7
Make It Happen Through Performance Management

“Evaluate what you want because what gets measured gets produced.”

—Unknown

In this chapter, we discuss some of the findings from our December 2011 Performance Management and Compensation Survey with AICPA Private Companies Practice Section (PCPS) members and the steps you can take to improve the performance management system in your firm. We trust these findings can help you identify key areas of your own performance management systems that need development and improvement.

We trust you now have a better handle on how to structure your firm for superior performance. The next step is to create or refine a performance management system that motivates team members and helps them achieve their goals. When professional services firms have welldefined performance management systems, we find their financial results to be much stronger.

Most firms have a business plan; some are good, and some are not so good. In either case, we have worked with a number of law, accounting, and other organizations, both large and small, that fail to put the building blocks in place that grow their people and unleash their talent.

One hundred and thirteen firms responded to our survey. Eighty-three percent of the respondents were owners in multiowner firms. The majority (65 percent) of firms have a performance management system for employees, but 35 percent of firms are still without one. We find it hard to believe such a high number of firms do not have any type of performance management system. Just having a system, though, is not enough. The performance management system’s elements must take into consideration the needs and motivators of people before, during, and after their employment relationship with the firm. The primary elements consist of the following:

• Objective performance criteria based on some form of observable behavior related to the duties of the job.

• Individuals conducting the appraisals are trained in how the system works and how to deliver effective feedback.

• Written guidelines for administering the appraisal system should be up to date, communicated to every employee assigned responsibility for conducting reviews, and used by raters without deviation.

• Provide for employee feedback and input.

The complete survey can be found in the appendix at the end of this book. The following pages highlight the questions related to performance management.

Survey Results

Question 1: Which of the following factors do you measure in your employee performance management system? (Check all that apply.)

Table 7-1 shows the factors that are being measured in employee performance management systems, according to our survey. Job performance (that is, competency) is at the top of the list, as one would expect. We were pleased to see that goal attainment was the second-highest factor, and then, being a good citizen (living the firm’s values) was the third.

Table 7-1: Factors Measured by Survey Respondents’ Performance Management Systems

Question 2: How important is each of the following factors in your employee management system?

Table 7-2 shows how important each of the factors are in the employee management system, according to our survey.

Table 7-2: Level of Importance of Each Factor to Survey Respondents’ Employee Management Systems

Finally, we wanted to know what types of activities (behaviors) the respondents felt were encouraged by their firm’s performance management system. The results are shown in table 7-3. What was surprising about the responses to this question was the lack of emphasis the system had on bringing in new business. Only 55 percent of the respondents indicated their system encourages or strongly encourages bringing in revenue.

Table 7-3: Behaviors Encouraged by Respondents’ Performance Management Systems

Question 3: How effective do you believe the firm’s performance management system is in driving results?

What we found may shock you. When we asked, “How effective do you believe the firm’s employee performance management system is in driving firm goals?” only 30 percent of respondents said their performance system was effective or very effective (see table 7-4). A whopping 57 percent said somewhat effective. Frankly, we were puzzled that 87 percent of respondents shared some degree of effectiveness with their performance management systems when only 65 percent of respondents even had a system. In any case, there is substantial room for improvement.

Table 7-4: Perceived Effectiveness of Employee Management System in Driving Firm Goals

When firms have difficulty implementing their performance management systems, their leaders are often unable to determine the reasons. Our survey identified the five most critical challenges to achieving performance management success. They are, in order of priority

1. Firmwide goal clarity. First, firms do not have clear goals. If firmwide goals are lacking or unclear, employee and owner goals may not support the firm in the best way, and they will hardly be aligned. Much to our surprise, 55 percent of responding firms indicated that employees do not have written goals.

   Many people have heard about the Yale (or sometimes Harvard Business School) “studies” in which members of the 1952 graduating class were asked the following question: “Have you set clear written goals for your future and made plans to accomplish them?” The results of that question were

   • only three percent had written goals and plans.

   • thirteen percent had unwritten goals.

   • eighty-four percent had no specific goals at all.

   Ten years later, the members of that class were interviewed again, and the study found that the

   • thirteen percent who had unwritten goals were earning, on average, twice as much as the 84 percent of those who had no goals at all.

   • three percent who had clear, written goals were earning, on average, 10 times as much as the other 97 percent of graduates all together. The only difference between the groups is the clarity of the goals they had for themselves.

   As it turns out, Sid Savara and Steven Kraus (a social psychologist from Harvard) found this “study” to be an urban myth.¹ Fast Company magazine also revealed in its December 1996 article by Lawrence Tabak, “If Your Goal Is Success, Don’t Consult These Gurus,” that no such study had ever been done either at Harvard or Yale. So, Savara and Kraus conducted their own study focused on how goal achievement is influenced by writing goals, committing to goal-directed actions, and being accountable for those actions.

   Their findings included the following:

   • The positive effect of accountability was supported. Those who sent weekly progress reports to a friend accomplished significantly more than those who had unwritten goals, wrote their goals, formulated action commitments, or sent those action commitments to a friend.

   • There was support for the role of public commitment. Those who sent their commitments to a friend accomplished significantly more than those who wrote action commitments or did not write their goals.

   • The positive effect of written goals was supported. Those who wrote their goals accomplished significantly more than those who did not write their goals. A study at Dominican University² provides empirical evidence for the effectiveness of three coaching tools: accountability, commitment, and writing down one’s goals. How can you be successful in a competitive market if your people do not know what is expected of them

2. Owner commitment. The degree to which owners are committed to the firm’s vision and goals is the degree to which they can be achieved. Robert J. Lees and August J. Aquila noted the following in “So What Does Being a Partner Mean”:

   Professional service is an execution game, so if a firm develops its people faster and more effectively than its competitors, it gains a competitive and economic advantage. As professionals learn 80% of what they need to know on the job, partners must be effective coaches (we are unequivocal in our belief that if a partner is not a good coach they are not a good partner). They must also ensure that, whenever possible, the assignment process takes into account people’s development needs and that progress against those needs is assessed during and after the assignment’s conclusion. They must also go through the same learning review process for the off-the-job learning, including the programs that accelerate people’s transitions throughout their careers.³

3. Lack of good data to measure success. Vince Kellen from DePaul University found that despite improvements in performance management technology, organizations still have challenges with ease of use and tracking, data quality, and visualization. We have found similar challenges in our work with firms. To measure something, you must be able to track it, but this can be more costly, time consuming, and challenging than it is worth. Firms need to look for simple ways to track data or be very selective in the data they want to evaluate. The key is not to try to capture everything because that is impossible.

4. Time to manage performance. In her work at FranklinCovey, Coral has often heard Dr. Stephen R. Covey say, “Have you ever been too busy driving to stop and get gas?” August often refers to the following urban legend: the president of a local bus company was called into city hall to explain why his busses were not stopping to pick up passengers. The president calmly replied, “If we stop to pick up passengers, how will we stay on schedule?” Too often, firms fail to provide good performance feedback and coaching because they believe they are too busy with other important activities. We find this to be either an excuse (they don’t want to perform these activities because they don’t know how or are conflict avoidant) or a fatal flaw (they fail to see this is a powerful tool for performance improvement and long-term value for the firm).

5. Capabilities of leaders to manage performance. As previously mentioned, firm leaders often lack the skills to manage performance, primarily due to their lack of training in how to do so.

Question 4: What type of training do you provide for firm evaluators?

When asked, “What type of training do you provide for firm evaluators?” 39 percent of respondents indicated none. As you will see in table 7-5, that percentage held for all the questions except for how to develop an individual development plan. Evaluators must learn how to coach, conduct effective performance management conversations, deliver constructive performance feedback, and cocreate individual development plans.

Table 7-5: Training Provided for Firm Evaluators

Question 5: Which of the following activities should a performance management system support and drive?

As you will see in table 7-6, a good performance management system can support and drive a variety of behaviors. The following list is not meant to be all-inclusive. The beauty of performance management systems is that you can and should tailor them to the current and long-term desires of the firm.

Table 7-6: Activities Supported by Respondents’ Performance Management Systems

Owners and Performance Management Systems

When we asked whether owners should have written goals, most respondents believed they should either to some extent or a great extent (see table 7-7).

Table 7-7: Percentage of Respondents Who Believe Owners should Have Written Goals

However, when asked if they have written goals, the responses are quite different. Sixtyeight percent answered “No” (see table 7-8). This is an improvement from our 2004 survey in which the percentage was 85. Although we are pleased to see an improvement, it still makes it difficult for firms to implement an effective performance management system when the owners themselves are not part of it or don’t fall under the same rules.

Table 7-8: Percentage of Respondents Whose Owners Have Written Goals

The good news is that more nonowners have written goals. According to our survey, 45 percent of employees have written goals.

Job Descriptions

We were surprised that 34 percent of the respondents indicated they had no written job descriptions. Of those firms that had position descriptions, 28 percent updated them in the last year, and 38 percent did not (see table 7-9 for these metrics). If you are one of the firms in the 34 percent category that don’t have job descriptions, we urge you to get started on them now. You need written job descriptions for many reasons, including a

• hiring perspective.

• career advancement perspective.

• training perspective.

• legal perspective.

Table 7-9: Status of Written Job Descriptions

Final Thoughts

The firm’s performance management system is the foundation for building a culture of superior performance. We encourage you to bring in a specialist to help you design or tweak a system and who will help you set clear job expectations and provide your evaluators with guidelines for hiring, supervising, and promoting employees. The performance management system also supports your recruiting and reward (compensation and promotion) programs. Having all these elements in place also helps to ensure compliance with the numerous legal requirements firms face today.

The preceding issues are not difficult to resolve if firm leaders are committed to improving performance for both employees and owners and willing to learn the skills for doing so. For example

1. get serious about performance management.

2. make an investment in training evaluators.

3. make sure you have written position descriptions.

4. conduct performance reviews at least every six months.