Friday, 12 October 2012

Fixing Performance Management

Every few years, the typical employer is pressured to replace their current performance management system. When complaints grow too numerous to ignore, the decision is made to replace the current system. This conclusion keeps consultants and vendors happy, but with the high investment placed in existing systems, it might be more prudent to “fix” the system, as opposed to just scrapping it. 

It’s extremely rare to find a truly unique idea in HR. However, Edward E. Lawler, Distinguished Professor of Business and Director of the Center for Effective Organizations in the Marshall School of Business at the University of Southern California, recently surprised me with an idea he presented in a manuscript submitted for publication in the Compensation and Benefits Review journal.  This article, titled “What Makes Performance Appraisals Effective?” made me realize there is a straightforward strategy to improve our performance management practices.

As editor of this journal, I invite the best thinkers to publish, but was particularly pleased to receive this manuscript from Ed and his two colleagues. I recommend this article as a must read, as it provides a basic overview of best practices.  I am not about to give away the ‘plot’; it will be published in a couple of weeks.

The article discusses the conclusions found from a survey of 102 large, U.S. companies. The basic questions asked in this manuscript were: What performance management practices are companies using and how effective is each practice? 

Ed and his colleagues’ most important conclusion is that the effectiveness of an organization’s approach to performance management does not ride on the ‘system’ design or on the use of technology. This finding should not be surprising to anyone who has followed the research. Psychologists have searched for a panacea system for decades, but have added little to silence the critics.

The research demonstrates that far more important than the system is the leadership by senior management and the ownership and accountability of managers. Lawler’s conclusion is consistent with my experience: Line managers are the keys to success. HR has virtually no involvement in the day-to-day management of performance. HR sends out the forms, the towels, and the Gatorade, but is almost always on the sideline.

One of Ed’s recommended practices is: “Develop measures of the effectiveness of the system.” Their survey finds that few companies have developed these types of measures, but those companies that do have “the highest correlation with the effectiveness of the system of any survey item,” which is also highly correlated with the perceived effectiveness of the HR function itself.

When reading this research, two other points come together for me. First, I know from Gallup’s research that day-to-day performance management is a key to better employee engagement. In fact, nine or ten of the Q12® survey questions (depending on interpretation) focus on how performance is handled by supervisors.  Gallup argues that those practices are instrumental in explaining the level of engagement. The first question, as an example, is, “Do I know what is expected of me at work?”

Employee engagement is a directly relevant measure of how well performance is managed. It provides a straightforward strategy to identify the supervisors who are most effective as well as those who are ineffective.

The third piece of the puzzle is the experience I gained in what may be a surprising organization. One of the country’s intelligence agencies has a highly successful pay for performance system. They relied on in-house groups of managers and employees to develop their policies, and now conduct an annual review based on employee surveys, targeted interviews, and focus groups. The HR staff analyzes performance ratings and financial rewards. A summary of these findings and planned changes are provided to the workforce. It is effectively a commitment to continuous improvement.

This strategy provides a simple solution. No one knows more about the best way to plan and evaluate performance than experienced job incumbents. With guidance, they are completely capable of identifying relevant performance criteria. That’s not brain surgery. It is completely logical to ask managers and employees each year to assess how well the system’s working. After all, if the ‘system’ is a tool for managers, they will know if it meets their needs. They will also know its strengths and weaknesses.

We are wasting our time and undermining our credibility looking for this Holy Grail. Conducting an annual audit and committing to employees that problems will be addressed will be considerably less disruptive and less costly than investing in an entirely new system. In fact, I believe the effectiveness of every HR system should be audited regularly.

by Howard Risher

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