15. Performance Management

It’s Report Card Time!

If you were a straight-A student, you probably looked forward to receiving every report card. But some of us were easily distracted by boys or baseball or hairstyles or Hendrix. We did well in some subjects (hello, English!) but struggled through others (geometry should be outlawed). So we dreaded report card time. We had trouble even opening the envelope. We walked home from school the long way. And when it was time to show Dad, we closed our eyes and waited for the lecture about “not realizing your potential” to be over.

Unfortunately, when it’s time to meet with their manager about their performance appraisal, employees can suffer a painful flash-back to report card time. After all, performance reviews don’t just determine grade point average; they affect how an employee is paid, whether he gets a promotion, and even whether he keeps his job.

It’s no wonder that employees, managers, and even HR professionals view performance management as a challenge. In fact, a poll released at a Conference Board talent-management event in March 2010 found that 72% of responders portrayed performance management as “an endless struggle in which they were neither gaining nor losing ground.” Ten percent declared that “the war for talent was winding down in defeat for their enterprise.” And a 2004 Watson Wyatt survey found that just 30% of employees believed that their company’s performance management systems actually improved their performance.

But wait—there’s more bad news. The consequences of poorly executed performance management are dramatic:

• Loss of trust between employee and manager (and management in general)

• Low employee morale and engagement

• Attrition of talented people

• Lack of direction for the organization as a whole

• Poor employee performance and missed company objectives

Fortunately, there’s hope. Of course, we believe that the key to performance management is communication. So we show you how to communicate about performance management so that everyone understands the company’s direction, so that managers and employees know how the performance management system works, and so that they’re set up to succeed at using the system to contribute to company success.

What Is Performance Management?

Let’s start by sharing our definition of “performance management”: a system of defining the employee’s job, setting annual objectives that describe what the employee will focus on, and evaluating how well the employee performed. The idea is to create a positive environment that allows people to perform at a consistently high level. It includes the following elements:

• Understanding the company’s culture, philosophy, and strategy

• Setting objectives based on company and group goals

• Receiving ongoing coaching and feedback from your manager, along with having regular performance discussions

• Being recognized and compensated according to how well you perform your job and meet your goals

• Learning and improving through training and development

As you can see, an annual performance review—which is just one meeting—does not equal performance management. Performance management is also not the same as “talent management,” an HR term that serves as an umbrella for recruiting, staffing, performance management, organizational development, and succession planning. For our purposes, we focus on performance management and how it relates to the individual employee, not teams or financial or business performance.

What Do Employees Want?

We always like to keep in mind why employees care about performance management. Employees want answers to a universal set of questions:

• Am I doing the right things to help the company and advance my career?

• How am I performing compared to my peers?

• Do I have a future with this company?

• How do I get better at what I do?

Begin with Company Goals

How can employees do their jobs to support company success? How do they set objectives that make a difference to company performance? These are important questions, and the answer begins with making sure employees understand what the company wants to accomplish.

This seems so fundamental that we’re surprised that many companies don’t take the time to articulate company objectives in a simple, clear way that every employee can understand. You may have a complicated strategic plan that a management consultant helped senior leaders develop. That’s great, but that plan is probably too detailed (and maybe too confidential) to share. What you’re looking for is something straightforward that expresses what your company is trying to accomplish this year in key categories such as these:

• Financial. What are your sales, profitability, and other financial goals?

• New products or services. Are you launching new products or expanding brands? Trying to acquire new clients or enter new markets?

• Initiatives. What big projects do you need to complete?

• People. Have you set overall objectives for how you hire, retain, and develop people?

• Other issues. Maybe you have an environmental goal, a community relations goal, or some other area that matters to your company.

Connecting the Dots if Your Company Is Large

If you have a large company, you need to work harder to manage the flow of objectives from the company level down to the individual level. The challenge is to make priorities meaningful for employees by connecting the dots so that employees have a clear line of sight. They need to be able to see the links from organizational goals, to divisional priorities, to group/team focus areas, down to an employee’s individual objectives.

At a large financial services firm, senior management had long been successful at setting priorities at a company level. But the company had not brought those goals to life for managers and their teams. So several years ago, HR set out to provide managers with the tools they needed to communicate with their employees about how those priorities connected to and were supported by team and individual goals.

HR gathered information about priorities from each of the business units and created a tool to help leaders and managers share them with employees. The tool was divided into thirds:

To help managers understand what to do, HR invited managers to attend a web workshop (scheduled at different times of day so that managers could choose the time that worked best for them). There they were briefed on the objectives of the effort and setting expectations and were instructed in the use of the objectives tool.

Manager feedback about the process was positive. Ninety-nine percent of managers agreed that they understood the importance of talking to their team about priorities, and 86% agreed that they had a better understanding of how to discuss priorities with their team. Here are some sample comments:

• “Great class! It really helped to understand where the bank as a whole was coming from and how to break down to employee level. I would attend this again.”

• “This workshop was very informative and motivating. I do intend to apply the strategies mentioned in an upcoming meeting. Thank you.”

Does Everyone Understand Your Performance Management System?

We’re big fans of simple performance management systems, because they’re easy for managers and employees to use. For example, Davis & Company has developed a straightforward goal-setting process that starts with company objectives. Sometimes (but not always) it includes a team goal. Then it asks the manager and employee to develop objectives in two categories:

• Performance goals (what an employee will focus on in his or her job this year to support company success)

• Development goals (one or two ways in which an employee will improve his or her skills)

What if Your System Is Complicated?

If your performance management system is more complex, you need to work harder to make sure that employees understand how it operates. Don’t assume that just because you’ve had the system for a while that everybody gets it.

A couple of years ago, we worked with a pharmaceutical company to communicate new online tools for performance management. The idea was that the tools—such as one to record your goals and another for managers to rate your performance—hadn’t changed, just the way you fill them out had. But when we interviewed managers, we learned that even experienced managers weren’t sure they were completing the forms correctly. We used this feedback to develop a guidebook called “Using the Ratings and Appraisal Tool: A Guide for Managers.”

The guide was focused on giving managers step-by-step instructions for using the online tool, but we also subtly included lots of tips that would help managers remember how to do a better job of performance management. For example, the introduction included this advice:

Preparing Performance Appraisals

Your candid and constructive feedback in the Performance Appraisal is one of the key drivers of employee performance. In preparing the appraisals, you should take into account:

• Development and performance coaching conversations you have had with each employee throughout the year

• Your observations of the employee’s performance and relative contribution

• Feedback from others who have observed the employee’s performance and relative contribution

• The employee’s self-assessment

And here’s a typical tip we included:

Tip

You’ll notice that if the employee has submitted a self-assessment, the employee’s comments for each objective appear in the Self-Assessment Column. If you don’t see comments from the employee, check to determine if he or she plans to submit a self-assessment.

The Big Picture

Such specific instruction is helpful, but it’s also important to help managers and employees understand how the entire performance management system works. Particularly important are the intersections between performance management and development (especially if they’re separate systems, as is the case at many companies) and performance management and pay. (See Chapter 14, “Compensation,” for more on communicating about compensation.)

This doesn’t mean burdening employees with all the behind-the-scenes details you manage in HR. A few years ago, we worked on a project with an HR team charged with changing the performance management system to support the company’s direction. Unfortunately, this team was so fascinated by the intricacies of their system that they felt it was necessary to communicate the entire contents of the system. They included the kitchen sink, plus everything from the refrigerator, the cabinets, and the laundry room.

“We need people to see the big picture,” said the head of the team. “I think your approach is too simplistic. I’ve come up with something more comprehensive.” It’s shown in Figure 15-3.

Figure 15-3 A complicated talent management and leadership development diagram

“Nooooo!” (You can hear our scream from way over there, can’t you?) This poor team was sadly misguided. Their hearts were pure, but they were so in love with their work that they wanted to make the system more intricate than it actually was.

Contrast the scary diagram shown in Figure 15-3 with the simple depiction of a performance management process shown in Figure 15-4.

Figure 15-4 A simple performance management diagram

Nice, isn’t it? This company operates on a fiscal year, so an important component of all its communication about performance management is time. The company constantly reminds employees that its performance cycle follows its business cycle, so it’s not on a calendar year basis.

Another company wanted to show the timeline in relation to how the company set goals. Figure 15-5 shows how its system was illustrated.

Figure 15-5 Performance and development planning and evaluation timeline

What if you can use only words to communicate your performance management process? Here are some key messages that describe changes to a complex program:

Changes to the Performance Management System designed to help each employee reach his or her potential

What is changing:

Beginning in January, employees will experience changes to Performance Management processes:

• A new system for Performance Ratings, as part of the Performance Management Process, will affect how employees set goals for the year, how they’re appraised on achieving those goals, how they’re rated, and how their managers determine year-end bonuses and merit increases.

• These changes are based on a new set of criteria called Leadership Qualities, designed to provide a framework for the attributes that every employee needs to achieve in order to help the company succeed.

Who is affected:

Every employee who participates in the Performance Management process and is eligible for a bonus and a merit increase will experience these changes during the year.

When changes are occurring:

Beginning in the first quarter of the year, when employees work with their managers to set their goals for the year.

Why these changes are being made:

The company’s past success has come from hard work and the ability to anticipate and adapt to a changing marketplace. But the past is no guarantee of future success. That’s why over the past few years, the company has looked closely at every aspect of our business. And that effort has paid off. We’ve found innovative, better, more efficient, more productive ways to do things, while maintaining or improving quality and effectiveness.

One area we’ve been looking at is the way we attract, retain, develop, and reward our employees. It’s clear that people are critical to the company’s success. Yet many of our Performance Management systems are many years old. Other systems work well in parts of our organization but are not leveraged across the company globally.

The goal of efforts to improve our Performance Management and Development System is clear: to set up every employee for success. That means clear, consistent expectations for what employees need to do in their jobs. And making sure employees are rewarded and recognized for their smart thinking and hard work. And managing talent so that the right employees are in the right roles across the organization.

What is not changing:

For most of the organization, the Performance Management Process itself will not change. Employees will still work with their manager to set goals, conduct a self-assessment, receive a performance appraisal and a rating, and be compensated accordingly. What’s changing is how employees set goals based on a new appraisal and rating system and how bonuses and merit increases are determined.

Teaching Managers to Fish

Almost every performance management system relies heavily on managers to make it work. Managers help employees set goals, they provide ongoing and periodic feedback, they evaluate performance, and they make recommendations on how employees will be paid. So our final piece of advice about communication performance is this: Invest in managers.

That usually means using multiple channels to teach managers to be good at performance management: training (in person or online), web tools, print pieces, even peer networks.

In fact, this is one of those topics that benefits from realizing that every time you communicate with managers, you have the opportunity to provide a little training, too.

For example, when a global company was rolling out a new performance management system that would give managers improved online tools, we recommended using videos of managers from around the world as part of the managers’ tool kit on the company intranet. Specifically, we recommended the company identify high-potential, highly respected managers to be videotaped (using inexpensive FLIP cameras) answering questions such as these:

• What’s the best advice you ever received from a boss?

• How do you recommend dealing with problem employees?

• How did you turn around an employee’s poor performance?

The resulting footage could be shared with managers throughout the company in a variety of ways: webinars, training sessions, and online training.

For another global company we created a comprehensive guide for managers that included these sections:

• President’s message

• Overview of Performance Management

• Roles and responsibilities

• A quick-start guide for Performance Management

Step 1: Develop objectives

Step 2: Mid-year performance and development

Step 3: Annual performance

Step 4: Second-level review and calibration

Step 5: Final confirmation

• Frequently Asked Questions

One of the first sections in the guidebook was a description of the manager’s role:

Within Performance Management you are responsible for coordinating work across your team, and coaching and assessing your performance. To do this, you need to:

• Help your employee understand the company group, functional and site objectives, and how your team’s work aligns with those objectives

• Distribute key objectives for the year among team members

• Support the employee as he sets his career goals and creates a development plan

• Work with each employee to assess her performance at mid-year and year-end and determine her performance rating

• Provide recognition, feedback, and coaching throughout the year to help the employee achieve individual and overall objectives

Here is how we described the importance of mid-year reviews:

Open communication and ongoing feedback and development are essential to effective performance management. The mid-year assessment and development plan is an opportunity to make sure this happens effectively. You and your employee have a shared responsibility to monitor the employee’s progress in achieving objectives, including what is being achieved, how it is being achieved, and the overall impact on the business. Identify any potential barriers—and possible solutions—to make sure the employee achieves his objectives and completes his development plan. There should be no surprises during the formal reviews.

Checklist for Communicating Performance Management

Communicate your company’s goals so that employees understand where you’re going and what they can do to help.

Connect the dots (if your company is large) so that employees have a line of sight between their job and the big picture.

Determine if a visual will help you illustrate how your performance management system works.

Use plain language to explain even the most complex performance management system.

Invest in managers. Make sure they have what they need to coach their employees through the performance management process.

Treat every communication opportunity as a training opportunity. Make sure you give managers plenty of tips on how to give performance feedback effectively.