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How Performance Management Reversed NCCI's Fortunes

A new system brought gains in efficiency and productivity that helped the company battle back from near extinction and offer multi-million dollar price breaks and rebates to its owner-customers.

June 20, 2002
Related Topics: Financial Impact, Latest News
This is the story of how an HR initiative helped save an organization. Formost of its 75-year history, NCCI Holdings, Inc., dominated the field inproviding data on workplace-injury claims to insurance companies, insurancebrokers, and state workers’ compensation fund officials.

But by the late 1990s, the Boca Raton-based nonprofit consortium, which isowned by its member-customers, had fallen on hard times. As the board ofdirectors fought a takeover attempt by a large insurance company, a distractedNCCI vacillated over its strategic focus. Management began to hear complaintsabout spotty service. Employees grew increasingly demoralized. Staff turnover in1999 reached a disturbing annual rate of 26 percent.

Management knew that it had to rebuild the firm’s reputation in a hurry.Otherwise, there was a danger that competitors would steal the company’sbusiness, and that the organization might find itself unable to generate enoughrevenue to stay self-sufficient. To boost customer satisfaction, the leadershipupgraded the company’s information products and the systems for deliveringthem. Company officials also drilled down to a more fundamental level -- humancapital. They focused on NCCI’s 1,200-person workforce, a diverse group whosespecialized skills ranged from computer programming to calculating insurancerates and risks.

NCCI’s ability to keep veteran workers has improved significantly.

“The foundation upon which NCCI was going to rebuild had to be the talentsand commitment of its employees,” says Gail Nichols, the company’s directorof compensation and benefits. “Not only did we need to retain the high-caliberemployees that we already had, but we needed to continue to attracthigh-performing people who could drive NCCI’s mission.”

NCCI also wanted to give employees a way to fine-tune their performance,particularly in customer service. That way, according to Nichols, “ourtraditional customers would see no need to entertain the solicitations ofcurrent or future competitors -- thus ensuring the continuing stability andlongevity of the company.”

The company’s HR staff spent a year studying the problem. In the secondquarter of 1999, they rolled out a solution -- a radical overhaul of the company’ssystem for evaluating employees and determining their pay. The newperformance-management and compensation system was both ambitious and complex.It evaluated employees not once but twice each year, and tracked how theyimproved their individual performance as well as contributed to larger corporategoals. It gave workers not one but two chances each year to have an impact ontheir compensation, and highly specific objectives to meet in order to get moremoney. But the new system didn’t just measure performance and dish outrewards. It also worked continuously to improve performance with a coachingsystem that was closely linked to the evaluation process.

The new system isn’t easy to execute. It requires an extensive schedule ofmeetings throughout the year, ranging from 360-degree evaluations andsupervisors’ roundtables to individualized coaching sessions with employees.But in the two years since it was implemented, the process has proved its worth.Turnover decreased from 26.3 percent in 1999 to 21 percent in 2001. Inparticular, NCCI’s ability to keep veteran workers has improved significantly.The percentage of experienced personnel -- those with more than five years ofservice -- increased from 34.4 percent in June 1999 to 43.5 percent in December2001. Even more impressive, the company has been able to retain 94 percent ofthe employees that they’ve identified in evaluations as high-performers, saysTherese Swanberg, NCCI’s chief human resources officer. Not only are employeesstaying at the company, but they are improving their performance as well.

NCCI’s aim is to provide low-cost services to its customer-owners whilestill generating enough income to support its operations. Since theimplementation of the new evaluation system, gains in efficiency andproductivity have enabled the company to achieve a positive cash flow. Inaddition, the firm has been able to give price breaks worth $11 million over thepast two years.

In 2000, before the recent economic downturn, the organization performed sowell that it managed to accumulate a year-end cash balance of $34 million, andactually was able to issue $10 million in rebates to its owner-customers.

A two-part evaluation system results in year-round progress
The most distinctive feature of NCCI’s new system is that it evaluatesemployees’ performance not once a year, as most companies do, but twice. InJune, every NCCI staff member participates in an Individual PerformanceAssessment, in which the employee and a supervisor develop a set of goals forthe employee to achieve over the following 12 months. “For example, if I havea billing analyst working under me, I might give her the goal of getting 100percent of her invoices out on time,” says Lisa Jarnot, a practice leader inthe finance division. “My performance goal as a manager, in contrast, might beto bring a certain project in on time, under budget.”

Twelve months later, the employee’s success in meeting those goalsdetermines whether he or she receives an increase in base salary. But that’sjust half of the process. In December, employees participate in a CorporatePerformance Assessment, based on company-wide goals that have been stated byNCCI management with guidance from the company’s board of directors. Employeesare rated on their individual contribution over the next 12 months toward theachievement of those goals. “This is more of an above-and-beyond sort ofthing,” Jarnot says. “For example, say that one of the corporate goals is tostreamline performance to improve the bottom line. The billing analyst’s partmight be to seek efficiencies in the billing process that will improve cycletime.” An employee’s score on the December corporate assessment determineswhether or not the employee receives a bonus.

Splitting the evaluation system into two tracks might seem overlycomplicated. But that complexity allows the system to reward both day-in,day-out competence and creative ingenuity, without giving one or the other shortshrift. And having two evaluation tracks running concurrently, but staggered sixmonths apart, means that the evaluation process is continuous, with little ebband flow.

“The whole point of the program, in my mind, is coaching people to behigh-performers,” says Tim Smith, the executive in charge of NCCI’sinformation-technology resources development team. “If you’re evaluated oncea year, theoretically you can slack off for a while, if that’s your nature,and then try to boost your performance as you get closer to the evaluation. Whenyou’re evaluated twice a year, though, it basically turns into a process whereyou’re accountable all year long. But by the same token, that pressure has apayoff. You’re giving a person two points a year where he can get a payout forperformance, where he can benefit from hitting the goals that he’s laid outwith his manager.”

Jarnot says she finds that the system motivates employees. They think, “I’min better control of my own destiny,” she relates. “There are moreopportunities to show improvement, and there’s more certainty that if I do myjob well, I’m going to be rewarded for it.”

Another feature that makes the system effective, Swanberg says, is itsability to draw a connection between an individual employee’s efforts and thecompany’s performance. After senior management and the board establishcorporate objectives, the various divisions meet individually to createscorecards based on the corporate plan. The divisions then compare their goalsat a roundtable meeting, to make sure that there’s a comparable degree ofdifficulty throughout the company. Finally, each employee is assigned adesignated piece of the division scorecard to execute.

NCCI set corporate goals, for example, to provide more service to its clientsand to sell more software and information products to them. At the individuallevel, customer-service consultants in each department identified what theyspecifically could contribute to achieving those aims. “They log their callsinto our customer-relations management database,” Swanberg says. “Eachmonth, they get a report showing how much time they’ve spent with customers,how many problems they’ve solved, and how many new products they’ve sold. Weroll those stats up through the division to the corporate level, so they can seehow both they and the company are progressing toward the goals. A person canlook at that and see how his or her small piece is part of the big picture.”

“We’d had bonus compensation in the past,” she adds, “but it wasdifficult for people to relate the amount of money they were receiving to theorganization’s performance. Now, they can see that relationship very clearly.”

Cynthia McLaughlin, who manages a training team for NCCI’scustomer-relations department, concurs. “One thing I like about the system isthat it really identifies your accomplishments, rather than just focusing onareas where you need to improve. When you do something good, you’re recognizedand rewarded for it.”

The customer-service training team also worked on the corporate goal ofboosting customer service, but from a different angle. They set a goal ofreducing the time it took to train customer-service consultants from eight weeksto four and a half weeks, so that they start answering customer calls sooner.“A man who works for me contributed by coming up with the idea of looking atthe call queue, to see what topics people called us about,” McLaughlin says.The trainer then helped develop a plan to split the classroom training into twoparts. The initial portion focused on the most common customer questions.Trainees got started handling those calls, and then went back later foradditional instruction on more complex areas.

Coaching helps employees turn the feedback into results
NCCI’s HR team was astute enough to realize that an evaluation process, nomatter how complex, can’t fix a company’s performance problems by itself. It’sundeniably useful to have scorecards that set goals and measure performance withprecision. But employees and their supervisors still have to find a way to meetthose goals, and to use the information generated by the evaluations in a waythat produces bottom-line results. So NCCI also started a coaching program tohelp managers work with employees to improve their work. NCCI offers supervisorsa training course produced by Nova Southeastern University that includes work ontechniques such as reflective listening. This tool helps coaches to betterunderstand and empathize with the person they’re trying to guide. Coaches alsolearn about strategic questioning, a technique in which they help employeesidentify a series of smaller steps that result in steady progress toward a goal.

In addition to providing training, HR organizes monthly roundtables wheremanagers can learn from one another, share coaching experiences, and discuss howto help one another’s staff members. “It’s a place where we can solicitfeedback from other people that our folks work with,” Smith says.

Jarnot says the coaching roundtables also add a 360-degree balance to theevaluation process. “If there’s a personality conflict or subjectivity in asupervisor’s evaluation, the roundtable tends to minimize that,” she says.“You get the opinion of people who may actually be interacting with anemployee more frequently than the supervisor. That really broadens a supervisor’sperspective.”

Coaching helps sell the evaluation system to employees because the guidancemakes it easier for workers to achieve the performance improvements that resultin salary raises and bonuses. The combination gives employees a morale-boostingsign that the company values their work and wants to help them succeed. “Employeesaren’t going to show up at an evaluation and find themselves asking, ‘Whatdo you mean I’m not doing well?’” Jarnot says. “With this system, theyalways know what they’re doing, how well they’re doing, and what they needto be doing.”

Swanberg adds that the synergy of coaching and the two-tiered evaluationsystem has turned NCCI into a company “where there is a constant conversationabout performance. Before, we had individuals who struggled because they had acloudy focus.” She cites as an example an IT manager who was responsible forcomputer hardware. With technology changing so rapidly, it was tough for him topick out what he should be concentrating on to help the company. With coaching,he was able to focus on improving the distribution of information products toclients. “From there, he could see very clearly what hardware he needed toupgrade, what technical recommendations he needed to make, and so on. He wentfrom being an average to a superior performer.”

The IT manager’s improvement rippled throughout the company, helping toincrease efficiency, boost customer satisfaction, and contribute to the company’sturnaround.

That’s the genius of NCCI’s new performance-management system. It notonly allows employees to figure out how they can do their jobs better, but italso enables them to see that when they succeed, the company succeeds, too.

Workforce, May 2002, pp. 48-51 -- Subscribe Now!

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