed into categories where certain groups are considered to be performing at a higher level than other groups.

Rating employees is necessary to guide decisions around allocation of scarce resources such as pay, promotions, and training opportunities. Unless you treat all employees exactly the same regardless of performance, or assign rewards solely based on things like tenure and union job code, then you need some method to group employees based on performance levels. This cannot be done without some form of rating. The reality is that all companies rate employees, but not all compa- nies make ratings in a consistent, well-defined, and transparent fashion.

Companies vary considerably in the emphasis they place on identifying and communicating employee ratings. Some companies make the rating a cen- tral focus of the performance management process by directly tying it to pay increases and promotion eligibility. In these cases, the performance management process is largely a series of steps leading up to the assignment and communica- tion of ratings. Other companies do not share performance ratings with employ- ees: they give employees qualitative feedback on their performance but are never told what ratings they received, although they can often infer their ratings based on whether they get pay increases, receive promotions, or keep their jobs.

Hiding performance ratings from employees is counter to using performance management to create a culture where everyone knows exactly where they stand in terms of their performance effectiveness. But considerable care needs to be taken when sharing performance ratings, or they can significantly damage employee motivation and morale. I discuss this more when examining the kinds of training managers must receive to use performance management methods effectively.

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Assuming your company is going to make formal performance ratings, the next question is what sort of rating to use. This is one of the few areas of talent management where there are some well-tested and highly specific best practices.

Use a Five-Point or Seven-Point Rating Scale Research shows that five-point rating scales typically result in the most accurate evaluations.5 Seven-point scales may be slightly better if you provide managers with a lot of training on how to assign ratings. The advantage of five- or seven-point rating scales is they have a midpoint and allow for enough differentiation to be effective without overly complicating the rating process. It probably does not matter if a rating of 1 is good or if a rating of 5 is good, just as long as the meaning of the ratings is clearly communicated.

Here is how one company instructed its managers on using a five-point scale:

You will probably rate most of your employees as 2s, 3s, or 4s. These ratings represent solid performers at slightly different levels of effec- tiveness. Use the 1 and 5 as exclamation points to indicate a clear need for action with regard to an employee’s performance. You want to have clear implications for employees rated as 1s or 5s. Employees rated a 1 need to quickly improve or be managed out of their current role. In other words, performance is such a problem the company needs to act now to address it. Conversely, employees rated a 5 are so good the company should take near-term action to provide them with significant rewards or career opportunities.

You might wonder, Why not use three-point scales, even-numbered scales, or scales with nine or more ratings? The problem with three-point scales is they tend to function as two-point scales in application. Managers are unlikely to give someone the lowest possible rating (a 1) unless they are ready to either fire the employee or accept his or her resignation, so they end up grouping everyone into the 2 and 3 categories, which leaves little room for performance differen- tiation. The problem with even-numbered scales is that many employees truly are average. It frustrates managers when they are forced to rate average employ- ees as being above or below expectations. The problem with scales with nine or more rating points is they create inconsistency without increasing measurement precision. Most managers cannot effectively differentiate more than seven lev- els of performance, and so nothing is gained by giving them more rating points.

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Table 6.3 Examples of Descriptive Rating Labels

Furthermore, since some managers tend to use higher ratings than others, rat- ing scales with more than about seven points decrease rating consistency across managers without increasing rating accuracy.

Provide Descriptive Labels to Guide How Ratings Are Assigned The accu- racy and value of performance ratings increase when companies define rating scales using descriptive labels instead of numbers.6 Table 6.3 provides examples of descriptive labels that have been used with five-point scales. There are two reasons that descriptive labels are better than numerical ones. First, they define the difference between rating categories. For example, it is easier for a man- ager to distinguish between a “solid performer” and someone who is “exceeding

Rating Example 1 Example 2 Example 3

1 Significant concerns; results must change or serious disciplinary action will follow

Unsatisfactory performance. Performance must improve significantly within a reasonable period of time if the individual is to remain in this position.

Not meeting expectations. Employee is not performing to the requirements of the job.

2 Not meeting expectations; has some performance areas that need to be improved

Needs some improve- ment. Performance is noticeably less than expected.

Needs improvement. Usually performs to and meets job requirements; however, the need for further development and improvement is clearly recognized.

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Rating Example 1 Example 2 Example 3

3 Solid performer; valued contributor who effec- tively performs core duties of the role

Meets expectations. Performance clearly and fully meets all the requirements of the position in terms of quality and quantity of work.

Meets expecta- tions. Minor devi- ations may occur, but the overall level of perfor- mance meets or slightly exceeds all position requirements.

4 Exceeding expectations; high performer who contributes above and beyond core role

Exceeds expectations. Performance is sus- tained and uniformly high with thorough and on-time results.

Exceeds expectations. Performance fre- quently exceeds job requirements. Accomplishments are regularly above expected levels.

5 Role model; excep- tional performer who is having a major impact on organizational suc- cess; sets the bar for performance in his or her role

Exceptional performer. Performance levels and accomplishments far exceed normal expectations.

Outstanding. This category is reserved for employees who truly stand out and clearly and consistently demonstrate exceptional accomplishments in terms of quality and quantity of work that is easily recognized as truly exceptional by others.

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Commonsense Talent Management196

expectations” than it is to distinguish between a 3 and a 4. Second, descriptive labels make it easier to communicate the results of performance evaluations to employees. It is more meaningful to tell an employee that she is a “solid per- former” than to tell her that she is a “3.”

Base Ratings on Well-Defined Performance Criteria Managers should be given specific guidelines on how to evaluate performance based on an employ- ee’s goals and competencies. They should not make ratings based solely on their personal opinions of what constitutes effective performance. It is usually most effective to have managers start by rating employees against specific job compe- tencies and goals and then make an overall performance rating based on these individual ratings. To maximize the accuracy of performance ratings, require managers to explain their ratings using behaviors and metrics linked to job- relevant competency models and goal plans.

Avoid Overly Complicated Performance Weights It is a good idea to have managers rate their employees on specific goals and competencies, and then evaluate their overall performance based on these initial ratings. This approach helps ensure managers base their overall performance evaluations on appropri- ate performance criteria. Some companies go a step further and assign math- ematical weights to different competencies or goals that reflect their relative importance to the overall job. These weights are then used to automatically cal- culate an overall performance rating.

There are pros and cons to using mathematical weighting. Weights are good because they indicate that certain goals or competencies are more important to the job than others. For example, attendance and customer service are both parts of being a parking lot attendant, but performance may depend more on good attendance than good customer service, so it may make sense to weight atten- dance ratings more heavily.

Weights are bad because they can complicate the performance evaluation process. Weights create another level of complexity that people have to think through, and this added complexity may not be worth the value that weights provide. It is also often difficult to set weights. People struggle to place specific numbers on the relative importance of different goals and competencies. This is particularly true for competencies. You also need to define the criteria for set- ting weights. For example, should goal weights be based on “relative importance” or “relative difficulty”? Most companies base weights on relative importance, but

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this needs to be clarified and communicated. Finally and perhaps most impor- tant, the way weights are typically used does not accurately reflect how people actually evaluate performance.

Most performance systems that use weights have simple additive formu- las where ratings are multiplied by the relevant weight and then just averaged or added together. But people don’t actually evaluate performance using simple additive formulas. They judge overall performance based on whether people fall above or below certain thresholds on individual goals and competencies. This is called noncompensatory scoring, and it is hard to effectively replicate using weights (see the discussion: “Why Automatically Calculating Overall Performance Ratings Is a Bad Idea”).

W H Y A U T O M A T I C A L L Y C A L C U L A T I N G O V E R A L L P E R F O R M A N C E R A T I N G S I S A B A D I D E A

Some performance management processes ask managers to rate

employees on individual competencies and goals and then automati-

cally average or add these individual ratings to create an overall perfor-

mance rating. Although this approach sounds reasonable, it is generally

not a good idea. First, it can result in creating an overly engineered rat-

ing process that suggests a level of mathematic precision that doesn’t

truly exist. Second, it does not reflect how people actually evaluate

overall performance.

Manager evaluations of overall employee performance tend to fol-

low what is called a noncompensatory decision-making approach.

Managers typically do not rate each competency or goal and simply add

them together to come up with an overall rating. What managers do is

decide whether employees have achieved certain thresholds of perfor-

mance for different competencies and goals and then use these thresh-

olds to guide their overall evaluation. The use of thresholds allows

managers to make exceptions when rating employees who are really

good or bad at certain parts of their job. If performance on a specific

competency or goal is exceptionally good or bad, then managers may

weight that competency as being more important regardless of how

the employee has performed in other areas. For example, an employee

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who fails to meet certain minimum levels of performance related to

“achieving results” might be considered to have poor overall perfor-

mance no matter how good he or she is at other competencies, such as

“getting along with others” or “following rules and processes.”

Averaging or adding performance ratings to calculate an overall

performance score does not reflect the noncompensatory way manag-

ers actually evaluate performance. Consider the following illustration.

Imagine performance of a retail job was based on five competencies:

attendance, customer service, problem solving, attention to detail,

and supporting coworkers. The company rated employee performance

using the following five-point scale: 1: unacceptable; 2: needs improve-

ment; 3: meets expectations; 4: exceeds expectations; 5: outstanding.

Suppose an employee was exceptional when she was at work but

constantly showed up late for her scheduled shifts. This employee

might receive the following individual competency ratings:

Attendance 1—unacceptable

Customer service 5—outstanding

Problem solving 5—outstanding

Attention to detail 5—outstanding

Supporting coworkers 5—outstanding

Total 21

The mathematically calculated overall performance rating based on

averaging these five ratings is 4.20 (21 divided by 5). An overall rating

of 4.2 suggests the employee’s performance “exceeds expectations.”

But until the employee gets attendance above some minimum level, her

manager is unlikely to view her as a high performer no matter how good

she is at the four other competencies. In fact, the manager might rate

the employee’s overall performance as 1 (unacceptable) based on atten-

dance alone in order to justify removing the employee from the position.

You might ask, “Why not use HR technology to create automatic

scoring algorithms that use noncompensatory methods?” This is pos-

sible, but there are three reasons not to take this approach. First, creat-

ing noncompensatory scoring algorithms can be relatively complicated,

and many HR technology systems cannot easily support these types

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Doing Things the Right Way 199

of calculations. Second, it implies that performance evaluations have

a level of mathematical precision that is beyond the true accuracy of

most manager performance ratings. Third, and most important, it

removes the manager from having full ownership over the final overall

rating. Performance management processes should not give managers

the chance to say things like, “The system automatically calculated the

overall rating, and it is different from what I would have given if I was

allowed to do it myself.” It is important that managers own the overall

evaluation they assign to employees and be able to effectively explain

why they gave this rating. The easiest way to do this is to have manag-

ers assign ratings themselves and require that they justify those ratings

based on well-defined competencies and goals.

There is value in having managers rate individual goals and compe-

tencies independently before making an overall performance evalua-

tion. Such individual ratings focus managers on the criteria that define

effective performance. But rather than averaging or adding these ratings

together into an overall rating, it is better to ask managers to make the

overall rating independently. The overall rating should reflect the ratings

made on individual competencies and goals but should not be a simple

linear addition of these ratings. Instead, it should take into account the

importance of meeting or exceeding certain performance thresholds for

different competencies and goals. And most important, managers should

be able to easily and clearly explain to employees how they arrived at

their overall performance rating. This approach creates stronger manager

ownership for the overall rating, is simpler to understand, and reflects

how people actually make overall performance evaluations.

Taking these pros and cons into account leads to the following recommenda- tion for the use of weights:

• Carefully consider whether the value gained by using weights in the perfor- mance appraisal process justifies the work it will take to use them effectively.

• It is usually better to use weights for individual goals than for individual competencies. This is because it is easier to evaluate relative importance and define weights for goals compared to competencies.

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Commonsense Talent Management200

• It is reasonable to use weights to balance the overall importance of goals ver- sus competencies because this is fairly easy to understand—for example 70 percent assigned to goals and 30 percent assigned to competencies.

Weights can provide a general guide to help managers make their final over- all performance evaluation. But the final evaluation should not be mathemati- cally determined because such formulas do not account for the noncompensatory nature of performance. Managers should be given leeway to set their final evalu- ation based on their interpretation of the employee’s overall performance. This evaluation should be reflective of the individual competency and goal ratings and their associated weights, but it should not be automatically determined by them.

Designing the Performance Evaluation Process The foundation for effec- tive performance management is accurate performance measurement, which is critical for providing employee feedback, supporting coaching and development, and guiding staffing and pay decisions. Accurate performance measurement depends on clearly defining the criteria that determine performance and consis- tent, systematic collection of performance data based on these criteria.

How you collect performance data depends on the types of data you are col- lecting and who you are collecting it from. There are three steps to performance data collection:

1. Define what sort of data you are collecting.

2. Define what sources you will use to obtain the data. The primary sources are usually employees and their managers, but you may also want informa- tion from peers and customers, as well as objective data such as financial metrics or assessment test results.

3. Decide how to collect information from these sources.

Figure 6.6 illustrates the three types of performance data that are used to evaluate employee performance:

• Competency data are usually based on ratings provided by employees and their manager. These data can also be collected from coworkers and cus- tomers. The use of social technology tools in the workplace is also lead- ing to the use of crowdsourced competency data (see the discussion: “Using Social Technology and Crowdsourcing Applications to Evaluate Employee Performance”). It is also possible to evaluate competencies using job

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Doing Things the Right Way 201

simulations or psychometric assessments, but these methods are better suited for staffing and are rarely used for performance management.

• Goal data usually come from employee and manager evaluations of whether goals were accomplished. Goals for some jobs can also be measured using objective metrics such as customer satisfaction surveys, productivity metrics, or sales revenue.

• Skills data are included as part of the performance management process for some jobs. These data are usually based on certification tests, by having man- agers or subject matter experts rate the employees on skills proficiency, or by having employees provide evidence that they have performed certain tasks or gained certain experiences.

U S I N G S O C I A L T E C H N O L O G Y A N D C R O W D S O U R C I N G A P P L I C A T I O N S T O E V A L U A T E E M P L O Y E E P E R F O R M A N C E

Social technology applications similar to Facebook or Twitter are now

common in the workplace, and people have suggested that data from

these systems can be used to replace formal performance reviews.

Instead of managers rating employees on different competencies, might

it be better for employees to be evaluated directly based on comments,

popularity rankings, and posts made on these sites? It makes sense to

explore how social technology can improve on more traditional perfor-

mance rating processes. But it does not make sense to assume social tech-

nology can or should replace current performance evaluation methods.

Social technology provides tremendous value for supporting ongo-

ing coaching and communication around performance. But when it

comes to making formal evaluations of someone’s value to the organi-

zation, these tools have a lot of problems:

• Poor measurement. Social technology metrics often reflect how

often a person comments on different sites and the reactions others

show to those comments. One could argue that social technology is

more about impression management, popularity, and knowing who

to ask for feedback than rigorous, consistent measurement. There is

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Commonsense Talent Management202

also a distinct absence of well-defined performance criteria in most

social technology systems (e.g., well-defined goals or competencies).

• Lousy analytics. Social technology tends to rely heavily on qualitative

statements as opposed to quantitative ratings. This is a strength from

a coaching and feedback perspective but a problem from the perspec-

tive of calibration, measurement consistency, and workforce analytics.

• May not work in competitive environments. People competing for

limited resources might distrust or actively try to game social tech-

nology. For example, employees may intentionally make online com-

ments or posts simply to increase their crowdsourcing scores.

• Potential to create disruption in the company. Constructive feedback

requires sharing negative comments from time to time. But posting

of negative comments on social sites is likely to create more problems

than it solves. Providing effective critical feedback is a sensitive topic.

Many cultures are averse to making critical comments about someone

else’s performance. There is a reason that it is not possible to “dis-

like” something on Facebook. One cringes to think what might hap-

pen if someone posts a comment on a company’s social performance

technology system saying, “His work is bad,” or, “He is an idiot.”

• Legal concerns. Ask your corporate legal counsel what they think

about using social technology systems as a primary source of data for

evaluating employee performance. I suspect they might describe it as

a plaintiff’s gold mine of inappropriate comments.

People once said the Internet will be the end of brick-and-mortar

retail stores. That didn’t happen, although it certainly has changed how

people shop. The same is true for social technology and traditional per-

formance reviews. Social technology is unlikely to completely alter the

future of performance management. It will create some changes to

how performance management data are collected, but at the end of

the day, it is just another tool, even if it is a unique and valuable one.

It is important to think about what types of data you need to conduct perfor- mance evaluations. The nature of the data you use will have a significant impact on how you design the evaluation process.

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Performance Evaluation Process Steps After determining what data will be used in the performance review, the next step is determining how these data will be collected and analyzed to create performance ratings. Figure 6.7 provides an overview of steps commonly used to evaluate employee performance. The steps in dark gray are necessary for implementing consistent performance evaluations. The steps in medium gray are commonly found in many performance manage- ment processes but are not always necessary. The steps in light gray work well for some companies and jobs, but these are less widely used because of the resources they require or their limited relevance to certain types of positions.

Here is what a performance evaluation process would look like for a company that did the fewest possible number of steps and what it would look like for a company that used every step in figure 6.7.

For the minimal process, the manager drafts and submits a review of the employee, including an overall performance evaluation based on the manag- er’s opinion of the employee’s performance (combining steps D, F, and J into a single step). The manager meets with the employee to review his or her perfor- mance evaluation and communicate pay or staffing decisions that were based on the evaluation (combining steps E, K, and L into a single step). This minimal

Figure 6.6 What Goes into a Performance Evaluation

Competencies How you apply

your knowledge

Skills and Experiences

What you know

Goals What you are

trying to achieve

Overall Performance

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process might take two weeks or less to complete and require fewer than three person-hours per employee. It could take as little as thirty minutes if a very sim- ple rating form is used and managers are not expected to spend time coaching employees.

In the comprehensive process, information is imported from sales and finan- cial data systems to create a profile of the employee’s performance based on objective business metrics (step A). The employee creates an initial assessment of his or her performance based on these metrics combined with other infor- mation about his or her performance collected over the year (step B). Several of the employee’s coworkers send information to the employee’s manager express- ing their opinions of the employee’s strengths and developmental areas. This may include getting input from the employee’s own direct reports if the employee is also a manager (step C). The manager reviews the employee’s business metrics, the employee’s self-assessment, comments from the employee’s coworkers, and the manager’s own record of the employee’s performance to draft an initial eval- uation of the employee’s performance (step D).

Figure 6.7 Performance Evaluation Steps

A. Integrate Objective Data

B. Employee Self- Assessment

C. Coworker and Customer Input

D. Manager’s Initial Assessment

E. Manager and Employee Review

F. Manager’s Overall

Assessment

G. Manager’s Manager Review

H. Process Administrator

Review

I. Talent Review and Calibration

Sessions

J. Final Assessment

K. Providing Employee Feedback

L. Communicate Pay and Staffing

Decisions

M. Performance Improvement Plan

(If Needed)

Follow-on actions tied to staffing,

succession, and so forth

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Doing Things the Right Way 205

The manager and the employee meet to discuss the manager’s initial per- formance assessment and make modifications to address areas of misalign- ment (step E). The manager drafts and submits his or her overall assessment for further review and approval (step F). The manager’s manager reviews the assessment and makes relevant changes based on his or her perspective on the employee’s accomplishments (step G). Representatives from the HR depart- ment review the assessment to ensure it is appropriately written and contains all required information (step H).

The manager discusses the assessment with other managers during a calibra- tion session and if necessary changes the evaluation based on input from their peers (step I). The manager makes a last round of changes to the assessment based on input from previous steps and finalizes the review (step J). The man- ager meets with the employee to discuss the final assessment and discuss ways to increase his or her performance and achieve his or her career goals (step K). The manager shares information with the employee about decisions regarding pay or job position that were based on the results of the performance evaluation (step L). If the employee’s performance is well below expectations, the manager may put the employee on a performance improvement plan (step M).

This comprehensive process would probably take about three to four months from start to finish and require around ten to fifteen person-hours to complete for each employee.

The minimal process might work for some very basic positions, but is too simplistic to be effective for most jobs. In contrast, the comprehensive process is way too long and involved for most organizations. The best process usually lies somewhere between these two extremes. The challenge is finding which sequence of steps is appropriate for your setting. With that in mind, we review the steps in more detail and discuss their strengths and potential concerns.

A. Integrate Objective Data This involves bringing together data from differ- ent sources that will be used in the performance review. These sources might include financial results, sales numbers, customer satisfaction survey scores, pro- ductivity metrics, workforce metrics (e.g., staff turnover, engagement levels), or any other data assumed to reflect an employee’s performance contributions. This step is common for jobs tied to objective metrics such as sales or production positions. It is less common for support and professional jobs where it is difficult to tie performance directly to objective metrics. It is important to think through

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what data to include because pulling together this information can be a labor- intensive effort. Also important is taking care in using objective data just because they are easily obtainable. This can result in treating data as important merely because of availability. Finally, these data should be presented in a way that will be easy for employees and managers to interpret.

B. Employee Self-Assessment In this step employees evaluate their own perfor- mance against job-relevant competencies, goals, and skills. Employee self-assess- ment has several advantages. First, employees have a vested interest in presenting their performance strengths. They are likely to put a fair bit of effort into pre- senting information that describes their accomplishments. Having employ- ees conduct a self-assessment also reduces the workload placed on managers because employees gather and document many of their accomplishments so managers do not have to do it. Having employees review their performance also encourages them to critically compare themselves against job-relevant perfor- mance criteria. This increases employee self-awareness regarding performance strengths and weaknesses. The only significant downside to employee self- assessment is the tendency for underperforming employees to view themselves as being more competent than they actually are.7 This can create difficulty for managers who are faced with the task of giving employees a candid dose of real- ity about their true level of effectiveness.

C. Coworker and Customer Input This step involves asking people who work with the employee to provide input into the performance assessment. This step can be initiated by employees or managers. Companies often ask employees to provide a list of coworkers to their manager, which the manager approves or changes based on who will provide the most useful and accurate input. Companies also use this step to gather input from direct reports when assess- ing the performance of managers (see the discussion: “Evaluating Manager Performance: When 120 Is Worth More Than 360”).

There are a few things to remember when gathering coworker and customer input. First, it is usually wise to limit input to fewer than five people, or this step can become very time intensive and the amount of information collected can become difficult to process. Second, avoid asking coworkers to rate the perfor- mance of their peers. It is better to ask for descriptive comments by using such prompts as, “What are two things this employee does well?” and, “What are two things this employee could change to improve her job effectiveness?” Third,

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be sensitive to the number of times people are being asked to provide input. Coworkers who work with a large number of employees could easily be asked to provide comments on ten or more reviews, which can be a significant time demand and can have a negative impact on the quality of information provided.

E V A L U A T I N G M A N A G E R P E R F O R M A N C E : W H E N 1 2 0 I S W O R T H M O R E T H A N 3 6 0

A major aspect of managerial performance is the ability to motivate,

develop, and guide direct reports. Yet surprisingly few companies for-

mally collect information from direct reports when evaluating manager

performance. Fortunately, this is starting to change, largely because

technology is making it much easier to get input from direct reports in

an efficient and confidential manner.

Companies are using a modified version of the 360 survey process

to do this. The traditional 360 survey collects ratings on an employee’s

performance from his or her supervisor, peers, and direct reports. The

modified version collects ratings only from a manager’s direct reports

but not his or her supervisor or peers. This type of survey is sometimes

called a “120” because it surveys only people who have one of three

possible perspectives, which makes the process more focused and man-

ageable. These surveys tend to be very short and look at only compe-

tencies related to managing and developing others. Some companies

send the results to the manager’s manager, who then compiles them for

the formal assessment, while others send the results to both the man-

ager and the manager’s manager. This tends to vary based on employee

concerns about providing critical feedback directly to their managers.

These 120 surveys provide managers with a more complete sense of

their performance. It also allows companies to address the longstanding

problem of managers who “kiss up and kick down,” that is, managers

who excel at looking good to their superiors but are abusive and intimi-

dating toward those working for them. By providing greater transpar-

ency into how managers truly treat their employees, companies can

reward managers who achieve results through building the strengths of

their teams, develop managers who may achieve results but do it at the

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expense of those working for them, and remove managers who should

never have been allowed to manage people in the first place.

Most companies I have worked with that use 120 surveys have been

satisfied with their results. However, there is a risk that these surveys

might create a bias for managers to avoid doing things that might lead

their employees to give them low ratings such as confronting poor per-

formance or challenging employees to set difficult goals. Like all other

strategic HR methods, there are pluses and minuses to the use of 120

surveys. What is important is to be aware of these risks so they can be

recognized and managed.

D. Manager’s Initial Assessment During the initial assessment, the manager provides his or her first evaluation of the employee. This step can be done in parallel with the employee self-assessment, as a response to the employee self-assessment, or by itself if the company is not including an employee self-assessment step. It is important to indicate that this assessment may be revised during subsequent steps. Most companies have managers provide an initial overall performance rating with the understanding that the rating is not final. Other companies ask managers to provide only descriptive informa- tion and ratings on employees’ individual goals and competencies in this step and wait until the talent review session to collect an overall performance rat- ing (step I).

E. Manager and Employee Review The manager and employee meet to review the performance evaluation and discuss its accuracy and completeness. This step can occur at many places in the overall process. For very simple processes, it may occur shortly after the manager’s initial assessment and may represent the end of the process. Companies may use this step to ensure the manager has thor- oughly assessed the employee’s performance before discussing it during man- ager, administrator, or calibration reviews (steps G, H, and I).

F. Manager’s Overall Assessment The manager revises the review based on information from previous steps and submits an overall assessment of the employee. At this point, the manager and employee are assumed to accept the review as final unless additional changes are made during reviews by the manag- ers’ manager, the process administrator, or during calibration meetings.

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Doing Things the Right Way 209

G. Manager’s Manager Review The manager’s manager reviews the assess- ment to ensure it meets quality expectations and aligns with his or her percep- tions of the employee’s performance. This step has several advantages. It helps ensure that evaluations reflect a consistent set of performance standards, reduces the risk of having managers evaluate their employees more harshly or leniently than their peers, and creates an opportunity to coach the manager on conduct- ing performance reviews. It also gives the manager’s manager greater knowledge of employees in the organization, which can promote talent mobility and inform workforce strategies.

The main disadvantage of this step is that it is time-consuming. A manager’s manager may be responsible for looking at scores of performance reviews if they have several managers reporting to them. The manager’s manager may also struggle to provide useful feedback on the assessment if he or she has only limited exposure to the employee being evaluated. Finally, this step assumes the manag- er’s manager is skilled at performance reviews, which is not always the case.

H. Process Administrator Review The assessment is reviewed by a process administrator with expertise in performance management, typically someone from the HR organization. This step creates more consistency in performance reviews across the organization since the process administrator typically looks at reviews across multiple departments and functions. Having the review con- ducted by someone with expertise in performance appraisals can also increase the quality of performance reviews and decrease legal risks associated with inap- propriate evaluation comments. This step can also help identify managers who need performance management training. The main disadvantage is that this step is time intensive, requires dedicated resources to conduct the reviews, and increases the overall bureaucracy of the performance management process.

I. Talent Review and Calibration Sessions These sessions bring together groups of managers to compare and discuss the performance levels of their direct reports. Talent review sessions create more consistent performance eval- uations, help managers share ideas for conducting performance reviews and developing employees, and increase awareness of employee capabilities across the company, which enables better utilization and mobility of internal talent. The disadvantage is that they are time-consuming. They must also be effectively structured and facilitated to ensure the sessions remain productive, focused, and non-confrontational.

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J. Final Assessment The manager now integrates information from all the previous steps and develops and submits his or her final assessment of the employee’s performance. It is critical that managers be clearly responsible for the content and consequences of reviews they submit. Do not design a pro- cess that allows managers to say, “This isn’t what I would have said, but I was required by the performance management process.” It is appropriate to ask managers to explain why they have given employees certain performance rat- ings. But managers should not be forced to submit a review they do not agree with unless there is an openly acknowledged difference of opinion between the manager and his or her supervisor about the employee’s performance. Forcing managers to make ratings they do not agree with will cause them to question the entire performance management process and resist using it to improve employee productivity.

K. Providing Employee Feedback The manager meets with the employee to discuss the final review. Ideally this step is spent discussing how to use the infor- mation contained in the review to help the employee increase his or her future performance and achieve his or her career goals. But performance management processes do not always require extensive development coaching to be effec- tive. In some cases, simply making employees aware of their performance levels is enough. We discuss this in more detail in the section on providing employee feedback.

L. Communicating Pay and Staffing Decisions Normally the manager will tell employees about any pay and staffing decisions that come out of the performance management process. Communicating these decisions is ideally integrated with the performance appraisal process but is prefer- ably done separately from communicating the results of the appraisal itself. Compensation and staffing decisions are not technically part of the perfor- mance review process, although they should be influenced by performance appraisals. The purpose of performance reviews is to measure the perfor- mance contributions of employees. This is not the same thing as deciding how much people should be paid or who should be promoted. Many factors influence pay and promotion decisions other than performance. We discuss this more in the section on using performance management data to guide talent decisions.

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M. Performance Improvement Plan (If Needed) If an employee is performing below a certain level, then companies may place him or her on a formal perfor- mance improvement plan. Performance improvement plans are intended to do what they say they do: improve performance. These plans may also be necessary to ensure compliance with relevant legal guidelines in case the company has to terminate a person’s employment contract.

The performance appraisal process is the most visible part of performance management. When deciding which performance appraisals steps to include, carefully consider the overall objectives you want to achieve from performance management. If your main goal is to increase employee productivity, then you are likely to include a lot more steps than if your goal is just to ensure legal compliance. The number and nature of the steps will also be influenced by the resources available for performance management, including the level of support shown by business leaders toward the process. As a general rule, it is better to do a few steps really well than risk doing a lot of steps poorly. It is usually the most effective to start with a simple process and steadily build on it over time rather than trying to go directly to a highly detailed, multistep process.

6.4.5 How Will You Calibrate Performance Evaluations? Calibration is used to make sure evaluations of employee performance are based on a common and accurate set of standards. Calibration drives differentiation between employee performance ratings, creates consistency across managers in how they evaluate performance, and helps ensure that employees are rated based on their actual behavior and accomplishments and not just the subjective opinions and attitudes of their managers. Calibration methods are frequently used for mak- ing decisions about which employees should be given rewards or opportunities that will not be made available to the entire workforce—for example, deciding who will receive limited organizational resources such as promotions, compensation, or development opportunities. It also addresses one of the most common problems in performance management: the tendency to rate all employees as being at the same general level of performance (see the discussion: “Why Managers Struggle to Differentiate between High and Low Performers and How to Help”).



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W H Y M A N A G E R S S T R U G G L E T O D I F F E R E N T I A T E B E T W E E N H I G H A N D L O W P E R F O R M E R S A N D H O W T O H E L P

People often complain that performance management processes do

not adequately identify high- and low-performing employees. This

might seem odd since virtually every performance management process

encourages managers to make this differentiation. What makes it so

difficult for managers to rate certain employees as being more effective

than others?

Answering this question starts with understanding how managers

approach performance management. Managers think about several

things when they are starting the performance management process.

• Is it easy? This is not just about the time is required to complete per-

formance management tasks. It is about whether the tasks associated

with performance management are simple or difficult. Performance

management tasks such as delivering critical feedback are not easy for

many people. Making performance management easy requires build-

ing simple and intuitive tools and processes. It also requires training

managers on how to set goals, evaluate performance, and provide

feedback. Otherwise managers may avoid the tasks altogether.

• Will it increase workforce productivity? To maximize productivity, it

is necessary to provide employees with feedback that illustrates what

they can do differently to increase their effectiveness. If this feed-

back does not contain the right information or is not delivered in the

right way, it may decrease productivity and increase the turnover of

valued employees. One of the challenges managers ask before giv-

ing critical feedback is, “Will this lead to more or less effective per-

formance?” How they answer this question will depend on whether

they know how to hold effective coaching conversations.

• Does it have a positive impact on the work environment? Giving

someone critical feedback can be motivating when that person is

fully engaged in fulfilling his or her performance potential. But

it can also be stressful due to the expectation that people must

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Doing Things the Right Way 213

improve to be successful. Managers may avoid critically evaluating

people’s performance for fear of the stress and potential interper-

sonal conflict it can create.

• Will managers be rewarded for confronting poor performance? All

companies say they want managers to hold employees accountable

for meeting performance expectations, but many companies do not

back this up with action. Managers who call attention to underper-

forming employees are sometimes told to live with the poor per-

former because it is politically or legally difficult to manage that

person out of the organization. Rather than supporting managers

for addressing performance issues, these managers are treated as

troublemakers. At other times, managers are punished for not hav-

ing teams entirely composed of “high performers.”

Any manager who truly strives for high performance will at some

point encounter employees who are not meeting expectations. The true

test of effective managers is not whether they have performance issues

on their teams, but how they address these issues when they occur. It is

important to examine how the company reacts when managers call out

employees who are not meeting expectations. Are managers supported

or punished for acknowledging and addressing performance issues?

From a manager perspective, the main goal of performance manage-

ment is not to accurately document employees’ past performance but

to positively influence their future performance. Using performance

management to critically evaluate employees and place them into dif-

ferent performance categories does not necessarily have a positive

impact on the lives of managers. Why would managers risk evaluat-

ing employees if it might lead to decreased productivity and a stressful

work environment? If a manager is not confident in his or her ability to

use performance management to increase workforce productivity, he or

she may logically take the path of least resistance and simply rate every-

one as “above average.” This may not increase performance, but it may

not significantly decrease it either, at least in the short term.

The best way to get managers to differentiate between low- and

high-performing employees is to give them clear performance criteria,

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train them on using these criteria to accurately evaluate employees,

show them how to provide critical performance feedback in a way

that will motivate employees to change for the better, and support

and reward managers who are willing to distinguish between low- and

high-performing employees. Managers will not truly embrace using

performance management to differentiate between employees until

they are confident that such critical evaluations will help them more

than it will hurt them.

The three most common uses of calibration are for performance manage- ment, compensation, and succession:

• Performance calibration. Managers are required to explain or justify why they gave certain employees higher performance ratings than others. This ensures they have a consistent definition of performance and effectively dif- ferentiate between high-performing employees and less valuable contributors. It decreases the influence of managers’ subjective opinions and attitudes on employee performance ratings. Performance calibration can have a significant impact on how employees are rated. For example, I once encountered a man- ager who said, “I never give employees the highest rating because I always want them to have something to strive for.” During a calibration session, it was pointed out that if this manager never gave employees a rating of 5, then the highest rating employees could hope to obtain is a 4. Furthermore, the manager’s unwillingness to acknowledge high performance hurt motivation rather than helping it.

• Compensation calibration. Managers are required to allocate financial rewards such as pay increases or bonuses in a way that meaningfully differentiates the rewards given to high performers from those given to others in the organiza- tion. This is primarily used to maximize the motivational value of compen- sation for high performers, avoid the risk of overpaying underperformers, and build a pay-for-performance culture. Research has found that even slight differences in pay significantly influence motivation, provided people know that these differences are tied to performance.8 For example, the difference between a 2 percent and 3 percent salary increase may not seem like a lot in terms of absolute value, but it can mean a lot in terms of showing recognition

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for superior performance. And the difference between a 2 percent increase and no increase at all sends a very strong message to underperformers.

• Succession calibration. Managers or other organizational leaders compare and contrast the potential of employees to assume roles with increasing leadership or job responsibility. This is primarily used to ensure the company has a real- istic sense of its internal talent pool or bench strength, develop common defi- nitions of potential for different roles, and promote development and sharing of internal talent across the organization. (Methods for assessing potential are addressed in chapter 7.)

These three types of calibration work best when they are integrated with each other, and they all start with effective performance management calibration. A well-run performance management calibration process can eliminate the need for compensation calibration and significantly reduce the effort required to con- duct succession calibration.

Implementing Calibration Methods Calibration is not always easy to implement, but it doesn’t need to be overly complicated. Large companies have successfully deployed calibration methods across thousands of employees in a matter of months. As with most other talent management methods, there is no one best way to use calibration. Methods that make sense for one organization may be impractical or ineffective in another. Carefully thinking through the fol- lowing calibration methods will provide a solid foundation for deploying cali- bration within your company.

Clearly Defined Performance Definitions Clear definitions support calibra- tion by providing a common standard to evaluate employees. The most effective performance definitions use goals and competencies to describe specific achieve- ments and behaviors associated with different levels of performance. If calibra- tion is being used to compare employees who are working in different jobs, then it is valuable to identify core competencies that influence performance across all these jobs. Core competencies are particularly useful for comparing the perfor- mance of employees who have vastly different sets of skills and experiences.

Rating Distribution Guidelines Guidelines indicate the approximate num- bers of employees who are expected to fall into different performance categories. Companies tend to expect overall employee performance ratings to approximate

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a normal distribution for most jobs. Here is an example of a rating distribution guideline for a five-point performance scale:

Percentage of Employees Expected to Be Placed in Different Performance Categories

5—Top performer: 10 percent

4—Strong performer: 35 percent

3—Solid performer: 45 percent

2—Needs improvement: 7 percent

1—Poor performer: 3 percent

Rating distribution guidelines encourage managers to evaluate their employ- ees more critically. They can create “performance pressure” by flattening the curve so more employees are rated as high or low performers (e.g., requir- ing that 20 percent of employees fall in each of the five categories shown in the example). Forced ranking is the most extreme form of this because it asks man- agers to place every employee in a different performance category from most effective to least effective (see the discussion: “The Truth about Forced Ranking and Forced Distributions”).

T H E T R U T H A B O U T F O R C E D R A N K I N G A N D F O R C E D D I S T R I B U T I O N S

Forced distributions are calibration methods that require managers to

place a certain percentage of employees in different performance cat-

egories ranging from most to least effective. Forced ranking is the most

extreme form of forced distribution because it requires managers to

list each employee in order of performance from most valuable to least

valuable.

Forced distribution methods received a lot of publicity in the 1990s

due to their use at GE under CEO Jack Welch. Subsequent research

has shown that these methods increase workforce productivity in cer-

tain limited settings but can have a negative impact on productivity in

others.a

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Forced ranking and forced distributions can increase workforce pro-

ductivity when a company has a high percentage of underperforming

employees. But their value quickly wears off as the company begins to

weed out poor performers. At this point, forced distribution methods

begin to damage workforce quality and employee morale. These meth-

ods also do not work well if managers compare only the direct reports

on their teams, as opposed to making comparisons across much larger

groups of employees such as entire departments. Forced ranking and

forced distributions can punish managers who have been “slow to hire

and quick to fire” in terms of building a team entirely consisting of high

performers, which, while rare, is possible. It can also create unnecessary

and unhealthy conflict. For example, when an engineering company

implemented strict forced ranking, some of its most talented engineers

became upset when they were rated number 2 instead of number 1

on their teams. In reality, there was little difference between the per-

formance of the number 1 and number 2 engineers. But the number 2

engineer resented the implication that he was not the equal of his peer.

Few companies do strictly forced ranking or strongly forced distribu-

tions. Even GE stopped doing it years ago. It is usually far more effec-

tive to use calibration talent review sessions. In these sessions, managers

must explain their performance ratings to their peers or supervisors and

reach mutual agreement on the final ratings. A manager may initially

give everyone on his or her team high ratings, but must justify why the

team deserves these ratings or adjust the ratings downward. Calibration

sessions help address the problem of some managers rating more leni-

ently or severely than others. The calibration process also helps manag-

ers to develop a common definition of what high performance looks like.

Finally, it provides managers with insight into talent in other parts of the

organization, which can facilitate talent movement across the company.

aScullen, S. E., Bergey, P. K., & Aiman-Smith, L. (2005). Forced distribution rating systems and the improvement of workforce potential. Personnel Psychology, 58, 1–32.

Rating distribution guidelines are a useful tool for calibration, but they cre- ate risks if they are not appropriately managed or do not match the true nature of the performance distributions found in a company. They are particularly

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problematic if managers are required to strictly adhere to the guidelines (e.g., requiring that managers always place a percentage of employees in the highest and lowest performance categories even if managers do not believe this place- ment represents a true portrayal of their team’s performance). Rating distri- bution guidelines also work best when comparing groups of at least thirty or more employees since smaller groups of employees are less likely to conform to expected distributions.

Rating Reviews Reviews involve having someone review a manager’s perfor- mance evaluations for accuracy and appropriateness. The most common rater review is the second-level-manager review. In this method, employees are rated by their manager, and then the manager’s manager reviews the ratings for accu- racy and differentiation. Rating reviews are sometimes conducted by members of the HR department instead of the second-level manager. Rating reviews are time-consuming, but they help ensure that employee ratings are reasonably accurate based on broader company expectations. They can also be used to mon- itor the overall quality of performance assessments.

Talent Review Sessions These sessions bring together groups of managers, senior leaders, and talent management specialists to compare and discuss the performance of employees drawn from multiple teams, departments, or organiza- tions. There are many ways to structure and conduct talent review sessions. The common feature is that people from different parts of the company discuss and contrast the performance of employees who may not directly report to them.

Talent review sessions are the most powerful form of calibration because in a single meeting, you can clarify common performance definitions, reinforce rat- ing guidelines, and conduct rating reviews. They also allow managers to coach each other on how to manage different kinds of employees and promote trans- parency and sharing of talent across the organization. The downside is that these sessions require significant resources to be done well and can create major prob- lems within the workforce if they are done poorly.

Each of these calibration methods can be implemented independently. But they are most effective when implemented as part of a single performance appraisal process.



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What calibration methods to use will depend on the results the organization wants and the resources it has available. However using some form of calibration is highly recommended because of the multiple positive outcomes these meth- ods provide—for example:

• Shared definitions of performance. One of the fundamental aspects of a high- performance work environment is a clear and well-understood definition of what success and failure look like. Common performance definitions and talent review sessions support the creation and use of rigorous performance standards. These force managers and employees to candidly and honestly compare their actions against the expectations of the organization.

• More accurate performance data. Calibration methods have a significant impact on the accuracy of performance appraisals by creating clear guidelines for performance evaluations and encouraging discussion and debate around the validity of managers’ ratings.

• Increased equity and fairness. Calibration increases the transparency of per- formance ratings and decreases the potential for managers to unfairly rate certain employees leniently or harshly. Employees know their performance evaluation has been critically reviewed by people other than just their man- ager. This can reduce concerns of being rated poorly “just because my man- ager doesn’t like me.”

• Improving the quality of the workforce. Ongoing performance calibration helps ensure that underperformers are identified and not continually overlooked and tolerated year after year. This does not mean calibration should be used to constantly winnow the workforce every year by removing the bottom x percent. In fact, there are significant problems with this type of use of calibra- tion. But it does mean taking action to address problems caused by underper- forming employees.

• More effective compensation allocation. Calibration enables companies to more closely link pay decisions to employees’ performance contributions. This increases the motivational value of compensation. Pay increases have a much stronger impact on motivation and retention when employees see a clear relationship between performance levels and pay. The motivational value of paying for performance is significant even when the relative differ- ence in pay given to high versus low performers is fairly small.9 There are also

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cost savings associated with reducing the amount of pay provided to low-per- forming employees.

• Better insight into workforce capabilities. Because calibration increases the accuracy of performance appraisal data, it makes performance management data more useful for evaluating workforce strengths and weaknesses. The conversations that occur during calibration reviews also promote under- standing across the company around relationships between business needs and current workforce capabilities.

• Greater coaching and sharing of talent. Talent reviews give managers a forum to discuss performance issues with their peers. This creates an opportunity for sharing ideas on how to accelerate employee development and address employee performance issues.

Which of these outcomes are most pronounced depends on how the calibra- tion process is designed. But taken as whole, there are relatively few strategic HR actions that have a greater impact on workforce productivity than the use of effective and well-designed calibration.

6.4.6 How Are Data from Performance Evaluations Used? What Is the Relationship among Performance Evaluations, Pay, Promotions, Development, and Workforce Management? One of the ways performance management drives business execution is through enabling more accurate decisions related to investing company resources to increase workforce productivity. Most of these decisions have to do with pay, staffing, development, and workforce management. It is important to think how these decisions are currently made in the organization and how performance management data will be used to improve their effectiveness. Here are a few high-level issues to consider when tying performance management to compen- sation, staffing, and development decisions.

Compensation Decisions Creating a stronger pay-for-performance culture is a common goal for implementing performance management methods. Pay for performance is a more complex concept than it might initially seem, but the basic notion of paying high performers more than low performers is generally a good strategy for increasing workforce productivity (see the discussion: “Do We Really Want Pay for Performance?”). Here are some considerations for building pay-for-performance processes:

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D O W E R E A L L Y W A N T P A Y F O R P E R F O R M A N C E ?

A pay-for-performance culture is one in which people receive monetary

rewards based on the contributions they provide to the company: the

more you contribute, the more you are paid. The assumption is that

people will contribute more value if they are financially incented based

on their contributions. Adopting a pay-for-performance mind-set is

generally a good idea, but the idea can also oversimplify what business

leaders truly want and what actually motivates employees. To illustrate

this, consider the following four pay-for-performance cultures in order

of best to worst to somewhere in-between:

• The best scenario: Performance without pay. From a strictly financial

perspective, business leaders don’t necessarily want to pay for perfor-

mance. What they ideally want is performance without having to pay.

But most employees are not willing to accept this proposition. We

rightfully expect to be paid for what we contribute. Nevertheless, it is

possible to inspire people to achieve high levels of performance with-

out focusing on pay. Volunteer organizations do this all the time. There

are a lot of things that motivate people. The motivational value of pay

varies depending on the type of job and employee, and business lead-

ers who use pay as the sole tool for motivating employees risk adopt-

ing a very expensive and marginally effective leadership approach.

• The worst scenario: Pay for poor performance. The worst-case sce-

nario for a business occurs when employees are rewarded for doing

things that undermine company performance. This occurs more

often than companies would like to admit, particularly in companies

whose managers have to comply with restrictive personnel policies,

rules, and regulations. Rewarding poor performance encourages

counterproductive behavior and destroys the motivation of high per-

formers. High performers dislike it when they do not receive recogni-

tion or rewards for their contributions. But they hate it when they

see rewards going to poorer-performing colleagues.

• A lousy scenario: Performance only for pay. One of the problems

with creating a direct link between pay and performance is that

some people will never feel they are getting paid enough. No matter

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how much pay these people receive for doing something, over time

they always want more. Payouts can quickly switch from being a

reward to being an expectation. Today’s financial bonus is tomor-

row’s entitlement. Once this happens, pay ceases to be a motivator

and becomes a source of dissatisfaction.a

• The pragmatic scenario: Performance influences but does not com-

pletely determine pay. There should be a positive relationship

between how much people are paid and how much they contribute

to the company, but the relationship between pay and performance

does not need to be perfect to be effective. Many things influence

pay levels beyond individual performance (e.g., overall company

financials). Conversely, pay is only one of many factors that influence

performance.

Companies should create a link between performance and pay, but

they should not overemphasize pay as the only reason that employees

should seek to perform at higher levels. Establishing links between pay

and performance does tend to increase productivity. But it is not just

the promise of pay that drives the productivity. When you link pay to

performance, employees and managers get much more serious around

defining what they mean by “performance.” And clearly defining per-

formance expectations drives all kinds of benefits for increasing work-

force productivity, regardless of pay levels.

aThis can also be an issue when companies adopt gamification approaches to employee recognition. Gamification involves creating systems so employees receive points or badges for doing certain things considered to be desirable by the company, customers, or peers. These points can be redeemed for cash awards or financially valuable prizes. Gamification can be an effective way to encourage positive behaviors, particularly since companies tend to do a poor job recognizing employees in general. But it can also lead to employees trying to game the system where they strive solely to get points or rewards without considering whether they are truly helping the organization overall.

• How will performance management data be used to guide compensation decisions? Simply providing managers with a table that compares performance ratings with compensation recommendations can substantially improve the rela- tionship between pay and performance. Just making managers aware that there is little associated between performance ratings and pay decisions can lead them

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to take action to create a stronger pay-for-performance relationship for people on their team. Many companies also give managers specific restrictions or rec- ommendations for pay increases based on performance levels. For example, employees who receive the highest performance rating may be eligible for 4 to 8 percent pay increases, while employees who receive middle-level ratings may be eligible for only 3 to 5 percent increases. It is better to give managers pay ranges as opposed to dictating a specific pay number (e.g., “All employees who receive the highest rating will get 6 percent”). Providing ranges gives managers some leeway to adjust pay up or down based on other factors, such as an employee’s turnover risk or current pay levels, while still retaining the general relationship between pay and performance. In addition, if companies create an automatic relationship between specific ratings and specific pay increases, then managers will start manipulating performance ratings merely so they can pay employees a certain amount.

• What is the relationship between different types of pay increases and different aspects of performance? The three most common types of pay increases roughly correspond to the three categories of criteria used to evaluate performance (see figure 6.8):

• Base salary increases raise pay by a fixed amount. This typically occurs when someone moves from a lower-paying job to a higher-paying job. Base salary increases tend to reflect skill acquisition. Employees who acquire new skills are qualified to take on greater job responsibilities and thus qualify for higher base salaries. Base salary adjustments can also be used to prevent turnover of employees who possess skills that have become highly sought after in the labor market.

• Merit increases raise pay based on a percentage of current salary. These are the most common types of annual pay increases. Merit increases tend to reflect competency ratings because competency performance tends to be stable over multiple years. As people’s competency performance increases, they become more valuable employees overall.

• Variable pay bonuses provide a one-time financial award as a fixed amount or as a percentage of current salary. These are usually tied to achievement of specific goals. Variable pay bonuses are typically used to reward employees for something they accomplished during the previous year or pay period but may not do again in the future.

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Companies do not always create strict links between the different types of pay and these three aspects of performance. But this framework can help explain general compensation strategies. Base pay is a function of what skills employees possess and therefore what jobs and tasks they are qualified to perform. Merit pay is a function of performance related to stable, underlying job performance competencies that increase a person’s overall value in their current role. Variable pay is a reward for an employee’s most recent goal accomplishments.

• What factors have an impact on pay outside of performance, and are people aware of them? Performance is an important factor when making compensa- tion decisions, but it is not the only one. Other factors important to pay decisions include an employee’s current salary relative to others in similar positions, turnover risk, and overall criticality to the business. The financial performance of the com- pany also has a major impact on pay decisions. It is useful to provide managers with guidelines on how to account for these other factors when making these decisions. Employees should also have some sense of these factors so they better understand how decisions are made about compensation. Performance management data are important pieces of the puzzle in setting compensation, but not the only piece.

Staffing Decisions It might seem obvious to use performance management data to guide internal staffing and promotion decisions. Yet many companies do not systematically include performance reviews in the staffing selection process.

Figure 6.8 Typical Link between Compensation Methods

and Performance Criteria

Skills

What you know How you act What you accomplish

Largely drives base pay

Largely drives merit pay

Largely drives variable pay

GoalsCompetencies

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This is often because companies do not feel they have accurate performance management data. But regardless of the state of your performance management data, it is important to consider performance management ratings when fill- ing internal positions. Excluding performance ratings from the staffing process sends a message to employees and managers that the performance management process is not important. The following are a few additional considerations when creating links between performance management data and staffing:

• Establish guidelines or minimum performance levels for internal transfers or promotions. Communicate minimum performance requirements that employees must meet to be considered for other positions in the company. For example, you might require that employees have performance ratings of “meets expecta- tions or above” in order to be qualified for internal transfers. Employees should not be able to deal with poor performance reviews by escaping to another role elsewhere in the organization. Similarly, managers should not be allowed to pass poor performers to other parts of the company without some discussion of their performance issues. The practice of “dumping poor performers onto other departments” is particularly common in companies that do not support manag- ers who confront underperformance.

• Balance the what and how of performance when making staffing decisions. I have discussed performance being a function of “what you accomplish” (achiev- ing goals) and “how you accomplish it” (demonstrating competencies). There is a tendency to promote people based on goal accomplishment while overlooking performance issues related to competencies. This sends the message that results are all that matter, and how you achieve those results is of little importance. This sort of staffing approach can create a business culture where ethics and values become unimportant as long as employees hit their numbers.

• Clarify that performance is one of many things that influence staffing deci- sions. The decision to promote or transfer an employee should depend in part on how effectively he or she is performing. But it also depends on the employee’s overall commitment to the organization, whether this person possesses under- lying skills and attributes to perform different roles beyond what he or she is currently doing, and whether the company has the talent needed to backfill the employee’s current position if he or she is moved to another job. Employees should understand that even if they may be the best performer in their current job, this does not necessarily mean they are the best candidate for other roles.

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• How you measure employee performance to guide staffing decisions may be different from how you measure performance in current roles. When companies use performance assessments to guide staffing decisions, they should emphasize those parts of job performance that are similar to the new role. This may rep- resent only a small part of a person’s current role. For example, when you are evaluating the performance of someone in an individual contributor role for a potential promotion into a management role, you should emphasize those aspects of his or her current job that have to do with guiding and influencing others (e.g., building relationships), while downplaying parts of their role that reflect individual contributor tasks that you might not want managers to do themselves (e.g., solving technical problems). Because performance assessments done for staffing put more emphasis on some parts of the job than others, it is not uncommon to find that the best candidate for a new job may not be the employee who had the highest overall performance rating in their current role. This is important to explain if a high-performing employee did not get a promo- tion they were expecting.

• Do not wait until a formal performance review to address counterproductive performance. We usually think about staffing in terms of promotions and job transfers. But staffing also includes removing people from jobs in which they are underperforming. Staffing actions to manage out underperformers should be initiated as soon as a manager determines that an employee’s performance does not meet the needs of the role. This includes putting employees on a perfor- mance improvement plan so they have an opportunity to correct performance issues. If it is determined that an employee needs to be removed from a role, this action should take place immediately and independent of the formal per- formance review cycle. You do not want to tolerate a clearly underperforming employee longer than you have to. You also do not want the performance review cycle to become associated with an annual weeding out of poor performers.

Development Decisions The primary way performance management sup- ports employee development is by providing constructive, actionable feed- back that employees can use to increase their effectiveness and career success. Delivering performance feedback is an essential step in the overall performance management cycle. This step depends heavily on the skills of an employee’s manager, which I discuss in the next section covering performance manage- ment training. There are other ways performance management can support

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development beyond just providing feedback. Performance management results can be used to guide creation of career development plans, determine employee training needs, or allow employees to qualify for development programs designed for high-potential employees. Following are a few suggestions to con- sider when integrating performance management with development activities:

• Stand-alone development planning forms usually provide little value. Many performance management processes include a step where employees are asked to complete a development planning form based on their performance review. These plans are used to document developmental goals and actions the employee hopes to take in response to the performance feedback he or she received. Conceptually this makes a lot of sense. We want employees to use information from the performance evaluation to increase their effectiveness. But these sorts of development forms often go unfilled because there is no compel- ling reason for employees to use them. The key to creating effective development planning forms is to make sure one or more of the following conditions exists:

• The development plan provides the employee with links to training cata- logues and other resources to support his or her development goals.

• The content of the development plans is actively reviewed by the employee’s manager or training experts within the organization who can provide the employee with suggestions regarding his or her development strategies.

• The employee’s development plan is used to make decisions that are impor- tant to the employee’s career growth. An example is basing assessment of future potential in part on the progress an employee is making toward ful- filling the development objectives listed on his or her development plan.

The main point is to create some compelling reason to use the form. There has to be a clear benefit for employees if they are going to take time to record their development goals and accomplishments on development plans.

• Treat development resources as a strategic investment. Many organiza- tions view training and development resources as something that all employ- ees should have access to. At a general level, this is true since all employees are capable of improving their performance to some degree. However, many devel- opment opportunities can be considered to be both a reward for the employee and an investment for the organization. It makes sense to focus development resources such as training on employees whose performance suggests they will

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most effectively use these resources. Make sure employees realize that receiving certain development resources is in recognition of their performance contribu- tions and potential.

• Put more focus on developing high performers than fixing low performers. There is a tendency to view development as something done to address poor performance. But investing in the development of high performers often gener- ates far more benefits than trying to fix issues limiting the effectiveness of low performers. Furthermore, if training is mainly used to address performance problems, then being given a training assignment will be viewed as a sign of incompetence. I saw an example of this in one organization where a manager told me that “being sent to training was a sign that you are at risk of getting fired.” Avoid this problem by stressing the use of development activities designed to make good performers better.

• If you are serious about development, track it. Most companies say they expect employees to develop their capabilities, but not all companies track employee progress against development goals. If you want to send the message that development matters, require employees and managers to build develop- ment plans based on performance reviews, track employee performance against these plans, and hold employees and their managers accountable for progress.

• Development is the employee’s responsibility; enabling development is the manager’s responsibility. The only way employees will develop is if they are truly committed to their developmental goals. From this perspective, development is an employee responsibility. At the same time, it also depends on the work envi- ronment that their manager creates. The decisions and actions of managers sig- nificantly support or constrain the ability of employees to develop. As a result, both employees and managers should be held accountable for the development progress of employees.

Workforce Management Decisions Performance management data allow companies to shift workforce planning and analytics from an exercise focused on workforce quantity to one that includes workforce quality. For example, rather than just tracking average employee turnover, companies can focus specif- ically on the turnover of high-performing employees. Or analytics can be used to identify the recruiting sources that lead to hiring the best employees as opposed to just looking at which sources provide the most candidates. The following are a

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few tips to consider when integrating performance management data into work- force planning and analytics activities:

• Performance management data are more interesting when compared to data from other processes. Most companies treat business metrics as though all employees performed at the same level, even though one of the biggest variables affecting business outcomes is variance in employee performance.10 Performance management data can be used to investigate relationships between business met- rics such as profit, customer satisfaction or product quality, and characteristics of the employees responsible for these metrics. Consider the value of having insight into the following kinds of questions:

• What performance competencies are associated with higher sales numbers?

• What manager competencies are associated with retention of high- performing employees?

• What impact does a training program have on the performance levels of employees?

• What impact do high-performing employees have on customer satisfaction levels compared to average or low-performing employees?

• The more you use performance management data, the better the data will become. Many companies do not use performance management data to guide workforce management decisions because these data have historically been of poor quality. But the reverse is true as well: the reason a lot of performance man- agement data are of poor quality is that no one uses these data. The more that performance management data are used to make business decisions, the more effort managers will invest to ensure the data are accurate and useful. The best way to create this virtuous cycle is to start looking at performance management data in leadership meetings. If managers complain that “it’s not accurate,” your reply might be, “It came from managers, so managers are the ones who can improve its quality.”

• Approach performance management data with the same mind-set used for budget forecasts. Performance management data are often criticized as being based on subjective opinions that lack accuracy. The same can be said for bud- get forecasting data. A significant part of budget forecasts is based on manag- ers’ subjective estimates of what resources will be needed in the future. These estimates may be based on some actual records of past business performance

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and resource consumption, but they also include a healthy dose of speculation about the future. Like budget forecasts, performance management data are based largely on managers’ subjective evaluations of employees’ competencies, backed up with some actual records of goal metrics and behavioral examples. If these data are systematically collected and thoroughly reviewed, they can provide accurate information for forecasting future business outcomes. When someone complains about the subjectivity of performance management data, it may help to remind the person that the same thing is true for budget forecasts, yet we reg- ularly use those data to guide effective business decisions.

6.4.7 What Training and Incentives Do Managers and Employees Need to Effectively Use Performance Management Processes? Implementing more rigorous performance management processes invariably requires managers and employees to do things they have not done before or have not done very effectively. Performance management can also require HR personnel to support tasks they have not previously performed (see the discus- sion: “Why Some HR People Fear Rigorous Performance Management”). Many performance management processes fail because managers and employees are unable or unwilling to use them as intended.

W H Y S O M E H R P E O P L E F E A R R I G O R O U S P E R F O R M A N C E M A N A G E M E N T

You might assume that HR professionals will be strident advocates for

effective performance management. But the reality is that some HR

professionals find performance management personally challenging

and anxiety provoking.

Many HR professionals developed careers conducting administra-

tive duties such as processing payroll and answering questions about

benefits. A common stereotype of HR professionals describes them as

“people who like people.” While this is certainly not always true, there

are some HR professionals who would rather be viewed as a confidant,

coach, and friend than as the person who ensures talent is assessed

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using consistent, rigorous, and accurate methods. They have never been

at the center of major business discussions and may be uncomfortable

driving managers to critically evaluate and address performance issues.

As a result, barriers to effective performance management can come

from within a company’s own HR department. These are some of the

reasons that HR professionals may resist rigorous performance manage-

ment methods:

• Unwilling to challenge managers. Effective performance manage-

ment requires challenging managers to give honest, candid, and

accurate evaluations of their employees. Some HR professionals do

not know how to push back on managers effectively or do not want

to risk managers’ disliking them or otherwise reacting negatively to

their challenges.

• Uncomfortable facilitating crucial business conversations. Performance

management conversations focusing on performance calibration

and compensation can generate intense discussion among managers

regarding the value of different employees and their relative impact

on the business. HR professionals should actively encourage and facili-

tate these discussions, working to keep them on track and productive.

Yet HR professionals may lack the skills needed to manage these sorts

of intense debates. In addition, they may have concerns about how

they will be treated if they challenge managers to justify their talent

decisions. For example, one global organization had a stated goal to

increase gender and ethnic diversity at senior levels of the company.

The head of HR called out staffing practices among senior executives

that were perpetuating the status quo. One practice was hiring execu-

tives from the CEO’s personal network who all shared his demographic

characteristic (e.g., white males who played golf). The HR leader

quickly learned that pursuing leadership diversity was okay as long as

it did not require the CEO to change his behavior!

• Lack confidence dealing with difficult performance issues. If per-

formance management processes are working well, at some point

they will uncover performance concerns in employees who are con-

sidered key to business operations. These are people who possess

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crucial skills and talents yet behave in a manner that limits the

overall effectiveness of the company or group (sometimes they

are referred to as prima donnas). Managers often tolerate perfor-

mance issues in these people for fear they might leave if anyone

gave them honest feedback. It is one thing to call out performance

problems of employees whose loss is not going to create major

issues for the business. It is another to note flaws in people who

are viewed as critical talent. Evaluating these people in a manner

that motivates them to change rather than quit requires consider-

able talent management skills. Some HR professionals do not feel

up to this task.

• Don’t want to explain unpopular decisions. Effective performance

management results in employees being treated differently based

on their relative contributions to the organization. This means that

someone has to explain to average and low performers why they are

not considered to be high performers and encourage them to accept

the decision as fair and equitable. Managers are primarily responsi-

ble for this discussion, but it is common for disgruntled employees

to also take their concerns to HR. HR managers may not want to be

put in a position where they have to hold these conversations and be

seen as the bearer of bad news.

The self-identity and self-confidence of a company’s HR professionals

is an important factor in deploying and supporting a rigorous perfor-

mance management process. For performance management to work,

HR must own the role of experts in creating high-performance work

environments. Other support functions such as finance and IT tend to

be far more comfortable than HR in this sort of expert role. It is the

rare finance organization that lets line managers decide whether they

want to comply with budgeting guidelines and requirements. Similarly,

IT departments are quite comfortable telling managers what technol-

ogy systems their teams are required to use based on company policy.

HR needs to be similarly comfortable owning the role of talent man-

agement experts. This doesn’t mean being arrogant and inflexible. It

does mean being confident enough to challenge managers who think

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performance management processes and guidelines are something they

can ignore.

It is also important to provide HR professionals with the tools,

knowledge, and resources to handle the challenges that arise when

implementing performance management processes. It takes special-

ized skills to facilitate calibration sessions, constructively challenge

manager opinions, and deliver critical feedback to valuable employ-

ees. HR professionals need to be trained on these skills and given

access to resources that support them. Finally, HR leadership must

set clear expectations for members of the HR department toward

supporting and facilitating performance management practices.

HR professionals must be evaluated based on how well the depart-

ments they support carry out performance management. Little toler-

ance can be shown toward HR professionals who actively or passively

resist the adoption of more rigorous performance management

methods.

Implementing stronger performance management also requires

getting line leaders to appreciate and respect the specialized skills

and knowledge associated with strategic HR in general. This can be a

challenge as many people like to think they are experts in people. This

makes HR different from support functions like IT or finance. People

will readily admit they do not understand the technical aspects of IT

and finance. But managers often claim to be good at judging and

influencing the performance of others, despite countless examples

of management incompetence that clearly demonstrate that many

managers do not understand the best ways to increase employee

performance.

Table 6.4 summarizes changes that managers and employees must accept if performance management is going to work as intended. The table lists benefits each change provides if done well, reasons that managers and employees may resist the change, and enablers that will drive acceptance of the change.

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Table 6.4 Changes Affecting Manager and Employee Adoption of Performance Management

Key Changesa Benefits Concerns Change Enablers

Managers must:

Communicate specific goals and performance expecta- tions to employees

Provide regular feedback during the year so there are no surprises in the perfor- mance review

Systematically assess employ- ees based on specific compe- tencies and goals

Critically compare employees and avoid rating everyone the same

Explain and justify perfor- mance ratings to peers and HR

Provide accurate behavioral and goal-based performance feedback to employees

Identify and address low- performing employees

Recognize high-performing employees

Use performance data to guide compensation, staffing, and development decisions

Increased role clarity allows employees to more effectively self-manage performance

Increase employee perfor- mance and engagement through ongoing coaching

Accurate, fair, and job- relevant performance evaluations

Development of a high-performance work environment

Consistent performance standards across the company

Resolve issues decreasing workforce productivity

Retain and better use high- performing talent

Increase return on invest- ment associated with work- force costs and expenses

Time required to set goals and communicate expectations

Taking time to give feedback. Knowing how to give effective feedback

Having to comply with a struc- tured process

Time needed to do reviews

Having to explain to employ- ees why some are rated higher than others

Admitting they have low performers

Having to conform to a shared performance standard

Time and potential stress asso- ciated with giving what may be seen as critical feedback

Time and disruption to business operations result- ing from having to address underperformance

Having to justify staffing and pay decisions based on clear criteria

Training on how to set goals

Tools to support setting goals and com- municating expectations

Tools to support and remind managers to give feedback.

Training on delivering feedback

Tools that increase efficiency of reviews

Short, meaningful performance criteria

Clear criteria to justify ratings

Training on how to deliver potentially critical feedback

Support for dealing with low performers

Accountability for complying with the process

Accountability for meeting with employees.

Clear criteria to justify ratings and train- ing and support for providing feedback

Support and resources to minimize issues related to addressing underper- forming employees

Resources to recognize high performers

Rewarding managers for providing tal- ent to the company

Accountability for making talent deci- sions in a consistent and transparent manner

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n e rEmployees must:

Accept and commit to specific performance expectations

Accept and act on ongoing feedback from managers

Be reviewed against a rigorous, consistent set of standards

Accept that they may not be rated as highly as others

See actions taken to address underperforming coworkers

Receive feedback that they are an underperformer

Be recognized as a high performer

Receive critical, detailed feedback on their perfor- mance, including strengths and weaknesses

Knowing exactly what is expected of them

Receive guidance on how they can be more successful

Fairer and more consistent performance process

Understanding gaps between current per- formance and ideal performance

Not having to tolerate and work with underperform- ing coworkers

Get help and direction to improve their performance

Knowing their contribu- tions are appreciated; tangible benefits (e.g., pay, promotions)

Clear awareness of cur- rent effectiveness and how to improve, valuable information for career development

Loss of autonomy; dislike being told what to do

Dislike being told “what they are doing wrong”

Threat of being evaluated to standards they may not meet

Feeling that they are not valued or their career at the company has derailed

Concerns about the welfare of coworkers who may be friends

Fear of negative consequences resulting from performance issues (pay, dismissal)

Uncertainty of whether they will be able to maintain this level

Concern about having perfor- mance weaknesses docu- mented and used against them

Fear of being “labeled”

Involve employees in process of defining expectations; participative goal setting

Emphasize development as a key part of job performance

Ensure managers know how to provide constructive feedback

Provide transparency into how the per- formance management process works, who is involved, and how decisions are made

Reinforce that average employees are valued; stress that performance levels can and do change over time

Provide transparency on how per- formance issues are identified and addressed; emphasize use of fair and consistent methods

Stress benefits of being a high performer and how to maintain this level

Emphasize confidentiality of perfor- mance data

Clarify how data are used

Note performance is expected to change over time

aSome changes apply only to certain types of performance management processes or are relevant only for specific employees based on their level of performance.

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Managers’ Use of Performance Management The main reason for man- agers to adopt performance management is to increase the productivity of their employees. This requires having a well-designed performance management pro- cess and using it correctly. Many managers have had unrewarding experiences with performance management because the previous processes they used were not well designed or they did not know how to use them. Expect these manag- ers to voice one or more of the following objections when you ask them to adopt more rigorous performance management methods:

• “It takes too much time.” Most managers are constantly pressed for time and frequently view performance management as a bureaucratic exercise that takes them away from operational business issues. There are several ways to over- come this objection. First, make sure the performance management process has a direct impact on decisions managers care about. If performance manage- ment data do not influence allocation of pay, staffing, or other organizational resources, then managers have a valid complaint that it’s a pointless administra- tive exercise. Second, have managers rate employees on well-defined, concise, and clearly job-relevant performance criteria. Third, design the process to pro- vide maximum impact with minimal work. If you don’t know how a rating or item of information is going to be used, don’t ask managers to provide it. Never ask for information just because it seems that it might be useful. Fourth, remind managers how much time and resources are spent dealing with problems that arise as a result of poor performance management. Evaluating performance and providing feedback may seem time-consuming, but it is far less costly than toler- ating poor performance.

• “It creates friction between me and my employees.” One reason manag- ers avoid performance management is they do not want to talk with employees about sensitive and potentially volatile performance issues. Most managers won’t say this openly, but many think it. There are two ways to address this issue. First, make sure managers are setting clear performance expectations. Discussing performance issues is basically a three-step process: (1) agreeing on what the employee did or did not do, (2) ensuring the employee understands the impact of his or her actions and why he or she needs to change, and (3) working with the employee on strategies to act on the feedback.

The first step is the most important and most sensitive. It is much easier to discuss performance problems with employees if the issues are clearly visible to

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both the employee and the manager. Well-defined performance criteria are criti- cal to making this run smoothly. As one colleague told me, “The best time to educate managers on how to set goals and performance expectations is right after they finish last year’s performance review sessions. That’s when they are most aware of the value of setting clearly defined expectations because they are wishing they’d taken the time to do it twelve months ago!” The second action is to give managers training on how to provide feedback (see the discussion: “The COACH Method for Increasing Employee Performance” for an example of what this training might include). If managers say they already know how to deliver feedback, don’t necessarily believe them. Almost all successful deployments of performance management include considerable manager training on how to deliver constructive feedback.

T H E C O A C H M E T H O D F O R I N C R E A S I N G E M P L O Y E E P E R F O R M A N C E

Effective managers know that success does not depend on what they do;

it depends on what their team members do. Being a good manager is like

being a good soccer coach. Coaching is not about what you do on the

sidelines; it is about how your actions influence what the players do on

the field. The challenge of management is figuring out what you can do

on the sidelines that will effectively influence the behavior of your players

on the field. If you want to become a truly great leader, think less about

“what I can do to increase my performance” and think more about “what

I can do to increase the performance of the people I manage.”

Increasing the productivity of a team requires changing other peo-

ple’s behavior. The only way to increase direct reports’ performance is

to get them to act differently in the future from how they have acted

in the past. Getting people to change their behavior is not easy. In fact,

many highly capable, hard-working professionals choose not to take

management positions because they do not want to be accountable for

the behavior of others.

The following five basic managerial actions help inspire and guide

employees to increase their performance through changing their

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behavior. These five steps are referred to using the acronym COACH

(Credibility, Objectives, Awareness, Consequences, Help).

Establish Credibility

Most people do not respond well to being told that they need to

change. Before you can create a productive dialogue with employees

about changing behavior, they must believe that you are someone they

should trust and listen to. Until you establish a basic level of credibility

with employees, they are unlikely to listen to your advice. The fastest

way to build credibility is to ask employees what they want to achieve

from their job and then take actions that demonstrate that you are seri-

ous about helping them achieve their goals. Employees don’t change to

support your goals; they change to support their goals. If you want to

be a credible source of feedback for your employees, start by making

sure you understand what it is they want to achieve by working for you.

Set Objectives

Performance is about getting things done. This requires making sure

employees understand what they are supposed to be doing. Setting

objectives is not about telling people what they are supposed to do. It

is about working with them to reach agreement on how to align their

career goals and interests with the objectives and needs of the company.

Actively tracking objectives with employees is often the biggest oppor-

tunity managers have for improving performance. Try this exercise with

your employees. Ask them to write down the five to ten most impor-

tant things they need to accomplish to be successful in their roles. At the

same time, independently write down the five to ten things you believe

they must accomplish. Compare these two lists and make sure they align.

Increase Awareness

Increasing awareness is about providing employees with insights that help

them accomplish their objectives. Helping them understand what they are

doing well and what they need to change to maximize their productivity

is a key skill of an effective manager. It is also one of the most difficult

managerial skills to develop. Several basic techniques help ensure feed-

back is viewed as a gift and not a punishment. One is to tie feedback to

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goals: let people know how their behaviors are helping or hurting their

ability to achieve their objectives. You do not want them to change just

to change; you want them to change so they will be more successful.

Another technique is to give feedback based on clearly observable behav-

iors. Be very specific in suggesting what sort of actions employees can

“start doing,” “stop doing,” or “continue doing” to be more successful.

Create Consequences

Setting clear objectives and increasing employees’ awareness of how to

achieve these objectives often provides enough information to increase

employee performance. But some employees need additional incentives

to change their behaviors. Managers are responsible for ensuring that

employees understand what they need to do to be successful and mak-

ing sure employees know what will happen if they do or do not do these

things. More often than not, managers are the ones who must deliver

these consequences, both good and bad. Be extremely transparent about

how you are evaluating employee performance and what consequences

are tied to those evaluations. People can usually accept that they will not

get everything they want as long as rewards are allocated based on a con-

sistent and clearly communicated set of criteria and they are confident

that in the future they can do better than they may have done in the past.

Providing Help

Employees are responsible for their own performance. But it is the man-

ager’s responsibility to create an environment that supports employee

success. Do little things every day that foster learning, development,

and productivity among your direct reports. Performance management

is not a quarterly or annual event. It is an ongoing activity. Look for

things you can incorporate into your day-to-day routine to ensure you

are creating a high-performing work environment for your team.

• “It will hurt the productivity of my team.” This is a result of managers not understanding the importance and value of performance management activi- ties. Empirical research shows that effective performance management is a criti- cal component of high-performance organizations. When managers say, “Our

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performance management process doesn’t work,” the appropriate response is not to get rid of performance management altogether. Engage with managers to understand the source of their concerns, and then address them through com- munication, training, and process redesign.

• “It doesn’t matter if I don’t do it.” Check to see if this is true. Does your com- pany track metrics that provide insight into whether managers are fulfilling their performance management responsibilities? Are they held accountable for following the process? Are managers who excel at performance management rewarded and recognized? Do senior leaders role-model effective use of performance manage- ment? If the answer to one of these questions is no, then revisit your business lead- ers’ commitment to performance management. The HR department can support and facilitate the performance management process, but it cannot hold managers accountable for using the process. This is the responsibility of business leaders.

Managers have the most difficult tasks in the performance management pro- cess: they have to sit down with employees, tell them what they are doing wrong, and explain the impact this has on their pay and career goals. They need to do this in way that makes employees feel confident about their ability to improve, not despondent about their future in the company. This is not a simple admin- istrative exercise, so do not treat it as one. Manager adoption of performance management depends on managers understanding what they are being asked to do and being clear on why it is important, providing training so they know how to do it, and measuring and holding them accountable for actually doing it.

Employees’ Use of Performance Management Effective performance management has many benefits for employees. It ensures they are fairly evalu- ated and appropriately rewarded for their contributions. It provides critical information to guide career development. It gives greater role clarity around the importance and purpose of their jobs. And it addresses frustrations caused by incompetent or unmotivated coworkers.

Like managers, many employees have experienced previous performance management processes that were poorly designed and applied. These employees may approach performance management activities with a mixture of skepticism and anxiety. Most employee concerns will center around two basic themes.

The first theme is questioning the fairness and accuracy of the performance management system. Employees may be concerned whether the process will

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accurately evaluate their contributions and take fair and appropriate actions based on their performance. Research on employee perceptions of justice shows that employees evaluate fairness of performance management processes based on three criteria:11

• Distributive justice, which focuses on the outcomes of performance manage- ment decisions (“What did I get in terms of recognition or rewards?”)

• Procedural justice, which focuses on the processes used to make these deci- sions (“How did they decide what I deserve?”)

• Interpersonal justice, which focuses on how decisions are communicated (“Did they inform me of the decision in a respectful, sensitive, and appropri- ate manner?”)

Procedural justice has the most influence on perceptions of fairness in an employment setting. Most employees can accept that they will not always get what they hoped for as long as the processes used to make decisions are clearly communicated and fairly and consistently applied. Interpersonal justice can also be critical if the outcome of a decision is particularly negative for an employee (e.g., being told you will not get a raise or will lose your job due to poor performance).

The justice research indicates that it is extremely important to communi- cate to employees exactly how the performance management process works. Be transparent about how the company makes decisions about employment out- comes such as pay and promotions. Employees should know what information is considered when making performance decisions, who is involved in reviewing the information and making the decisions, and what guidelines those people fol- low during this process.12 It is also important that managers be trained on how to appropriately deliver bad news to employees who may not be getting the per- formance outcomes they had hoped for.

The second theme is concerns about the impact of performance manage- ment on the employee’s future career objectives. Employees may express con- cern that negative performance reviews could have a permanent impact on their future career opportunities within the organization. On one hand, this is true. If someone has performance problems, then the company can and should take this into account when making decisions about pay, promotions, or develop- ment opportunities. On the other hand, even the most effective employees have

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opportunities for performance improvement. Employees should not fear that having negative comments in their performance review will forever limit their career opportunities within the organization unless the goal is to have these employees leave the company.

Two messages should be stressed when giving negative performance feedback to employees. First, all employees, no matter how effective, have areas where they could improve. One purpose of performance management is to give them feedback that will help them be more successful, no matter how successful they already are. Second, just because something is a performance concern now does not mean it will be a concern in the future. The purpose of giving employees feedback is to help them address issues that are limiting their success.13 If com- panies did not believe employees could improve their performance, there would be little reason to tell them the results of their performance reviews. The key to effectively delivering these two messages lies with the manager. This is another reason that manager training is so critical to the successful deployment of per- formance management processes.

6.5 INCREASING PERFORMANCE MANAGEMENT PROCESS MATURITY Figure 6.9 illustrates five general levels of performance management maturity. The lowest level of performance management maturity is making sure employee performance is evaluated using consistent, standardized methods (e.g., the tradi- tional annual performance review). The basis of performance management lies in accurately measuring if employees are doing things in the right way, and a requirement for accurate measurement is consistency. Thus, conducting regular performance reviews is important.

Level 2 emphasizes creating clear performance definitions, competency mod- els, and goal criteria to guide performance evaluations. Level 3 focuses on using performance data so they have impacts on decisions related to employee pay, development, and staffing. Level 4 emphasizes the use of calibration processes that build consensus across managers regarding performance expectations and employee evaluations. At level 5, business leaders leverage performance man- agement data to gain insight into the workforce itself—for example, determin- ing what competencies are most relevant to success in different roles, assessing

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overall strengths and weaknesses of the workforce, and identifying actions to increase overall workforce productivity.

Higher levels of performance management maturity create stronger results, but it is not necessary to always strive for the highest level possible. Each level provides more value than those below it, but moving up each level also requires more resources and change management. What level is best depends on the objectives associated with performance management in your company. If all you want is to ensure compliance with legal guidelines, then level 1 may be adequate. If the goal is to increase coaching and dialogue, levels 2 and 3 may suffice. And if you want to create a true high-performance culture, you will want to strive for level 4 or higher.

There are two ways to increase performance management maturity in organi- zations. The most obvious is to start at the bottom and work up. Start by intro- ducing annual performance reviews using basic competency models and goal plans. Expand on this by adding more job-specific competencies and creating

Figure 6.9 Performance Management Process Maturity Levels

1. Consistent: Managers regularly review and discuss performance with employees

2. Well defined: Performance evaluation is based on well- defined competency models, goals, and skills

3. High impact: Data from performance evaluations guide compensation, staffing, and development issues

4. Calibrated: Methods are used to ensure manager evaluations are consistent across the company

5. Insightful: Company uses performance data to understand strengths and gaps in workforce capabilities

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stronger links between performance evaluations, pay, and promotions. Move up further by adding calibration sessions and reviewing talent reports at senior- level meetings to track development and retention of high performers. The advantage of this approach is that it allows managers to gradually learn the skills needed to support more sophisticated performance management methods. The disadvantage is that it stretches out the time needed to reach higher maturity levels that provide greater benefits for the company in terms of increased work- force productivity.

It is also possible to start by focusing on higher levels of process maturity and use this to drive the organization to adopt lower-level processes. One of the fastest ways to do this is to implement an integrated calibration process using well-defined competency models, goal plans, and talent review sessions (level 4 on the maturity curve). When a company implements calibration, three things will happen. First, when managers know their performance ratings are going to be reviewed and discussed in a talent review session with other leaders, the rat- ings process suddenly becomes much more meaningful and they take it far more seriously (level 3). Second, because they know they’ll have to justify the ratings, they also show more interest in using well-defined performance criteria (level 2). Finally, since they know they’ll have to share their ratings, they are driven to get their performance evaluations completed on time and in the proper format (level 1). Calibration can pull an organization up through levels 1, 2, 3, and 4 on the performance process maturity curve in less than a year. It does require considerable manager training and change management, but it is an achievable objective if an organization approaches it with clarity and focus.

6.6 CONCLUSION Performance management is probably the most widely used and most widely criticized strategic HR process. This chapter explained why performance man- agement is crucial for maximizing workforce productivity and why it is often difficult to do well. It provided guidelines for creating effective performance management processes and called out problems that occur when performance management methods are poorly designed or improperly deployed.

All companies treat certain employees differently from others based on their performance. In other words, all companies practice performance manage- ment. But relatively few do it extremely well. Companies that make a concerted

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