It’s no secret that many performance-management systems aren’t working. This goes from the top to the bottom of organizations, from boards who adjust executives’ performance goals so they can receive pay that appears to have no relationship to company results, to levels lower down, where large numbers of employees are indifferent or unmotivated by the plans.
A recent Watson Wyatt survey on the effectiveness of performance-management systems shows that only three out of 10 workers really believe their company’s plan does what it’s intended to do: improve performance. Instead, most say what’s measured on those forms their supervisor completes has little to do with their actual job. Positive feedback is rare, and, even if a review is dazzling, it doesn’t translate into raises and bonuses.
The crux of the problem at most U.S. companies is this: Performance reviews are usually nothing more than an exercise in compliance. Generally these reviews don’t give employees honest feedback, don’t measure relevant information, and don’t set goals for the current year. In the end there’s no accountability. If a manager isn’t developing his or her people, something needs to happen to that manager, but in most cases, nothing does.
Managers Need to Build Trust
For performance management to work, the operative word is trust. Without it, employees and managers won’t be able to have an ongoing, honest dialogue about expectations on both sides. Managing a person’s performance is about far more than filling out forms, it’s about setting goals and aligning those individual goals with those of the company. And we know it works — research shows organizations that do a good job of goal setting and alignment demonstrate four times the total return to shareholders of companies that don’t.
How can this trust be created? Very simply, managers need to be upfront with their direct reports. They need to treat their direct reports with respect and be vested in their success. Managers need to be clear about what they expect and be candid in their communications. A once-a-year mandated conversation focused on the performance evaluation does not build this trust. Instead, it comes through daily and weekly interactions through which a solid working relationship is built over time.
It’s not as if managers love the process now either. They feel it takes too long, the forms are tedious and complicated and, in the end, nothing is accomplished. Managers know an employee’s raise isn’t usually linked to review results and, worse, company performance isn’t either — all employees could be rated outstanding but a company might still be 20% below revenue targets.
St. Jude Children’s Research Hospital in Memphis, Tenn., had to take a hard look at its performance-review system last year. The hospital’s plan didn’t align employees’ jobs with broader strategic objectives and had clearly outlived its usefulness. One sign was that it had a bad case of ratings creep — managers used only the top two of five possible rankings when evaluating employees. “It got to the point where ‘meets expectations’ was perceived negatively by the majority of our employees,” said John Nash, St. Jude’s chief operating officer.
The system was so inflexible it couldn’t be applied to different groups of employees within the organization — secretaries, scientists, physicians, nurses and executives. Instead, these different groups felt they had to develop their own solutions so the hospital’s system would work for them.
After recognizing the plan’s flaws, St. Jude overhauled its performance-management system and now has one that’s easy to use (and available online) and can be adapted to the varying occupations within the hospital. The new system gives a far truer snapshot of how staff is doing and enables managers to work with each employee to create a plan for accomplishing specific goals. Furthermore, employees who achieve more stand to gain more, both in terms of rewards and greater opportunities.
No More Beating Around the Bush
But organizations need more than a form and a set of instructions on how to complete them. Candor in the employee-manager relationship is also essential. One reason managers say they hate review time is that it involves confrontation. No one likes to give bad news or critical reviews; it’s much easier to just look the other way and hope problems will go away. But they don’t. It’s far better to opt for honesty — no more beating around the bush or relying on the employee to figure out something is wrong. Managers have to build the confidence and skills to confront issues directly without making it a personal attack.
Sounds easy, but for many managers, this is a new skill. Just saying, “I need you to do this, and I don’t see you doing it” is not nearly enough. Managers need to learn how to diagnose the root cause of the problem. This often involves putting aside their preconceived notions and learning how to listen and communicate in a way that gains buy-in and commitment. Often times, this involves providing help and assistance to ensure the employee is successful.
And that brings up the issue of clarity, which is the balance between telling and asking. We often assume someone in a position of leadership has all the answers, that they are the experts. But managers need to recognize that learning comes from asking questions of their people and understanding their needs and perspective.
Finally, there has to be a reward for good performance. Without a link to a reward — monetary and otherwise — there’s little incentive for improvement. A company should think broadly about rewards: If Sue is a better performer than John, it’s obvious the two shouldn’t get the same salary increase or bonus, but they also shouldn’t get to attend the same number of conferences or be given the same development opportunities, either. That’s because performance management is ultimately about identifying your top performers — your potential leaders — and finding out what it will take to not only develop them, but keep them.
Companies haven’t had to pay too much attention to retention in the past few years but as the economy improves, they should start. Employees know that job opportunities are here or just around the corner for them and are less committed to staying with their companies: A recent survey by ExecuNet notes that 68% of 278 employed executives are unhappy with their jobs, while three out of 10 workers surveyed by Watson Wyatt in early 2004 say they would leave their employer if they could. The fix for this can be relatively straightforward — an effective performance-management system. It doesn’t require spending vast amounts of cash on benefits and incentives, and it will give employees a reason to stay while boosting the bottom line.
Ideally, proper performance management enables a company to effectively handle its work force — helping those falling behind to improve and rewarding those who meet or exceed expectations. It’s time to look at systems that don’t achieve these goals.
By cott ohen