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Sep 23, 2016

A common objective in redesigning performance management methods is to improve the quality of coaching between managers and employees. This objective is a reaction to traditional performance appraisal processes that focused more on evaluation with relatively little attention given to ongoing continuous performance management conversations.

In fact, traditional review processes often made performance management something of a competition between employees and managers. Employees had one chance a year to convince managers they were exceeding expectations and deserved greater investment in the form of pay, promotions or development opportunities. On the other side, managers had to persuade employees to accept investment decisions that often failed to meet their expectations.

The tension created by a traditional once a-year annual process makes it difficult to foster collaborative performance coaching discussions. Employees do not feel managers are truly “on their side” so they are reluctant to engage in open dialogue about performance improvement. Managers shy away from proactively offering constructive feedback to employees for fear they interpret it as an attack on their value rather than a gift of support to help them succeed. It also does not help that many managers do not know how to give effective feedback.

Fundamental tension in evaluations

Some companies have sought to reduce manager-employee tension by changing how managers evaluate employee performance. For example, rather than having managers make evaluations during an annual review some companies collect performance ratings during calibration sessions that occur in a separate workforce management process. Although methods such as these may foster better employee-manager performance coaching conversations, they still do not fully address a fundamental source of tension that affects virtually all performance management redesigns: how to handle compensation and staffing decisions that require directly or indirectly rating employee performance.

Compensation and staffing decisions inherently involve making performance ratings because they require comparing the relative value of one employee to another. Having managers make these decisions inevitably creates tension that can undermine effective employee-manager coaching discussions. This creates a dilemma. Managers are expected to coach employees in a non-evaluative manner, but are also expected to make compensation and staffing decisions whose very nature requires employee evaluation.

A novel way to set pay

I saw an example of a company directly addressing this dilemma in a session entitled “Creating the Conditions for Continuous Performance Management” at the recent SuccessConnect conference.

The company had a policy where managers do not make compensation and staffing decisions. The company expects managers to talk with employees throughout the year about performance and career development, and once a year managers and employees collaborate to create a qualitative description of the employee’s major accomplishments, capabilities and development goals. This description goes to a workforce management team consisting of senior operational leaders and HR business partners. This team integrates data about individual employees with broader data about the organization, external market trends and future business strategies to decide how to invest compensation, staffing and development resources. Managers provide extensive information to help this team make compensation and promotion decisions. Managers also explain how these decisions are made to their employees. However, managers do not make actual compensation or staffing decisions for their direct reports.

Two interesting things happen when managers are not responsible for compensation and staffing decisions and, instead cross-functional leadership teams make those decisions.

First, the decisions reflect a more holistic view of the company. Managers inherently view compensation and staffing from a limited perspective constrained largely to the teams they manage and the business problems they are facing in their personal departments. Shifting these decisions to a cross functional team broadens the perspective on how limited compensation and development opportunities should be used to support overall company performance.

Second, managers do not have to defend compensation and staffing decisions to their employees. They do have to explain the decisions so employees understand how the company allocates scarce resources like pay. However, they are able to remain on the same side as the employee in this conversation. In this sense, it is similar to the conversations managers and employees might have about obtaining budgets and funding for work projects. The manager and employee both want to get the resources they believe they need and deserve, and they work together to provide information to the company to justify their request. However, neither the manager nor employee ultimately makes the decision. As a result, discussions about compensation and staffing decisions are less likely to devolve into tense arguments between employees and managers about allocation of company resources.

Managers become employee advocates

The company sharing this story talked about managers being “advocates” for their employees. Managers act as coaches who encourage employee performance success and agents who argue in support of their employees’ career goals. Managers can fully embrace this advocate role because they do not have to make compensation and staffing decisions that require favoring one employee over another. Instead of forcing managers to categorize employees based on their contributions, managers are able to work with employees to present them in the best possible light to the company’s executive teams. These teams are then responsible for categorizing and investing in employees based on their performance contributions.

The company stressed this approach to management would not work for every organization. The speaker noted that managers are surprised and sometimes frustrated when they join the company and discover they do not have ownership over compensation and staffing decisions. They also stressed a strong level of leadership commitment and role modeling is required for this approach to work. But the company also believes this approach is an important factor underlying its success in creating a feedback rich, ongoing coaching environment among managers and employees.

It is also a very innovative way of rethinking what the role of a manager is in most companies compared to what it perhaps should be.

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