Talent Management

Performance Management: We Won’t Fix the Problem by Ignoring It

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When I ask business leaders in large companies what they want from performance management systems, the answer usually includes “identify the top performers in the company.”

To meet this goal, a performance management system must provide some way to determine how employees are performing relative to their co-workers. Yet there is currently a trend in HR to “fix” performance management by eliminating the use of methods that compare employees based on performance.

This makes no sense since this is the very thing senior business leaders want from performance management!

The 2 performance management methods

Most performance management methods can be placed into two broad categories.

  1. Classification — Assessing employee performance to support decisions about where to invest scarce resources such as pay, promotions, or limited development opportunities (e.g. job assignments, expensive training courses).
  2. Development — Assessing employee performance to provide feedback and coaching that will increase employee engagement, performance and career growth.

Both categories require evaluating employee performance but not in the same way.

Classification involves comparing employees to guide workforce management decisions related to staffing, compensation and succession.

Development focuses on describing each employee’s relative strengths and weaknesses, and avoids comparing people against one another as these comparisons can trigger defensive responses that limit learning. The performance criteria used to guide development should be aligned with the criteria used for classification, but development evaluations by themselves do not enable companies to accurately identify high performers.

Employees shouldn’t feel like “losers”

Classification is the most difficult part of performance management because it deals with the reality that some employees perform at a higher level than others. It would be much easier if everyone performed at the same level or never felt threatened by critical performance reviews.

But all people do not perform at the same level and many people do react emotionally to performance evaluations. It is important to ensure employees do not feel like “losers” just because they received a lower performance rating than some of their peers.

Using performance management to classify people based on performance can be difficult and employees may not like it, but the things we find difficult and don’t enjoy are often the things that are ultimately good for us.

Nevertheless, many people in HR are suggesting we abandon efforts to rate employee performance because it is hard to do well. These people argue that classifying employees based on performance can trigger unhealthy, “ego threatening” responses in employees.

It is true that being told you are not in the top 10 percent could be somewhat unpleasant. But most employees, particularly the ones you want to keep, have strong enough egos to accept that not everyone gets a trophy all the time provided they understand the process used to award trophies and believe it is fairly and consistently followed.

Knowing what to do to be successful

Companies that clearly define the rules of the game are the ones that truly allow employees to take control over their own careers.

People working for companies that use well-designed methods for classifying employees based on performance don’t have to wonder “what do I have to do to be successful in this company?” They know what they need to do to be successful.

Note the emphasis on well-designed classification methods. Poorly designed classification methods create more trouble the value, and it can take a lot of work to create truly effective methods for evaluating performance. But just because something is hard doesn’t mean we can or should avoid doing it.

Performance management systems that do not identify which employees are high performers ignore the reality that from a corporate standpoint some employees are more valuable than others. Ultimately this reality cannot be ignored, even if it makes people uncomfortable.

If a company adjusts pay so some employees receive more than others then the company rates employee performance — even if it does not call them performance ratings. Many employees and managers will view the compensation process as the performance evaluation.

Most companies that are said to have eliminated performance ratings haven’t actually eliminated them. They’ve just hidden them in the back room so employees no longer understand how their performance is evaluated.

How we’ll know when performance management is fixed

Recommendations to abandon performance management methods used for classification and just focus on development are about as sound as recommendations to improve your health solely through exercise while completely ignoring what you eat, drink or smoke.

If we want to fix performance management, we must create methods that accurately classify employees based on past performance in a way that maximizes their future performance and retention.

We will know we have truly fixed the performance management problem when company leaders are able to accurately identify the most valuable employees in the organization, and can explain this decision to other “less valuable” employees in a manner that inspires them to improve their performance and does not lead them to  give up hope, quit, or call their lawyers.”

Dr. Steven Hunt is Senior Vice President of Customer Value at SuccessFactors/SAP Cloud HCM. A recognized expert on strategic human resources, he has helped implement HR systems positively affecting the workplace quality and performance of millions of employees working for hundreds of companies around the world. An active author and presenter, Dr. Hunt has written two books on strategic HR process design and deployment: “Commonsense talent management: using strategic human resources to increase company performance” (Wiley Press, 2014), and, “Hiring success: the art and science of staffing assessment and employee selection” (Wiley Press, 2007).
  • http://cbr.sagepub.com Howard Risher

    I disagree strongly that performance management is “comparing employees to guide workforce management decisions.” Yes employees compete at times for promotions and occasionally if development opportunities are limited. However, I’ve helped organizations plan hindreds of salary prorgams and have been a solid advocate of pay for performance. Each manager has a budget for increases and yes he or she has to make decisions — no, its not easy or perfect,

    The argument presented in this column is what led to forced ranking. Its an easy answer to inflated ratings but that policy violates every tenet of fairness.

    Performance management — as its used to manage pay — is focused on how well an employee performed his or her job. If they exceed exoectations, they should be rewarded. Its tough to tell someone they are not getting a raise. But its far worse when its a year-end surprise.

    Of course many managers find it diffcult to work effectively to define performance expectations, and they fail miserably to have those ongoing coaching discussions, etc etc.

    But there is no reason to compare an accountant with an HR specialist. No reason to compare a senior engineer with a junior engineer. That’s like comparing an all-star tight end with a junior linebacker. Each has different performance expectations.

    When performance ratings and pay increases were confidential, these issues never surfaced. Yes we can fix the problem but it will require an investment in developing the skills and the commitment for effective people management.

  • KM

    I always enjoy these discussions. You buried the most critical component though: “well-designed classification methods.” It’s been my experience that there aren’t any and that is the root of the problem. Performance IS typically closely aligned with merit increases and therefore has become a defacto compensation tool. Add to that MOST companies do not set annual performance objectives until after year-end results are final – read…until AFTER the performance period has begun – further tells the employee that the system is rigged. And when those goals change throughout the year…. please – the moving target only reinforces the fact that performance reviews are not designed to help – only measure and reward based on financial constraints.

    And organizations rarely use performance alone for succession. Succession is based on business goals… and this is important. because who I need in the future for specific roles depends on where and WHY the organization is headed in a certain direction. As an example – if I am growing organically and need deep internal bench then potential (as fuzzy as it is) may be an important factor. However, if I am at risk due to impending retirements then I may wish to review risk vs loss… 2 significantly different factors. And if I THEN wish to add functional competencies, not just leadership – then a dedicated competency assessment and not only a performance review (which may not even capture functional competencies) may be needed.

    I don’t believe people want to throw the baby out with the bath water but we need to help create easy and measurable systems that provide benefits to employer and employee alike. Having performance systems that are broken do not help either party. And if everyone was great at performance management – we wouldn’t need it anyways. It’s become a crutch to make up for the fact that we’ve created a generation of terrible managers…but that’s for another discussion.

  • steventhunt

    I totally agree with KM that the challenge lies in creating “well designed classification methods” that “provide benefits to the employee and employer alike”. That is the big problem in performance management we need to fix. Although its certainly not the only one. For example, getting managers and employees to set clear goals and have ongoing conversations about performance are constant problems too. In fact, I believe these are inter-related. We can’t truly fix one without addressing the others.

    Howard, your point raises another fundamental issue. Performance management means different things to different companies. My job involves talking with hundreds of companies about performance management and what I’ve found is no two companies think of performance management in exactly the same way.

    In the book Common Sense Talent Management I define performance management as “Standardized and defined processes used to communicate job expectations to employees, evaluate employees against those expectations, and utilize these evaluations to guide talent management decisions related to compensation, staffing and development.” (Hunt, 2014, p.151). Even this definition can be interpreted in a lot of ways. I’ve worked with companies that think of performance management narrowly as a method primarily used to guide compensation decisions, and I’ve worked with companies that think of it broadly as a process to attract, develop and engage high performing employees.

    The following are 4 common objectives associated with performance management (just numbered these for clarity,the order is abitrary):
    1. Complying with legal or contractual requirements through clearly defining and communicating employee performance expectations and consistently evaluating and documenting employee performance based on these expectations.
    2. Motivating and engaging high performers by identifying the employees who are making major contributions to the organization and providing them with significantly rewards and recognition in the form of pay, career opportunities and development resources.
    3. Increasing employee retention and performance through enabling greater levels of coaching, constructive feedback and dialogue around career development
    4. Establishing consistent, well-defined processes and job relevant criteria are used to guide pay, promotion, and termination actions
    All these objectives are valid reasons for implementing performance management. But performance management process that supports one of these objectives might not effectively support another. Perhaps the reason we are seeing so much confusion in this area is we all use the same words but we don’t all define them the same way.

  • http://www.gatelyconsulting.com/ Robert Gately

    Hello Steve, thank you for sharing your insights.

    Your article speaks to the need for a more effective employee selection process, i.e., hire only successful employees. If an employer avoids hiring underperforming employees, then they can focus on training, managing, and employee development.

    80% of employees self-report that they are not engaged.
    80% of managers are ill suited to effectively manage people.
    The two 80 percents are closely related.

    Successful employees have all three of the following success predictors while unsuccessful employee lack one or two and usually it is Job Talent that they lack.
    1. Competence
    2. Cultural Fit
    3. Job Talent 



    Employers do a… 

    A. great job of hiring competent employees. 

    B. Good job of hiring competent employees who fit the culture. 

    C. Poor job of hiring competent employees who fit the culture and who have a talent for the job. 


    Identifying the talent required for each job seems to be missing from talent and management discussions. If we ignore any of the three criteria, our workforce will be less successful with higher turnover than if we do not ignore any of the three criteria.
    1. Competence
    2. Cultural Fit
    3. Talent

    There are many factors to consider when hiring and managing talent but first we need to define talent unless “hiring talent” means “hiring employees.” Everyone wants to hire for and manage talent but if we can’t answer the five questions below with specificity, we can’t hire or manage talent effectively.
    1. How do we define talent?
    2. How do we measure talent?
    3. How do we know a candidate’s talent?
    4. How do we know what talent is required for each job?
    5. How do we match a candidate’s talent to the talent demanded by the job?

    Most managers cannot answer the five questions with specificity but the answers provide the framework for hiring successful employees and creating an engaged workforce.

    Talent is not found in resumes or interviews or background checks or college transcripts.

    Talent must be hired since it cannot be acquired or imparted after the hire.

  • http://about.me/nportillo nportillo

    Hi

    After more than 25 years working for American and European corporation in different roles (Individual contributor, People Manager and Manager of Manager), I see many of the concepts and statements provided by Steve too academic and way far from this global world.

    1st the performance management models and concept is a very US thing and has been miserably failing outside the US as it doesn’t factor culture (individualism vs collectivism) so in this global village companies needs to rethink if practices like “calibration” or “relative performance” or whatever you want to call it makes sense and will help your business

    2nd Unless everybody have to do the same work with the same resources and exactly the same output a “relative performance” against other will make sense if not then you are comparing oranges and apples because the job description needs to be the same in order to get precise results without any type of subjectivity

    3rd In my long corporate experience, “calibration” or “relative performance” practices is the right approach to build and strength a culture of Lone Rangers and kill any possibility to foster teamwork and cross group collaboration. I’ll not help my peer to improve their performance because he/she is my competitor so let me hold back information, ideas and knowledge to stay in top. You may say “well this is not professional” and I understand it but I call this “Real world” and talking about it with my employees and people managers they told me: “Is a survival thing”

    Performance management is a double edge sword because is an useful tool but also is the perfect excuse for managers to do not have tough conversations and provide ongoing and timely feedback to employees. Poor managers hide behind performance management to do not message feedback real time.

    Want silos and lone rangers then do complex performance management and “calibration” or “relative performance” assessments. Want grow and success? work hard on SMART objectives and strength your leadership skills. HR needs to understand that the ultimate goal is not to have a good performance management model or stack ranking, the real goal is market share, revenue and competitive advantage. If HR does not understand this, they will continue been an organization in the dark without a seat in the table

    Thanks

    Nestor

  • steventhunt

    Nestor, thanks for sharing your observations. A few thoughts.

    1. My observations are based on working extensively with global companies, so I think we may just have had different experiences. I do emphasize that there is no such thing as a single best practice when it comes to talent management. Methods that work very well in some global companies can fail in others.

    2. You raise some interesting points about US-centric talent practices. This has also been an area of much discussion with the companies I work with. The general theme I see is a need to balance corporate culture and local culture. Companies with strong corporate cultures are often able to use practices that don’t fit the traditional local culture because of the strength of their values (whether this is a good or bad thing is another discussion – I would argue it depends on the context). In contrast, companies that don’t have strong corporate cultures struggle to create globally consistent practices because they are unable to change habits associated with local cultural norms. Its also worth noting there are enormous differences in the strengths of local country cultures in terms of their impact on talent management practices.

    3. To be clear, I never suggested companies use extreme forms of relative performance assessment like stacked rankings. But we should not pretend that companies treat all employees the same way – regardless of where they are located in the world. Some people get promoted, others don’t. This doesn’t happen by random chance. The question is not whether companies will make relative performance evaluations of employees: they will and they do. The question is whether employees understand how these evaluations are made and whether the decisions are made in a clear and consistent manner.

    4. Many companies I work with rate people’s performance in part on the degree to which they support and collaborate team members. This is done intentionally to avoid the problem of rewarding people solely on results without paying attention to how they accomplished these results (e.g., making sure people are doing the right things the right way). In contrast, I have seen companies that do not have well defined methods for measuring performance reward people solely based on the “objective” results they achieve with little attention paid to whether they achieved those results by stepping on or over their colleagues.

    Last, I think we do agree on quite a bit. Particularly the problem of managers hiding behind performance management methods and avoiding difficult conversations and ongoing feedback. But this isn’t the fault of the performance management process – it is the fault of how it is used. To make a somewhat silly analogy, I’ve seen a lot of people put others at risk based on how they drive but that doesn’t mean we should ban cars to protect us from lousy drivers.

    Steve