AJO Blog

Primary tabs

Performance Management Needs More than Just a Fresh Coat of Paint

Posted in

on

October 25th, 2018

- Updated on

October 29, 2018 - 12:00pm
 
As the fiscal year draws to a close, it's performance management time again in many firms. Before plunging into yet another performance management cycle, take a moment to consider what Human Resource Leaders are planning to improve their organizations' performance management processes. 
 
We first covered the topic in Performance Management: What’s Broken and How Do You Fix It? posted in 2017.
 
In order to take our client firms’ performance management pulse and to understand planned changes to their performance management systems, we obtained survey input from 20 client companies. We also had an opportunity for Senior HR leaders to benchmark their performance management systems at our June 2018  Human Resources Leadership Exchange (HRLE). 
 
Note that our survey results should be used as “directional” vs “statistically reliable benchmarks.
 
HRLE Meeting - A.J. O'Connor - Parsippany NJ - June 2018
 
What follows is a snapshot of current practice and change strategies HR leaders offered in our survey and during our HRLE meeting, captured in this Q&A with Dr. Steve Safier, AJO’s Executive Vice President of Strategy and Impact.

What key data and insights emerged from the study and the meeting discussion?

Steve Safier: In a nutshell and not surprisingly to those in the HR profession, few organizations are happy with their performance management process. It has been reported in the literature, consulting firms have studied, and many companies have tried to make changes.

We want to be able to coach people on their performance for the success of the individual and the organization. That should involve multiple conversations over time to help someone understand his or her strengths and opportunities to improve. The challenge is that those conversations are difficult. Plus, because organizations rely on the performance management process to make a number of decisions (compensation, high potential identification, and leadership development, for example), we end up with putting people into categories for efficiency purposes. And, managers and employees often focus more on the categorizing than they do on the conversations.

We have been unhappy with performance management systems for over twenty years and according to our survey, we are still not there. In fact, 93% of organizations in our study indicated that they are considering changes to their system today.

Are we comfortable with the performance management status quo

To what extent did HRLE members believe performance ratings impact actual employee performance?

Steve Safier: Performance management isn't having the desired impact in terms of individual or business performance and at the same time, people are not often good at giving and receiving feedback.   

People are not good at getting or receiving feedback on performance

What were some of the recommendations that came out of the study?

Steve Safier: In an effort to be more strategic, HR leaders have over engineered performance management systems. We recommend: 

  • Simplify your performance management system – Four out of five organizations in our study use performance management categories and two-thirds employ four or more categories for rating performance.

    Adopt three categories with positive rating labels for the middle and top category, i.e. Valued Performer, Outstanding Performer, with Needs Improvement as the bottom label. If we consider that most people will fall in the middle, tie performance to compensation and give employees the same "valued performer" increase. If there's no difference between 2.5% and 3.5% increase, don't spend time and effort trying to justify it. Instead, save money for your "outstanding performers".
     

  • Link annual incentives, not base salaries, to performance, especially for your middle and top categories, with heavier bonuses for outstanding performance. The added benefit? You don’t end up paying in perpetuity for annual performance, as you would with a merit increase.
Performance management recommendations
Emphasize the discussion, not the rating. Move the manager’s energy in the performance management process of holding discussions on how the employee not only performed but how he or she could excel.
 
Do you want help improving your firm’s performance management processes? Contact us for a consultation.

Steve Safier - EVP of Strategy & Impact at AJO
Dr. Steve Safier, AJO’s Executive Vice President of Strategy and Impact, is a change management/turnaround authority, trusted consigliere and coach to Boards of Directors, executive management and employee teams. He is experienced in working as a transformational leader and strategic advisor, having served as a CHRO, COO, Business President and Human Capital consultant. Steve works with clients and colleagues to identify, assess and resolve business challenges in multiple highly competitive sectors. He speaks to HR and other professionals, graduate and college students about implementing business strategy through organization structure, role clarity and personal and team behavior.