Doing Performance Management the Right Way

DOING PERFORMANCE MANAGEMENT THE RIGHT

WAY

Changing The Direction of Your Performance Management Effort

ERE.net Webinar August 4, 2010

© Dr. John Sullivan Professor, Author and Advisor to Management

www.drjohnsullivan.com

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My goal is to…

Make you rethink your current approach by: 1. Making you aware of the many current

problems with PM

2. Changing your direction and pointing you toward a superior way… by demonstrating the elements of a world-class PM approach

Note: Unfortunately I cannot solve every PM problem in 60 minutes!

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Topics for today

1. How well are we doing in PM? 2. A quick definition of PM 3. What is wrong with the current approach 4. Characteristics of WC performance management 5. PM metrics and goals 6. Best practice firms 7. The elements of a performance culture 8. Some bold things to try 9. More questions

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Let’s start with…

Five quick slides to illustrate how well we are doing in performance management

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How do most rate performance management?

A salary.com survey discovered that 90% of employees found performance appraisal feedback

inadequate!

Salary.com 2003

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What is the success % of PM?

1. They went back 2 years… and identified that they had 1,019 people rated #3, “needs improvement”

2. They calculated that they spent an average of $13,090 per year… on their performance management (training, coaching, counseling and manager time)

3. They identified 2 years later… the number that were currently ranked as #1’s

4. That number was:

Conclusion – PM had a low ROI at this firm

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It will remain essentially unchanged until year 20… when they retire 7

Do performance management and training combined… currently have a measurable impact? If the performance level of a new hire was at the 50th percentile after their 1st year…

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A quick definition of the performance management process

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Definition of performance management

A quick definition  The goal of the process is to improve the

productivity of the firm’s workforce  It is an integrated HR process that utilizes all

available productivity improvement tools  It quantifies its impact in dollars  It learns from the most productive and innovative

employees and shares those practices  It identifies individual and team productivity

problems & their causes and then it “fixes them”

Unfortunately, performance management currently operates within a limited range

  It’s current focus is mostly on building (re-training) troubled employees and occasionally releasing employees that can’t be “fixed”

  If it is to increase its overall business impact, Performance Management must learn to expand its range to encompass all six ways of improving workforce productivity >

More productive Make internal talent more productive

Build internal talent

Move internal talent

Buy external talent

When managers need increases in performance and productivity… they have six basic choices

Release weak and excess labor

Use substitutes for labor

(Technology or software)

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My research has turned up a multitude of problems with typical performance management processes

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There are significant costs of having weak PM

1. The overall productivity of the workforce suffers 2. Poor performers continue to make costly errors

and slow time-to-market 3. Poor performers slow team results 4. Managers must spend excess time on PM 5. Top performers quit in frustration 6. Innovation levels drop because weak performers

don’t innovate 7. Top recruits drop out if they meet too many losers 8. HR’s image is tarnished by a weak product

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Top 25 problems of performance management

1. The process is widely disliked and not trusted 2. No data to prove the process improves productivity 3. The process is isolated rather than integrated 4. A single year snapshot without a long-term

multiyear assessment 5. Focuses on an individual rather than improving

the productivity of a position or team 6. Focuses almost exclusively on bad performers 7. Design emphasizes compliance over impact 8. Often done on hire date (no simultaneous team or year end assessment)

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A long list of problems

9.  It doesn’t count output (instead it mostly identifies behaviors/traits)

10. It is not done often enough 11. Many subjective assessments not fact/data based 12. Words can confuse and obscure (diverse people) 13. Managers don’t spend much time on it 14. It’s “just a form” 15. Little connection with pay/promotion/layoffs 16. No second opinion or appeal available 17. It often disproportionately weighs failures over

successes and recent events

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18. Managers are not trained in assessing or developing individuals

19. Managers are inherently “chickens” and they evenly spread the ratings “like peanut butter,” while others are reluctant to give below average ratings (olive problem)

20. Most performance appraisal systems are so subjective that managers can play favorites

21. The rush to get performance appraisals in on time often causes individuals to “Christmas tree” or merely rehash last years

22. Some managers never share PA’s with ee’s >

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Top 25 problems continued

23. Some managers are always high/low raters making comparisons between dept’s difficult (it might inadvertently drive excess transfers)

24. Managers often feel reluctant to give low ratings because they know that in reality HR will not allow them to easily fire bottom performers

25. Managers are not assessed or rewarded for doing it accurately

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Now let’s shift to the positive side…

Characteristics of world class performance management

Factors that differentiate the average from the best

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Characteristics of advanced PM

Top 20 strategic characteristics of a WC process 1. Process goals are clear and measurable 2. Influences the creation of a performance culture 3. An integrated and coordinated effort 4. Someone is held accountable (but managers own) 5. Prioritizes positions and business units 6. Global scope 7. Can improve a complete team, as well as an

individual’s performance 8. Focus on position performance not an individual

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Strategic characteristics of the overall process 9.  Focus on identifying barriers that limit

improving performance and productivity 10. Has a best practice/problem sharing process 11. Forecasts, alerts & proactively prevents

upcoming problems before they get out of hand 12. Spends more time on top performers (80/20 ratio) 13. Process is tied to bonuses and rewards 14. Develops tools & practices that managers can use 15. When surveyed, managers say they “own” PM

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Top 20 strategic characteristics of a WC process 16. Individual performance is tied to business unit

results i.e. the total of the individual performance scores cannot exceed the over-all departmental business results, so that poor performing managers cannot overrate

17. Self-monitoring of one’s performance is possible 18. Technology based – utilizes available

technology, social networks, wiki learning etc. 19. Succession and internal movement element 20. Postmortems are done on major failures

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Now shifting to a lower-level,

the operational characteristics of world class performance management

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20 operational characteristics of WC PM 1. It does performance counting – it counts actual

output and results… and then separately it appraises employees, ability, skills or effort

2. Frequent – it is done frequently (monthly or quarterly) so employees are never surprised and they have time to improve

3. Uses multiple performance measures – it gathers multiple forms of feedback and doesn’t rely solely on a supervisor’s opinions >

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Operational characteristics 4. Rewards for productivity – it measures and

rewards individual managers for the productivity of their team, so that they take PM seriously

5. Distributed metrics – it builds internal competition by distributing to all managers their ranked performance on the PM process

6. Rewards for helpful feedback – it also rewards managers for providing helpful feedback and when employees say they are satisfied with their performance feedback >

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Operational characteristics 7. Objective criteria – it uses objective assessment

criteria wherever possible (numbers) 8. Discloses the criteria – it requires managers to

disclose in advance the criteria and the passing score that they are using for assessing performance

9. Forced ranking uses numbers – it forces managers to identify the top 20% and bottom 10%. It forces managers to differentiate. Make sure the rankings are NOT kept secret >

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Operational characteristics 10. Self monitoring – it allows an employee to count

their own performance on a regular basis 11. Do it as a unit – it conducts the assessment

simultaneously (everyone at the same time) as a team)

13. Feedback loop – with every termination and promotion, check to see if the PA scores were accurate predictors

14. Ask employees – involve them in the process of how to best measure and communicate results

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20 operational characteristics 15. A multiyear comparison – an overview of the

last 3-5 years is included 16. Benchmark comparison numbers – the best,

average and worst comparison numbers are always included, to show their relative position

17. Linked to next job – it does not just provide a historical perspective. In addition, it is forward looking and also assesses them for their “next job”

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20 operational characteristics 18. “Right job fit” movement is considered – when

the individual would likely thrive if they were in a different place, they are moved to their “right job”

19. Separate objective performance measurement – clearly separate performance data… from subjective trait assessment

20. Customize the delivery format – performance feedback is provided in a format that is customized to fit the employee and the job

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Integration is important

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Functions that can be coordinated with PM

Processes that need to work closely with PM  Compensation and rewards  Training, learning and development  Employee engagement and satisfaction surveys  Internal movement and redeployment  Promotion processes  Succession planning  360° feedback  Competency development  Career planning  Coaching and mentoring  Employee relations  On-boarding  Retention  Recruiting  Workforce planning

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Success metrics and goals

for the overall performance management process

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Metrics and goals to consider

1.  Improvement of overall workforce productivity 2.  The % of those on PM that are “fixed” 3.  Faster “fixing” or release of problem employees 4.  Improved management and employee satisfaction

with the process 5.  Correlation between performance appraisal scores

and pay increases/promotion 13. Manager time spent on adminstration. 14. % PA’s that are accurate, on time and completed 15. Evidence of a performance culture

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Benchmark firms

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Benchmark firms to learn from The best firms to study include: GE Intel KLA Tencor Sun DaVita Healthcare Quaker Apple Professional sports teams

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What are the elements of a performance culture?

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A definition of a performance culture?

 A performance culture is where an organization has a singular focus on business results

 This focus permeates every value and operational aspect of the organization

 As a result, all people-management processes including hiring, retention, development, rewards, recognition and metrics are aimed at producing measurable business results

 In addition, all business processes including goal setting, budgets, resource allocations and communications also encourage business results

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The Nine HR elements of a performance culture (GE model)

1. Constant communication of the need for perform 2. Differentiated rewards/ recognition for results 3. Extensive metrics & reporting on performance 4. Rapid learning, sharing & problem confrontation 5. Rewards for innovation & calculated risk taking 6. Hire the best based on their capabilities/results 7. Retain the best and release the bottom 8. Individualized motivation and communication 9. Reward cooperation while punishing

bureaucracy and bad behavior

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And finally…

Some bold actions to consider

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If you really feeling bold, try these

1. Find your own assessors – Sun

2. Fire the bottom x % – GE

3. 100% objective – Quaker

4. Try a split sample

5. Have a lawyer review your PM files

6.  Identify barriers to productivity >

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Identifying barriers to productivity

Consider a barrier survey which includes:  “We need you to increase your productivity by

25%... what are the barriers that would prevent you from doing that?”

 A “we need your help statement” (Who knows better than you)

 Provide examples of what you mean by “barriers to productivit”" on the form

 Put limits on the request to ensure that the barriers can be removed within a short period time

Ask about

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Identifying barriers to productivity

Ask them to identify:

 Barriers to increasing output volume

 Barriers to increasing quality and innovation

 Any no money, “low hanging fruit” ideas?

 Things the org could stop doing with little impact

 Where a little money could return huge benefits?

 Ways to increase competitive advantage

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Try this – A “How am I doing?” chart

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Try this – A “multi-year trend” chart

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Did I make you think?

Provide you with some new ideas?

Do you have any additional questions?

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Documents

Doing Performance Management the Right Way