Stop the anxiety

By Jocelyn Bérard
Illustration: Gary Clement

Is the traditional performance appraisal worth much? Some firms don’t think so and are now using a business-oriented management model

Annual performance review. Employee appraisal. Job evaluation. Whatever your company calls it, this process, most often perceived as the domain of the human resources department, can conjure up equal parts angst, confusion and distrust. And that’s just on the manager’s side of the desk. Why is this? And why are employees anxious about the review process? It could be they feel reviews are arbitrary and they have no real input or that their contributions are meaningless.

Clearly, a large number of people in any given organization see little value in HR-driven annual performance reviews. And who can blame them? The term alone sends the wrong message on two counts. First, the emphasis is backward — the accent is on the review instead of upfront goal-setting and employee engagement, where it belongs. Second, waiting an entire year to discuss performance is, frankly, nonsense.

But until recently, most organizations did things that way just because they always have. The fact is, many well-intentioned initiatives are simply misdirected. Here are a few examples:

Forced rankings Popularized in the 1990s by General Electric’s then CEO Jack Welch, the notion is if you’re not an A or B performer, or are not advancing toward becoming one, you’re out. In the sense that a company needs to manage performance, it’s a good idea. But in reality, the emphasis is misguided. An ar-bitrary company quota may mandate managers to remove you regardless of circumstances, even if you’re a good performer with good potential. It also allows weak leaders to hide behind the system instead of taking proactive steps to address an individual’s performance problems.

Combining performance management and compensation discussions In many cases, managers speak with employees about their performance at the same time they hold discussions about pay. This is a mistake. Combining these topics in a single conversation often shifts the focus from performance to compensation and can impact the quality of the review. From an employee perspective, the discussion can become rife with stress and emotion; from a corporate perspective, fair compensation relative to company performance can be misconstrued by the employee. Smart companies link performance management and salary, but hold focused discussions around each topic separately.

Multirater reviews More companies are using 360-degree multirater tools for performance management. These are surveys completed by those around you — supervisors, peers, direct reports and sometimes vendors and customers. There are two major problems with this approach. First, it’s too time consuming. Especially when several performance appraisals are due at the same time, it becomes a logistical nightmare. But more importantly, when such surveys are linked to salary reviews and real money is on the line, raters’ feedback tends to be skewed. Instead of receiving objective feedback related to performance and development, views can be tarnished by prejudice. Multiraters are excellent tools for developmental purposes, and that’s exactly how companies should use them — not for performance management.

The good news is Canadian organizations are starting to recognize these performance-rating pitfalls. Over the past 10 years, an increasing number shifted to a business-oriented performance management model — one that emphasizes shared ownership between employee and manager, aligns individual goals with corporate objectives and engages employees to perform at higher levels.

In short, the modern performance management model hardwires individual employee performance into the company’s business plan.

Best practices Best practices in performance management will appear intuitive to those with a comprehensive view of one’s organizational structure. They are in brief: identify senior executives as system champions align performance management to support business goals and drive results cascade accountabilities to all levels promote shared ownership have line management drive the system train managers and employees in the skills they need to realize  the benefits show employees how to establish measurable individual goals  through planning roll out a unified system consistently across the entire organization manage the system as a process, not a one-time event link performance management to other human resources systems evaluate system effectiveness regularly and identify process improvements

A business strategy
At its core, performance management systems are about how your individual performance advances the corporate agenda. In this sense, performance management systems stop acting like HR systems and begin working as vehicles to execute business strategy. In fact, according to recent research conducted by the Center for applied Behavioral Research, organizations with strong performance management systems are between 41% and 51% more likely to outperform competitors.

The benchmark international study of 278 organizations and 3,600 managers and employees also showed the average performance management system improves by 10% the ability of employees to achieve their goals.

This isn’t highbrow theory; it’s practical application. Quite simply, it’s a performance management model that makes the organization’s vision real to everyone in a context that enables employees to relate their everyday contributions in a tangible, meaningful way. And to harness this energy, the organization needs to establish a clear corporate direction, align individual goals with business objectives, create accountability among employees for their own performance plans and nurture the system through employee coaching and support.

One model of success is Toronto-based Progistix-Solutions Inc., a supply-chain management service provider. Created from the material division of Bell Canada in 1995, the new company had to dramatically change how it viewed itself and its marketplace. With this came significant cultural change that underscored the need to demonstrate how every individual contributes to organizational success.

“In the mid- to late 1990s,” explains Steve Phinney, vice-president, HR, “we were looking for a way to help people better understand where the organization was going, where they fit in and how they contributed to the company’s success — and to the success of our clients who pay our wages.” It could be an individual’s contribution to a core business process, such as order and inventory management, or a support process, such as ac-counts payable, payroll or IT. “With this understanding, people are better able to appreciate not only how their skills and abilities contribute, but also what additional skills may be beneficial to develop or acquire.”

Progistix-Solutions launched the program (which it calls contribution management) with its managers, mapping key organizational initiatives to individual objectives. Then it worked with its unions, service and administrative staffs “to establish a process that was meaningful to their needs,” says Phinney.

Progistix-Solutions’ unique performance management program accentuates the individual throughout the planning, doing, tracking and review phases of the process: agree what’s expected of me (including metrics); give me an opportunity to perform; help me, guide me, support me; and recognize and reward me.

By 2000, two years after the initial concept development, all employees were meeting with their bosses to set individual goals and to manage and review their own performances.
“Each and every one of us wants to know how we are doing,” says Phinney. “We wanted a process that gave our people a good understanding of the business so they could figure out what to do with minimal management. This system allows people to manage their own contributions and it helps them determine priorities and manage their time better.”

To help gauge the success of the program, Progistix-Solutions uses employee and customer satisfaction surveys. The company also examines business process improvements. “It’s hard to quantify and show direct cause-and-effect relationships between organizational achievements and our contribution management program,” says Phinney. “But it is clear that there is less fire-fighting, improved role clarity, enhanced communications and more effective teams.” Progistix-Solutions’ program links its vision, values and business planning processes with the individual. “And yes, six years later,” he says, “we are still learning how we can make it even more meaningful and effective.”

There’s little doubt that performance management systems begin at the top. Obviously, if the CEO doesn’t see the system as a driver of strategy, the chances of having an effective system drop significantly. The executive team must clearly define the organization’s strategic priorities and communicate them throughout the organization. The strategic priorities are the make-or-break, action-oriented targets that move your organization toward its vision — such as boosting sales revenue, accelerating speed to market or im-proving customer retention rates.

Once the top priorities are defined, the executive team establishes specific measures for those priorities. These metrics are incorporated into the senior executives’ performance objectives. Using the perfor-mance management system, accountabilities cascade down to the next level where managers discuss with their bosses specific goals and accountabilities that align with corporate goals. Managers then do the same with their direct reports, translating departmental goals, all the while maintaining alignment with corporate goals.

It’s essential that an employee participate fully in determining how he or she can realize those priorities. It’s also critical that all expectations be based on specific, measurable, action-oriented, realistic, and time-bound — SMART — criteria. More companies are beginning to publish the performance goals of executives and managers for all to see — as direct reports are impacted by those goals and can adjust their own accordingly. In particular, tools like corporate dashboards and balanced scorecards, which track progress on business and cultural strategies, are gaining in popularity because they offer multiple performance views that all can see.

Compliance with the Ontario Securities Commission Guidelines and the Sarbanes-Oxley Act are other prime examples of the importance of everyone having a stake in a company’s future: an organization’s CEO and management team have primary compliance responsibility, but they can’t be everywhere at all times. They must rely on their lower level managers and frontline workers to follow the law on a daily basis and to fulfill record-keeping requirements. A performance management program that clearly articulates corporate, unit and individual responsibilities, then cascades them down through the organization, effectively aligns corporate goals, values, accountabilities and execution toward a common and essential goal: regulatory compliance.

Certainly the best performers get better results than organizations that assess progress just once each year. Two examples are James Kilts, president and CEO of The Gillette Co., and Michael Dell, CEO of Dell Inc. Both review senior executive performance quarterly. Frequent monitoring of performance progress simply makes it easier to make mid-course business strategy corrections such as growth strategy versus cost management and to cascade those changes down through the organization.

One of the best things about a performance management program — no more lengthy, formal meetings. Rather, successful organizations that make conversations about performance plans a regular, if informal, event as projects are being carried out. Such conversations and ongoing coaching are excellent tools for managing people. Further, it’s in the context of such conversations that barriers to pro-gress are discovered. In other words, if you really want to make your program strong, you must exercise it regularly.

In the end, every associate has ownership of his or her performance plan with individual goals linked to business objectives. Let’s say a large banking institution publishes its high-priority objectives on its intranet. From those high-priority objectives the company derives business unit, departmental and unit objectives that flow from the executive level into individual performance plans. Briggs & Stratton Corp., for example, a Milwaukee-based engine manufacturer, starts the process with its economic value-added measures, which flow into each plant’s goals, then cascade deeper to department, team and shift levels. If implemented correctly, the aligned performance management system also yields valuable information that can be used in hiring, training, promoting, compensation and strategic planning, among other human resources systems.

While this may make perfect sense to managers, what really piques their interest is that shared ownership means everybody in the company should have to complete only one performance review form. Managers will review those of employees who directly report to them during the review process, but it’s the employees’ responsibility to report their own accomplishments. This is an especially critical timesaver for frontline leaders who may have dozens of employees reporting to them, sometimes across multiple shifts.

So, how to get started? Most organizations can get a performance management system up and running in less than 100 days. To realize a system’s true potential, however, it probably takes closer to three years, with all employees twice completing the process of goal setting, coaching, monitoring and performance review.

For most employees, performance management systems are much different than what they’re used to, and before getting started, employees should complete training in the three phases of the performance management cycle: planning, performing and reviewing.

The planning phase demonstrates how performance management helps associates contribute to strategic priorities and department or functional area goals. Employees learn to:

• identify most important areas of responsibility and develop measurable goals;
• identify competencies needed to accomplish their objectives and to live the values of the organization;
• create individual development plans to improve skills in target competencies;
• head discussions with leaders to reach agreement on performance plans.

The performing phase explains how associates can effectively monitor their performance in order to meet or exceed established goals. They begin to:

• monitor performance through specific tracking tools;
• participate in interim performance reviews;
• ask for feedback on their competencies;
• seek and receive coaching;
• provide coaching and feedback.

The reviewing phase shows how to lead review discussions and plan for future development. Participants learn how to:

• make the best use of leaders’ time by taking full responsibility for gathering data, providing self-ratings and leading the review discussion;
• assess collected data and determine performance levels;
• prepare and lead a performance review discussion based on performance data and demonstration of targeted competencies.

The impact of performance management is largely driven by its practicality. The system must be useful and usable. When it is, a performance management system helps the organization achieve target business results and maintain its desired culture. It crystallizes employees’ understanding of how they are contributing to the organization’s goals, what’s expected of them, how they are doing and how they can continue to grow, develop and add value to the business. When employees understand the impact of their actions, they find their work more motivating.

Performance management programs also provide a unique mechanism for ongoing feedback and development, a critical component of engagement and retention. After setting goals together, managers and employees can track progress and ensure that performance stays in alignment with goals and changing work conditions. Continuous feedback facilitates performance by helping employees refocus behaviours when they get off track. During performance reviews, managers can provide more specific feedback relative to goals in order to help employees identify strengths and developmental needs. In this way, new performance goals can be set to leverage employee strengths and provide opportunities to address developmental or career goals.

And ultimately, the company benefits from an aligned, accountable and engaged workforce better prepared to execute corporate strategy.

Cool tech tools New Internet-based tools, such as the MAXworks performance management system from Development Dimensions International and Workscape, have made it easier to harness employee performance. More than just electronic forms, many of these high-powered solutions feature intuitive automation that help align organizational strategy with individual performance, streamline reporting and administrative functions, standardize performance review reporting and improve system compliance. Most importantly, the technology provides executives, managers and employees enhanced capability to drive execution. Senior leaders can instantly ensure that manager and employee performances are in sync and on track with organizational goals. Managers can better coach those who report to them because performance data is at their fingertips. Employees can see how their goals line up with those of their bosses. And individuals are better equipped to take charge of their own development. Some solutions also enable a company to deploy common organization goals to all employees. For instance, if identifying a cost reduction is a company-wide objective, this can be distributed across the enterprise. So when you’re identifying your specific individual goals, you can express how you plan to do your part in cutting costs to meet the company objective. But while many software solutions can automate tasks to simplify administration, it won’t make a bad performance management system better. Before investing in a technology solution, make sure it will provide: simplified alignment of organization-leader-individual performance goals; real-time access to performance management data so all can access and monitor results; checkpoints that encourage frequent, informal leader-associate performance discussions, and; seamless integration with other human resources management systems.

Jocelyn Bérard, MA, is managing director for Development Dimensions International’s Canadian operations. He is based in Toronto