Future of Performance Managementghyd
In the second half of the 20th century (the post war years of industrial growth), an increasing focus on management practices led to increased production, productivity & profitability. With the advent of the information age and a “new economy”, management practices gradually placed a greater focus on the role played by people. Often, the focus was on instant recipes and techniques accompanied by various interventions.
Performance management cannot be evaluated in isolation and should be viewed in conjunction with an organisation’s remuneration policy and organisational culture as applied in the unique day-to-day management practices of the organisation.
Internationally and locally, organisations have tried to establish a link between performance and remuneration. A gradual shift away from general (inflation) adjustments and guaranteed bonuses (13th cheques) has come about. More and more organisations have started using annual performance assessments as a basis for adjustments. Incentive schemes in many forms (from ad hoc merit awards, profit-sharing schemes to share options in different forms) followed.
In recent years an extensive debate has been conducted in HR circles about the desirability and success of performance appraisals as a method to evaluate individual performance. Several case studies and commentators have also indicated that performance appraisal has a limited effect on performance and sometimes impacts staff motivation negatively.
Generic models / instruments, in particular those that are administered on an annual basis, have been questioned. In an insightful internet article, (“Time to scrap performance appraisals”) Josh Bersin of Deloitte argues that it might be time to do away with performance appraisal in its traditional form. He lists examples of international companies such as Adobe, Juniper and Kelly Services that have already done this. He particularly referred to the following problem areas:
- Employees need and want regular feedback (daily, weekly), so a once-a-year review is not only too late but it’s often a surprise.
- Managers cannot typically “judge” an entire year of work from an individual, so the annual review is awkward and uncomfortable for both manager and employee.
- The manager-employee link is not 1:1 like it used to be – we usually work with many peers and managers during the year, so one person cannot adequately rate you without lots of peer input.
- While some employees are a poor fit and likely are poor performers, these issues should be addressed immediately, not once per year.
- People are inspired and motivated by positive, constructive feedback – and the “appraisal” process almost always works against this.
- The most important part of an appraisal is the “development planning” conversation – what can one do to improve performance and engagement – and this is often left to a small box on the review form.
He cited the following as priority solutions that should be included in future systems:
- Develop a “feedback-rich” culture and set of tools (often online, sometimes formal, often informal) that encourages all employees to give each other feedback.
- Separate the discussions about performance from discussions about potential and future career plans.
- Assume that employees already know something about their own performance and force them to self-assess.
- Enable managers to assess performance more regularly.
- Focus managers on hiring the best, spending more time on assessment, culture and fit.
- Set and evaluate goals frequently. Companies that set performance goals quarterly generate 31% greater returns from their performance, and those who do it monthly get even better results.
- Give your leaders a strong cultural framework and set of values to work from.
- Invest in leadership development.
- Ultimately companies thrive by building skills – so in addition to encouraging managers to produce good work, incentivise them to produce good talent.
An article by PwC “The changing performance management paradigm: evolution or revolution?” announced that most organisations are rather keeping the existing performance management frameworks but tweaking them to make them leaner and more impactful (e.g. by simplifying the mid-year review, improving the goal setting process and/or introducing more frequent feedback throughout the performance year). These changes are also triggered and supported by the increased technological abilities and digitalisation of the performance management process, allowing for real-time reviews and a simplified process. The key findings from their research included the following:
- Radical changes are not widely seen, but rather innovations to existing elements.
- The more radical changes include removing the performance rating, removing the link to reward, and abandoning the annual review cycle.
- The benefits of goal setting are well proven. Organisations are recognising that to improve the effectiveness of goal setting, they need to start from the top.
- There is a need to invest in management capability to increase team and employee engagement through effective performance management.
- Most organisations are de-emphasising the mid-year review meeting to encourage more regular feedback.
- Companies are commonly using two approaches to enhance the feedback experience: open and honest feedback driven by values, and rapid feedback driven by technology.
- Building a high-performance culture starts with a clear connection between purpose & performance.
The performance management process is more than just an annual performance review. It is a continuous process of setting objectives, assessing progress and providing on-going coaching and feedback to ensure that employees are meeting their objectives and career goals.
Tumelo Seaketso, Deloitte Partner, commented in an HR Pulse article Rethinking performance management:
“Notably, research shows that strengths based, real time, regular, forward-looking conversations produce effective performance outcomes. The essence of good performance management is about translating strategic priorities into day-to-day performance, focusing on people’s strengths and how they can better serve the business and operating a process that empowers management layers to drive performance instead of forcing the management of it.”
In several articles published by Joubert & Associates over the years, we have constantly argued that the focus of performance management should not be on transactional aspects only. It is our view that the dynamics of the relationships, particularly between managers and employees, should be addressed. It, indeed, is only within a relationship of trust that managers (as leaders of people) are able to guide staff, through coaching and mentoring, to improved performance.
Objectives of Performance Management
The basis of employer-employee relationships is located in a contract by which employees undertake to do specific work (to perform) and employers agree to compensate them for work done. These contracts (performance requirements) are set out in employment agreements, job descriptions and performance agreements. Performance management is aimed at the practical management of these agreements (as well as deviations from it) in the workplace.
It is the duty of good leaders / managers to create conditions for motivation and to unlock staff potential. Staff members are supported through mentoring and coaching to unlock their abilities and potential in the workplace.
LinkedIn Learning has the following tips for leading a productive performance discussion:
- Focus on the work
- Highlight the KPA’s and objectives agreed upon.
- Invite employees to share their perspective on their performance.
- Recognize strengths
- Highlight the employee’s most significant accomplishments this year.
- Talk about ways in which the employee embodied the company’s values.
- Tell the employee about the positive feedback you’ve heard from other team members / clients.
- Observe emotions
- Listen with compassion and empathy and continue to own the message.
- Be mindful of any emotions or strong reactions that come up.
- Follow through
- Maintain momentum. Schedule a cadence for regular conversations in one-on-ones or quarterly reviews.
- Work together to build a development program. Define key actions to help the employee overcome obstacles and grow in his/her career.
- Communicate challenges and identify opportunities
- Invite the employee to share thoughts on challenges they have faced.
- Name the challenges you’ve seen the employee face.
- Focus on opportunities to overcome challenges and encourage reflection.
The relationship between staff and managers (as determined by the structure) is based on a relationship of trust in which managers are trusted for their ability (knowledge / experience), integrity (honouring their word) and sincere intentions towards and concern (care) for the relevant individual. High levels of interaction and communication are required.
The relationship between the performance of individual employees and remuneration is a complex matter. Performance management is an attempt to provide feedback to staff on their performance, to establish a link between their individual career expectations and the employer’s business plan and to reward them according to their contribution. If a positive climate and conditions for motivation are created, staff members are encouraged to improve performance.
Model for Performance Management
The model advocated by Joubert and Associates includes an interrelated set of management tools that are aimed at managing people, results and remuneration. The process is schematically presented as follows:
Regular weekly one-on-one work discussions and well-planned (productive) team sessions form the cornerstone of the process. During one-on-one conversations, in-time measurements are used as a basis to effect problem solving and decision making. Staff members thereby receive continuous feedback coupled with assistance to improve performance. In-service training (coaching / mentoring) occurs during these processes.
Through regular communication, levels of participation and commitment are increased. Managers thereby also create a positive climate and a culture in which:
- agreement is reached with each employee about what is expected of him / her (contracting, job descriptions, performance agreements);
- employees are empowered and have the opportunity to perform and prove themselves (delegation / empowerment);
- employees continuously (weekly) receive guidance as needed;
- open and honest feedback is offered on a regular and relevant basis;
- employees are commended and rewarded according to their contribution.
Performance management Tools
Performance review: Appraisal & Discussion
Preferably, formal performance reviews should be conducted quarterly (two formal and two informal follow-up discussions).
Joubert & Associates has two performance review instruments available from which clients can choose according to their specific needs.
Both these instruments follow the same procedure i.e. provide for an employee to be assessed against both the requirements of his / her job description and a specific performance agreement for the target period (which should be properly aligned with the organisation’s strategic objectives). The information used for this purpose consists of the manager and staff member’s notes (operational documents, reports and communication) from the preceding three months of one-on-one sessions and information obtained from the management information system. (Thus, there are no surprises.) During the performance review the emphasis falls on the preparation of a course of action for continued development and improvement of performance. The outputs of the process are relayed in one-on-one sessions in the following term.
The first tool, called Performance Appraisal has a quantitative approach. This instrument assesses employee performance on an evaluation scale and culminates in a weighted performance score.
The second (and new) tool, referred to as a Performance Discussion, has a qualitative approach. This instrument assesses employee performance, but without a numerical scale, and there is thus no total score calculated at the end of the discussion. This new tool was designed to focus on action plans to improve performance (personal development and strategic objectives) rather than the ratings itself.
Both these tools can be adapted to suit the uniqueness of the company. One such example is to not only assess the employee against the Key Performance Areas but also against the required skills and knowledge that he/she should have to be successful in the position.
It is important to note that the outcomes of neither of these tools should be linked directly to remuneration.
External appraisal (360° appraisals)
External (360°) appraisals are recommended as an additional source of feedback and could also be used as an alternative to one of the formal performance appraisals. Joubert & Associates has two tools available for this purpose.
The first option is a well-tested questionnaire which can be administered at internal as well as external interfaces. The outcome (feedback obtained) can then be discussed with each person who participated in the process.
The second (and new) interactive option is one where the employee takes initiative to solicit feedback from different people they have worked with (clients, suppliers, colleagues) using a questionnaire with guided questions. During a conversation with the employee’s supervisor / colleague, the feedback obtained is analysed with the aim to develop an action plan for personal development and achievement of strategic objectives.
Merit assessment comprises a holistic evaluation of each individual’s contribution and value to the organisation, which serves as the basis to determine their remuneration (annual adjustment as well as non-guaranteed remuneration).
Merit assessment must be clearly distinguished from performance appraisal. Performance appraisal is focused primarily on personal development, alignment with strategy and improvement of performance. Merit evaluation is an overall evaluation of the person’s contribution taking into consideration the individual’s performance, potential and interpersonal skills as observed within the specific milieu where the person operates.
During the merit assessment process, an evaluation panel determines a merit position based on the following factors:
- the quality and quantity of an employee’s work;
- potential for wider utilization on same level and/or potential to be promoted to a higher level;
- functioning within the team (and relationships with all interfaces) and culture of the organisation;
- the environment (milieu) in which the person and organisation function.
Staff members are evaluated to determine whether they fall within the norm group of normal (good) performers, or underachievers or above-average performers.
Merit assessment can be linked directly to remuneration. Differentiation regarding adjustment of remuneration and allocation of non-guaranteed remuneration is done on the basis of an employee’s merit position.
An organisation’s remuneration policy (integral part of personnel policy and hence employment agreements) must be clearly defined.
Job descriptions serve as a basis on which a logical hierarchy of positions are determined based on the relative weights of positions. Job grading instruments (Paterson, Peromnes, Omnibus, Hay, etc.) make it possible to attach a value (grade) to positions that can be used for market comparison.
By establishing a well-structured remuneration scale, a position is taken against available market statistics that can serve as a minimum and maximum scale for each job grade. (Note that market statistics are not a scale and should not be used as such.)
An organisation’s financial performance and ability to remunerate is, however, a reality (often a limiting factor) which should be accounted for properly. The remuneration budget should take into account market movements and trends and should make provision for both guaranteed and non-guaranteed remuneration.
There are different kinds of incentive schemes and one can distinguish between bonus schemes, profit-sharing schemes, gain-sharing schemes, merit pay plans, Employee Stock Ownership Plans and so forth.
Consideration of incentive schemes needs to be interpreted within the context of the preceding discussion (a component of remuneration strategy, policy and budgeting).
They are usually designed with the following key business objectives in mind:
- Improving business performance
- Focusing employee’s efforts on key objectives
- Increasing employee motivation
- Supporting stakeholder ideals by allowing employees to share in success of the business
- Encouraging change in the organisation
- Creating the desired workplace culture
Incentive Schemes as part of the non-guaranteed component of remuneration lessen the risk of high guaranteed remuneration and creates the opportunity (and motivation) for employees to generate a higher income (if they perform). Practically seen, it should create the opportunity for senior management to generate an additional 33,5% to their remuneration. For other employees it should at least cover a 13th or 14th cheque.
It is, however, our experience that many of these schemes unfortunately do not succeed to generate sufficient funds to achieve the above targets. Performance objectives are often not achievable; depend on complex measurements (financial models); can be manipulated (employers / employees); are not related to individual performance; and provide insufficient compensation (rule of thumb – less than 20% of annual Total Cost of Employment) for staff members.
All staff members do not necessarily share to the same extent in the allocation of non-guaranteed remuneration. Different pools are used for different groups (regions or departments and levels of management).
We strongly recommend that organisations should rethink the way in which they apply performance management and to what extent existing practices and tools should be adapted to meet the challenges of the future.