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July 2008

 Performance Management “Challenging Times” Style

by Patricia K. Zingheim and Jay R. Schuster

“What do we do about performance management during challenging business times?” Organizations all want to use scarce adjustment dollars wisely. We recently participated in a webinar about predicted pay budgets. When we asked what the biggest challenge was for such a limited budget, the majority responded that the big challenge was getting the dollars to the people who deserve them the most. “We just can’t reward performance or get pay adjustments to the people with the most critical skills we need.” When asked why, the common answer was, “Our performance management tools don’t work. They do not effectively identify the people with the critical skills and those who perform the best.”


Here are seven suggestions that can help: 

  1. Define “Performance” Clearly. This is going to be a major year to keep your eye on the performance goals. What is performance in your organization? How do you want to evaluate the performance of your employees? This may depend on what you are going to do with the results of performance management. Some choices are pay adjustments, incentive awards, identification of development and training needs, eligibility for promotion and transfer, eligibility for new temporary assignments, and the like. Are you going to pay for only objective performance that is quantitative? For sales? Costs? Accuracy? Customer service? Or are you going to also measure more subjective forms of performance that, while not objectively measurable, are observable? This may include teamwork, creativity, and other qualitative measures. With any combination of measures, you must make sure they are indeed measurable, that differences in performance can be determined, and that what you are measuring really makes a difference to your organization.

  2. Evaluate Present Practices. Is it time for a “jumpstart” of your current practices? What are you doing now, and how is it working? Does performance management in your organization need a tune-up or an overhaul? Are you leaving what you are now doing for something that adds new or better value? Or are you leaving just to leave current practice? Find out what your current practice is doing right and what is wrong. Are you moving to a system change because the current system is not working or because it is not used? Is it using the wrong measures? Is it not using measures that are important to your organization? Is it measuring too little or too late? Does it lack credibility, reliability, or validity? Credibility with those using it is essential—do users believe it actually evaluates performance fairly? Does it measure what it is supposed to measure each time it is applied? Does the performance management process work over time? Does it really measure things that count to the organization? If an employee asks why you are using this process, can you provide a business-focused answer?

  3. Explore “Best,” Not Prevailing, Practice. Too often organizations define performance management changes as the design of new forms for the review process. This is not nearly enough and can be a waste of time. Organizations call other organizations, get copies of their forms, and then they select the one or create a combination of the forms they like. Remember that if you have a solid performance management process, all the form does is document it. The goal setting, feedback, coaching, discussion, and exchange of performance information make for top-notch performance management. We have clients with excellent performance management solutions but only one piece of paper—they call it “the annual piece of paper.” If all you do is get forms from organizations you admire, you may be copying practices that they are replacing. It is important to see what others do but more important to find out why they do it and what it does for the organization. What’s the bottom-line value from performance management, and can this translate into the same results for your organization?

  4. Customize to Your Organization. Organizations are different. Two hospitals are different. Two high-tech companies differ, and so on. So the messages about performance will differ from organization to organization. Some organizations have a strong entitlement mentality that is hard to change. Others are very entrepreneurial and have difficulty with formal systems of any kind. Many have had a host of performance management solutions but none has proven of value to the organization over time. It is not a one-size-fits-all situation, and you must match the solution to where you are now, where you want to go, and how managers and employees feel about performance management. The solution needs to be owned by your organization. It makes no difference whether it works elsewhere. It is great to have a solution that has a track record of success, but your organization most certainly will have different results with the same solution than will other organizations.

  5. Train Raters and Ratees. The tools of performance management are only as effective as those who apply them. It is a two-way-street to get good performance management. Everyone is a ratee, and many are both raters and ratees. So, you must give people exposure to both ends of the process. This takes education on the why and how of performance management, understanding of the measures and criteria to be used, and knowledge of how to use the tools of the process. Perhaps most important, experience with the performance management process itself—actually doing the performance management—is what is critical. Get feedback and help as the process goes on. Coach the coaches. Keep the process going and make sure it is applied consistently from manager to manager and from employee to employee. Critique the process, and improve how it is being applied.

  6. Provide Role Models. Performance management needs examples and sponsors, and those who sponsor performance management must be involved in the process. The most senior executive needs performance review by the Board of Directors. This executive in turn must review the performance of direct reports. The performance management process must cascade from top to bottom. The person who is the champion of performance management must be a user and customer of performance management. The measures and goals also need to cascade from the top of the organization to the bottom. Leaders must use the process on their managers, and managers must also have experience with the measurement process. Everyone needs feedback and coaching experience so they can add value to the process. Excellent users must teach others, and the entire process needs to be supported by the very top people.

  7. Communicate and Coach. If you don’t communicate why this process is used and why it adds value, it won’t work. And this must be ongoing communications, not just getting everyone into an auditorium and showing them a slick presentation. Day-by-day and week-after-week communications. Why the measures are important, how employees impact these measures, and how employees are doing to engage them in the organization. Where they can improve, and what’s in it for them if they do. Coaching is critical. The goal of performance management is to improve the performance of the entire organization. It is not just a performance documentation solution; it is a way to provide the information upon which real organizational performance improvement can occur.

Do these suggestions seem obvious to you? Well, research on performance management effectiveness suggests that these seven suggestions would save organizations a lot of time during the performance-management repair process. Take a look at your performance management solution and see how it stacks up compared to our suggestions.

Conclusions and Challenges

What are the two major challenges HR leaders most often face in addressing paying for performance? Number one is the deficiencies of performance management. Number two is a realization that merit pay does not work because performance differences upon which to base how pay is to be determined can’t be identified. How much more evidence do we need to give some attention to performance management and pay? For most organizations pay costs are the most important opportunity expense. So a little emphasis on making the process of distributing pay based on real performance is something to consider this year.


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