Brilliant Answers
chapter SIX Doing Things the Right Way: Using Performance Management to Increase Business Execution
Ensuring that employees are doing the right things the right way is central to driving business execution. This is the primary purpose of performance management, although many performance management processes fail to fulfill this purpose. Performance management refers to processes used to communicate job expectations to employees, evaluate employees against those expectations, and use these evaluations to guide talent management decisions related to compensation, staffing, and development. Performance management encompasses a variety of activities, including talent reviews, calibration sessions, pay-for-performance plans, performance feedback, and other methods that measure employees based on the degree to which their actions and accomplishments align with the company's expectations and objectives.
This chapter discusses how to use performance management to increase workforce productivity. There is a reason this chapter is the longest one in this book: designing and deploying effective performance management processes is not easy. It requires addressing highly sensitive topics related to measuring the contributions of individual employees and making decisions about their pay, promotions, and employment. Creating a successful performance management program requires attending to several big picture strategic issues and myriad specific details to ensure that the processes fit the culture and needs of your company.
There is no such thing as a neutral performance management process. People will either like it or dislike it. Many performance management processes are criticized as lacking business impact, creating unnecessary administrative overhead, and negatively affecting employee attitudes. But if done correctly, performance management is a powerful method for creating highly engaged, efficient, and productive workforces. The key to creating an effective performance management process lies in thinking through the questions discussed in this chapter and designing a process that makes the most sense for your company.
The chapter is organized into five sections. Section 6.1 addresses the reasons that performance management is difficult to do well. Section 6.2 discusses the impact of performance management on business performance. Section 6.3 examines how to balance the often conflicting goals of performance management. Section 6.4 addresses seven fundamental questions to consider when designing performance management processes. Section 6.5 explains different levels of performance management process maturity and how to increase performance management effectiveness over time.
6.1 WHY IS PERFORMANCE MANAGEMENT SO DIFFICULT?
Performance management is not a new concept. There are references to it in the Old Testament, and the government of China used documented performance management processes as early as the third century AD.1 Despite or perhaps because of its longstanding use, performance management is frequently criticized as a process that is neither enjoyable nor effective. A recent Google search on “problems with performance management” returned over 21 million (!) separate entries. Many criticisms level particularly harsh accusations at performance appraisals, the portion of performance management focused on evaluating individual employee contributions. Some critics urge companies to abolish performance appraisals and scrap performance management altogether.
Most extreme condemnations of performance management are misguided (for more discussion, see the discussion: “Why Claims to Abolish Performance Appraisals Are Wrong and Dangerous”). Nevertheless, it is reasonable to ask why people have such negative attitudes toward performance management. It has been around for thousands of years and almost every company uses it. You'd think that by now, we would have figured out how to do it well.
WHY CLAIMS TO ABOLISH PERFORMANCE EVALUATIONS ARE WRONG AND DANGEROUS
Most attempts to achieve weight loss through dieting fail. Does that mean dieting is an ineffective way to lose weight? Should people ignore their diet and just focus on exercise? No, of course not. Many people struggle to follow healthy diets. But just because it's difficult to manage what we eat does not mean we should ignore our diet altogether. This analogy applies to claims that performance evaluations do not work and should be completely eliminated or replaced by processes that rely solely on performance coaching.
Do Performance Evaluation Processes Improve Organizational Performance?
Rigorous empirical research shows that performance evaluation processes work when they are appropriately designed and deployed. Following is a small sample of evidence from researchers who have studied this topic. With the exception of the passage by Eichinger et al., these are from academics who to my knowledge have no financial interest in what sort of talent management process a company chooses to use. Some excerpts are taken from peer review journals and have somewhat confusing language and terminology. But it is important to present these quotes verbatim to emphasize that these are research findings, not my personal opinions.
A performance management system can make the following important contributions: motivation to perform is increased, self-esteem is increased, managers gain insight about subordinates, the definitions of job and criteria are clarified, self-insight and development are enhanced, administrative actions are fair and appropriate, organizational goals are made clear, employees become more competent, there is better protection from lawsuits, better and more timely differentiation between good and poor performers, supervisors' view of performance are communicated more clearly, organizational change is facilitated. (Aguinis, 2007 p. 4)
Researchers have begun to try to determine the return on investment of … using better selection methods, better training and development, and better performance management applications … At this time, the order from most to least is rigorous performance management, then training and development, then selection … So the fastest way to improve performance of any unit is to set rigorous performance standards and get rid of those who do not measure up. (Eichinger, Lombardo, & Ulrich, 2006, p. 208)
Results suggested that forced distribution rating systems of the type we simulated could improve the performance potential of the typical organization's workforce and that the great majority of improvement should be expected to occur during the first several years. (Scullen, Bergey, & Aiman-Smith, 2005, p. 24)
The practice evaluation tool [measures the use of] eighteen key management practices … The monitoring section focuses on the tracking of performance of individuals, reviewing performance (e.g., through regular appraisals and job plans), and consequence management (e.g., making sure that plans are kept and appropriate sanctions and rewards are in place) … Better management practices are strongly associated with superior firm performance in terms of productivity, profitability, Tobin's Q, sales growth, and survival. (Bloom & Van Reenen, 2007, pp. 1361, 1391)
Research shows that a well-designed and well-implemented performance evaluation process is a key part of a high-performance organization. But research also shows that performance evaluation is a double-edged sword:
Some negative consequences associated with low-quality and poorly implemented systems [include] increased turnover, use of misleading information, lowered self-esteem, wasted time and money, damaged relationships, decreased motivation to perform, employee burnout and job dissatisfaction, increased risk of litigation, unjustified demands on managers' resources, varying and unfair standards and ratings, emerging biases, unclear ratings system. (Aguinis, 2007, p. 7)
A well-designed performance evaluation process significantly improves workforce productivity, and a poor process can severely hurt productivity. The key question is not whether to do performance appraisals, but how to do them effectively.
Should We Stop Doing Performance Evaluations Because People Don't Like Them?
Claims that we should do away with performance evaluations because people don't like them are misguided. First, it is misleading to say that people hate performance evaluations. To the contrary, many employees express frustration when their company delays or fails to conduct their performance review. What is more accurate is that people don't like poor performance evaluation processes. This is not the same as not liking any performance evaluation process. Second, just because some people may not like something is not adequate reason to stop doing it. Most people I know don't particularly like going through the financial budgeting process, but that doesn't mean we should stop creating budgets. Whether people like it or not, having a consistent performance evaluation process is critical to effective, efficient, and fair workforce management.
Should Companies Replace Performance Evaluations with Performance Coaching?
Performance evaluations are an important component of an effective performance management system, but they are only one component. Another equally critical component is performance coaching. Companies need both accurate evaluations and effective feedback and development to maximize workforce productivity. Just as you need to focus on both diet and exercise to maximize your health, performance evaluation and performance coaching are two separate but interdependent processes that contribute to workforce productivity. Evaluation gives people feedback on what they need to improve, and coaching provides them with guidance on how to improve it. For example, a manager might give an employee evaluative feedback that his or her e-mail messages are too long and as a result people struggle to interpret them, and then provide coaching suggestions on how to write more succinctly. Each is valuable in different ways, and one should not be used to replace the other. The best results are achieved through using both in a coordinated fashion.
Can performance evaluations be improved? Absolutely! Are many of the performance evaluation processes currently used by companies causing more harm than good? Probably! Should companies invest more energy into creating better performance coaching and dialogue? Without a doubt! But this doesn't mean performance evaluations don't work. Recommendations to eliminate performance evaluations are misguided and harmful. Performance evaluations add tremendous value when they are appropriately designed and implemented. The focus should not be on abolishing them. The focus should be on how to improve their design, use, and impact.
Sources: Aguinis, H. (2007). Performance management. Upper Saddle River, NJ: Pearson Prentice Hall. Eichinger, R. W., Lombardo, M. M., & Ulrich, D. (2006). 100 things you need to know: Best people practices for managers and HR. Minneapolis: Lominger. Scullen, S. E., Bergey, P. K., & Aiman-Smith, L. (2005). Forced distribution rating systems and the improvement of workforce potential. Personnel Psychology, 58, 1–32. Bloom, N., & Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. Quarterly Journal of Economics, 122, 1341–1408
Performance management is difficult for two reasons. The first challenge has to do with the basic purpose of performance management. To be effective, performance management must differentiate between more and less effective employees. Deciding whether someone is doing his or her job the right way is an extremely sensitive topic. Rather than explaining the psychological reasons for this, let us do a quick self-reflective exercise. Imagine you were given the following feedback by your boss (for the record, I am not advocating these statements as examples of effectively worded feedback):
a. “You are not getting the job you wanted because we are giving it to a person who is better qualified.”
b. “You are not focusing on the things that matter most to this company.”
c. “You are not performing your job as well as your coworkers and that's why you are getting paid less than them.”
d. “You need to start acting differently if you want to get what you want.”
Of these statements, which one would you least like to hear from your supervisor? My guess is they all felt somewhat unpleasant because they all focus on performance weaknesses. Yet all four statements reflect the kinds of comments that may arise from the use of rigorous performance management.
Effective performance management requires dealing with the reality that some employees perform at a higher level than others. Performance management would be easy if everyone performed at the same level, if people never felt insulted or threatened by critical performance reviews, or if they never acted overly entitled because they received a high performance rating. But people do not perform at the same level, and it is important to differentiate employees based on their relative contributions. Similarly, people do react emotionally to performance evaluations, and it is important to ensure that employees do not feel they are losers just because they received a lower performance rating than some of their peers. Performance management requires balancing behavioral feedback with motivational support. People need to understand what they are doing ineffectively in order to change their behavior to do things the right way. They also need to be given recognition, rewards, and respect that instill the desire and confidence needed to build on past successes to achieve even higher levels of performance. This requires providing a mixture of critical yet supportive feedback on past performance, constructive suggestions for increasing future performance, and clarifying consequences and rewards associated with long-term performance accomplishments.
The second major challenge to performance management is that it is expected to do many different things that do not always align well with one another. Performance management programs often mix multiple, conflicting objectives related to coaching, evaluation, compensation, staffing, and development together into a single process. This can lead to processes that don't do any one of those things particularly well. A key to designing effective performance management processes is to clarify exactly what the process is expected to accomplish. Only then can you make appropriate design decisions to ensure that your performance management process does what it is intended to do.
6.2 WHY DO WE NEED PERFORMANCE MANAGEMENT?
Performance management is used to ensure people are performing their jobs in the right way. Every company practices performance management, even if it does not have an official performance management process. Without some form of performance management, a company would simply be hiring people and hoping they did their jobs effectively. The question is not whether your company uses performance management; it is whether your performance management methods are appropriately designed, clearly defined, consistently applied, and effectively used to increase workforce productivity and support business needs.
Research has shown that companies that use rigorous, well-defined performance management processes to evaluate and make decisions about employees tend to be more successful (see the discussion: “Why Claims to Abolish Performance Appraisals Are Both Wrong and Dangerous”). The value of performance management is rooted in one of the most basic laws of psychology: to increase performance, people need feedback on how well their behaviors and accomplishments match the needs of and expectations of the organization. There are many methods for collecting and delivering performance feedback, some more effective than others, depending on the situation. But the overriding principle is that some form of feedback is essential to improving performance.
There are significant risks associated with not having well-designed performance management processes. Companies that lack effective performance management lose top talent because they fail to recognize and reward high-performing employees. They are likely to suffer financial losses resulting from allowing people to perform their jobs in an incompetent or counterproductive manner. In addition, companies that do not use standardized performance management methods to guide pay, promotion, and termination decisions often place themselves at considerable legal risk.2 Many countries have strict laws governing processes used to hire, pay, promote, and terminate employees. These laws are based on the belief that it is unfair to deny someone his or her economic livelihood without evidence that such action is warranted. Just as many people believe it is unfair to evict someone from his or her home without due cause, many people believe it is unfair to deny someone employment opportunities without justification. Performance management plays a key role in providing the evidence companies need to justify personnel decisions should they be challenged in a court of law.
In sum, performance management helps maximize workforce productivity, minimize costs associated with employee underperformance, and manage risks associated with fair and consistent personnel decisions. Companies need performance management to:
• Increase productivity by ensuring employees are given feedback and incentives that help them learn from experience and motivate them to increase their effectiveness
• Identify and address employee behaviors that may be limiting or damaging organizational productivity and draining organizational resources
• Attract and retain high-performing employees through encouraging, recognizing, and rewarding performance contributions
• Provide a clear, consistent, and defensible set of standards for making decisions that have an impact on employee welfare such as pay and termination
• Comply with legal requirements and cultural expectations related to fair and consistent evaluation of employee contributions
Achieving these results depends on appropriately designed and deployed performance management methods.
6.3 BALANCING THE CONFLICTING GOALS OF PERFORMANCE MANAGEMENT
The single biggest challenge to designing a performance management program is the need to support different activities that don't necessarily align well with each other. These include:
• Evaluating performance. This is about accurate measurement of employee behavior and contributions. It requires using well-structured, consistently defined methods to rate employees based on their performance levels. The most accurate performance evaluations are done by people other than the person being evaluated. Most of us simply aren't good at objectively and accurately evaluating our own effectiveness, particularly when it means comparing ourselves to others. This is the reason most companies do not allow employees to evaluate their own performance without some form of manager review.
• Providing performance feedback so employees know how well they are performing and understand the gaps they must address to increase their effectiveness.
• Coaching employees to increase workforce alignment and productivity. Coaching involves creating dialogue and discussion between managers, employees, and their coworkers. It is best done on an ongoing basis and does not require any formal performance evaluation or rating.
• Talent management decisions about staffing, promotions, pay, and terminations that are based in part on employee performance. Companies should invest more in employees who contribute the most to the company's success. Linking pay and staffing decisions to performance strengthens a company's overall workforce. Allocating resources based on performance increases the engagement and retention of high-performing employees, inspires average-performing employees to strive for higher levels of performance, and drives low-performing employees out of the organization.
Supporting all four of these activities through a single performance management process is difficult because it requires balancing competing interests. The most challenging is creating a performance management process that accurately identifies high and low performers while simultaneously giving employees a positive, constructive coaching experience. The goal of sharing performance feedback and coaching employees can directly conflict with the goal of evaluating performance. In fact, the accuracy of manager evaluations of performance often improves if the evaluations are never shared with employees.3
A recurring theme in this chapter is finding ways to balance the need to have accurate measures of performance that compare employees against one another with the desire to create nonthreatening coaching dialogues between employees and managers that emphasizes development over evaluation. The best way to do this is to approach performance management as a series of interconnected subprocesses. One subprocess focuses on evaluating employees as accurately as possible, while another focuses on providing employees with performance coaching and feedback to support development. A third part focuses on using performance data to guide how the company invests its financial resources in terms of staffing and compensation decisions. The methods used to support employee coaching and feedback should not be totally independent of methods used to guide employee evaluation, pay, and staffing decisions. But there are times when steps supporting one performance management objective should be clearly and intentionally conducted separately from steps supporting a different objective.
6.4 CRITICAL PERFORMANCE MANAGEMENT DESIGN QUESTIONS
There is no one best way to do performance management. What works well for a regional health care organization might be inefficient for a multinational software company. Processes appropriate for frontline hourly retail employees would be totally ineffective for senior executives. Organizations with rapidly growing workforces and expanding markets may need different methods from organizations with aging workforces or shrinking profit margins. Fully leveraging the power of performance management requires designing a process that makes the most sense given your particular business needs, organizational culture, employee population, and resource constraints. The reason many companies struggle with performance management is they haven't put enough time in critically thinking through key process design questions. Creating the right performance management process requires spending time thinking about what “right” looks like for your company.
The following questions are central to the design of effective performance management processes:
1. What are the primary objectives of your performance management process?
2. How do you define effective performance?
3. How will you evaluate performance?
4. How will you calibrate performance?
5. How are data from performance evaluations used? What is the relationship of performance evaluations, pay, promotions, development, and workforce management?
6. How frequently do you measure performance? How does performance management fit into your broader business cycle?
7. What training and incentives do managers and employees need to effectively use performance management processes?
(Hunt 151-162)
Hunt, Steven T. Commonsense Talent Management. Pfeiffer, 2014-02-10. VitalBook file.
