I wonder how many organizations feel good about their performance management system?
The theory makes sense: develop and track accomplishment goals; develop and track development goals; receive a periodic salary adjustment based on progress from the first two items.
So why is this often such a painful, time-consuming, and demoralizing process?
Salary Adjustment
Let’s start with the salary adjustment part. Management typically announces to employees the average salary increase (also called effect on payroll) – then asks managers to have the courage to heavily reward the best performers with big increases at the expense of all the others.
What happens? Let’s look at a simple example: a manager has 10 people in her organization. All 10 people know that the average salary increase will be 3%. Of her 10 people, two are performing below par, two are outstanding, and the other 6 are dependable solid performers. So she follows management’s guidance and gives her bottom two employees no increase, her middle 6 employees a 2% increase and her top 2 an increase of 9% for an overall increase of 3%. Even assuming the manager communicated throughout the period with all of her employees, almost everyone is upset. The 6 solid performers knew that the average increase was 3% and received an increase that was one third LESS than the average. So their reward for solid, predictable performance was to get a sub-part salary increase.
If companies want to make a simple improvement on this process, announce to employees the targeted MEDIAN salary increase and not the AVERAGE increase. Also announce to employees that solid performers can expect to receive the median increase. In the above example, the median is 2%. You can see how the conversations this manager in the example above will have. Now only two people will be upset – those two who had sub-par performance – and maybe it is not a bad thing that they are upset.
Performance Goals
Having performance goals for each employee over a specific period of time makes sense. And yet it usually becomes challenging and/or counterproductive because:
- Setting goals is a living process. Coming up with an artificial time on a periodic basis (typically yearly) to develop goals rarely aligns with the times where it makes sense to set goals – like at the beginning of projects. Being able to look into a crystal ball into the future and come up with a set of concrete goals that will remain stable throughout the period is virtually impossible.
- Setting goals well is not easy and requires constructive dialog between the manager and employee. Let’s face it, most managers are not well skilled in developing goals. Those who are less skilled are creating a situation where the best performing employees are not getting the highest grades and vice versa.
- Managers see this as a lot of busy work and employees say, “Why bother when the only difference in the end is whether I get a 0% or a 2% salary increase?” Let’s just skip the whole process and focus on doing our jobs.
Perhaps a way around all of this is to have an electronic journal process between the manager and each of her direct reports as well as access to the journals by those higher up in the organization. The journal would be an ongoing dialog between the employees and their managers regarding performance goals. A periodic audit could be done at the manager’s or employee’s request to get suggestions on improving the clarity of the goal setting and tracking of the results. This way a periodic review will consist of reviewing the journals. This would allow flexibility on developing goals when the timing is right.
Development Goals
Having goals for self improvement makes a lot of sense for the individual and the organization. Too often this becomes a wish list for training courses, workshops, or conferences handed to the manager by the employee. Adding up the wish lists by all the employees will inevitably blow a hole through the manager’s budget. Not only that but it is often not aligned with what the organization needs.
It would be interesting if, at the beginning of each cycle for creating development plans, the leader in each business/function sends out a communique outlining the key areas where the business/function needs to increase its capabilities – knowledge, skills, and experience. As much as possible, have employees tie these needs into the needs of the business/function.
OK, I said enough. What do you think about all of this? What have you tried that works?
