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Performance Management Orientation Guide

This orientation guide provides you with a high-level overview of performance management – what it is, what it can do for your organization and what you should consider in developing or modifying a performance management program.

June 29, 2012
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Roadmaps is a new form of content to help you navigate key areas of people management. Each Roadmap includes an Orientation Guide that gives a high-level overview of the subject as well as articles and other resources that provide more detailed directions on how to find your way to success. Our first Roadmap focuses on the changing terrain of employee performance management. The Orientation Guide below will get you started.

Employee performance management is a problem that business leaders have been grappling with for decades, if not centuries.

How do you prompt top performance by your workforce? Can you command creativity? Demand drive and ambition? While there is no single answer or simple solution, one thing is clear: Employers are continually looking for ways to manage and engage their workforce.

At its core, performance management is about creating a work environment that helps your company meet its business goals. It's more than just a collection of tools and processes, although there are many that can help you meet your goals. It's a philosophy that informs everything you do.

"We cannot command innovation and adaptation," according to Beyond Performance Management, a new book by Jeremy Hope and Steve Player. "We can enable and encourage and inspire and even lead. But we can't command someone to be creative or adaptive. People must have other intangible performance drivers that get them out of bed each morning and fire them with ambition and creativity."

Designing a performance management system that makes sense for your company depends on many factors, including the nature of your business, your company culture and your mission. In some cases, a more traditional method might make sense.

This Roadmap is not designed to promote one approach over another but to generate new ways of thinking and to provide you with resources as you develop your performance management plan.

WHY IS GOOD PERFORMANCE MANAGEMENT IMPORTANT?

Failing to assess and coach your employees well can cost you money. Good performance management can engage employees and invigorate your company's financial performance. It can:

  • Inspire greater employee commitment and help reduce unwanted turnover.
  • Enhance your reputation as an employer of choice.
  • Clarify roles and responsibilities and hold workers accountable.
  • Improve company performance and generate financial success.

But before you start laying the groundwork for a performance management program, take time to think about your company's culture and values because they lie at the core of what you do.

WHO ARE YOU?

At online retailer Zappos, company culture is everything—or at least half of it. Hiring decisions are based 50 percent on skills and talents and 50 percent on cultural fit. Performance management revolves around the company's 10 core values such as delivering "Wow" service or showing humility. The focus is on self-improvement, and employees are rated on how well they embody the company values.

Assessments happen throughout the year, and feedback is ongoing. If someone scores low in one area, like "be passionate and determined," they can take a free on-site class to improve. This approach makes sense for a highly collaborative culture with a "work hard, play hard" philosophy, but it might not fly in a more structured, hierarchical environment.

Few companies link their company's cultural values and performance so closely. In fact, only a quarter of firms align their performance management system to their culture, according to one recent survey. This is despite the fact that the vast majority of business leaders—93 percent—believe that culture has an important influence on the effectiveness of performance management, according to the Hay Group.


Who you are influences what you do and how you do it. Once you've assessed your company's culture and philosophy, you're ready to plot your place on our "Performance Management Matrix."

WHERE ARE YOU?

While the Zappos style might work in a highly collaborative organization, a company with a more competitive culture might be drawn to a forced ranking approach, which typically rates employees on a 1 to 5 scale or sorts them into buckets of top, average and low performers.

This system was pioneered by Jack Welch in the '80s and '90s when he was chairman and CEO at General Electric Co.

While GE phased out the practice in 2000, a number of large employers such as Ford Motor Co., Microsoft Corp. and American International Group Inc., or AIG, use this approach. AIG implemented its performance management plan in 2010 in response to criticism that it was overpaying employees. Proponents of forced rankings say it creates a high-performing, innovative culture while critics say it undermines teamwork by pitting employees against each other as they compete for a top-tier spot.

Does your company place greater value on teamwork or individual performance? Is your workplace bureaucratic or unstructured? The answers will help you find where you are on the matrix.


Organizations that are more "buttoned-down" will gravitate toward a process with a great deal of documentation and regimented review periods. Companies that thrive in a more free-flowing environment may emphasize day-to-day coaching rather than formal reviews.

Regardless of where you end up in what is likely to be an evolving performance management system, determining where your company falls on the performance management matrix will guide the development of your approach.

  • Collaborative-Formal cultures will tend to emphasize employee development with structured processes such as regularly performance reviews.
  • Collaborative-Informal cultures also will likely focus on employee growth but may stress in-the-moment feedback over annual reviews.
  • Competitive-Formal firms may rank employees and allocate bonuses based on rigorous performance measures.
  • Competitive-Informal companies may seek to motivate workers with internal contests and emphasize ongoing coaching by managers.

GREAT EXPECTATIONS

Now that you've established the philosophical foundations of your performance management program, you're ready to build the framework. Here are some key elements of effective programs:

  • Clarifying individual goals: Poorly defined expectations can kill productivity and performance. You can't meet or exceed goals if you don't know what they are. Describe what each employee is supposed to accomplish—not how they are to accomplish it but the results that are expected.
  • Cascading organizational goals: Communicate organizational goals and move them down through divisions, teams and individuals by linking broader strategic aims with more specific goals.
  • Syncing goals: Directly link individual or team goals with the organization's strategic business goals.
  • Avoiding bottleneck at the top: Don't be stymied by leadership's failure to set and communicate goals. Sometimes division managers and teams know what needs to be done and should do it.
  • Getting to know your employees: Ask them about their greatest strengths and their biggest weaknesses and discuss ways to harness the former and address the latter. Learn about their career goals and aspirations so that you can help them succeed.
  • Getting C-suite support: The backing of a CEO, chief financial officer, chief information officer or chief operating officer improves any project's chances of success significantly.
  • Leading by example: Make sure that leaders model the behaviors they want employees to demonstrate.
  • Offering consistency: Performance management tools are only as good as the people using them. Be consistent.
  • Being flexibile: Situations change, so acknowledge that and be prepared to adapt.
  • Using ongoing dialogue: Feedback is not just a process but a conversation.

A PLETHORA OF PRACTICES AND TOOLS

Once you've pondered the larger questions about your company's culture and goals and accounted for critical components to successful performance management, you're ready to get down to brass tacks—to build your program. To do so, thoroughly examine the tools and practices available and think about which ones make sense for your organization.

The tools and methods that can make up a performance management system range from the hands-on, like one-on-one conversations, to the high-tech like using cloud-based software that collects and measures data. Picking the right ones and tailoring them for your workforce is critical.

TOOLS & PRACTICES HOW IT WORKS

Performance planning Manager and employee sitting down to discuss and set goals.

Performance reviews Documented appraisals that happen at least once a year. Ideally, these assessments are done quarterly or on an ongoing basis.

Rewards and recognition Rewarding and recognizing people for exceptional contributions through various methods such as pay, gifts, public recognition, etc. These are designed to motivate, recognize and reward exemplary employee behavior.

The link between pay and performance is one of the most misunderstood concepts in performance management. While most leaders believe that pay drives performance, some research shows that's not true. There is a human resources axiom that the opposite of job dissatisfaction is not job satisfaction and that no amount of pay will spur someone to greater achievement if they don't feel valued or challenged.


Performance improvement plan Checking in to make sure progress is made.

Coaching and feedback Critical in developing confidence, knowledge and self-awareness but few managers know how to do this well. Training is key.

360 degree feedback Provides each employee with feedback from his or her supervisor and four to eight peers, reporting staff members, coworkers and customers. Employees typically respond through a self-assessment.

Balanced Score Cards A framework for linking strategic goals to measures and action plans and monitoring performance.

Technology There are a number of systems that can automate different aspects of performance management like appraisals, succession planning or compensation. Companies are spending more on HR technology and business is booming for software developers like Halogen, Rypple (part of Salesforce.com) and SuccessFactors (part of SAP). Social media is also changing performance management by creating a way to get real-time, on-going feedback from managers and peers.

WHERE DO YOU GO FROM HERE?

When does performance management begin and end? Some say it's when an employee starts the job and when the worker leaves your organization, but others argue that it starts when a need is identified and a job description is created. The latter theory recognizes that the process begins by understanding your company's needs and goals and how each person can help to achieve them.


Traditionally, performance management has been viewed in a top-down fashion. But that approach may no longer be as effective. Engaging and empowering employees may be more successful in a business climate that requires greater innovation and agility. These days, what may be needed is a holistic approach that views organizational and individual growth as interconnected—one depending on the other.

Performance management is a contradiction, according to consultant Frank Buytendijk, who explores that notion in his book Performance Leadership.

"Performance is all about motivation, dedication, teamwork and matters of the heart," he says. "Management is more associated with plans, control, accountability and matters of the mind. All we focus on in performance management are the matters of the mind. Performance management is a contradiction in terms."

The best performance management systems take both head and heart into account, and the best employers know which one resonates more for their employees.

Figuring out the approach that makes sense for your organization is a journey that you don't have to take alone. There are plenty of resources to guide you, such as this Orientation Guide. Use it to get on your way.

Performance Management Roadmap Review

We've organized our online Roadmap into three phases to help you implement the planning and execution of your performance management program. Below is a summary of the "Plan," "Do" and "Review" of performance management.

PLAN:

Recognize an opportunity and prepare to act on it.

  • Define your company and performance management philosophies.
  • Clarify individual and organizational goals.
  • Make sure goals are aligned.
  • Get C-level support.
  • Examine your tools and methods carefully.

DO:

Execute your plan.

  • Choose the tools that best serve your company.
  • Communicate the plan to employees clearly and often.
  • Provide training to managers on how to use the tools.

REVIEW:

Reflect on the results and refocus if needed.

  • Assess what's working and what's not.
  • Once you've done that, make adjustments.
  • Be patient. As you examine results, recognize that change takes time to be fully realized.

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