3 tips to support the performance management approach at your company

Here is a situation that I witnessed at a client’s company.

Imagine the scene : today is the meeting with the Executive Leadership Team (ELT) where the topic is : “Which changes should we introduce to our performance management system ?”.

The ELT is educated about the need for an efficient program. The individual performance rating is one of the main criteria used in the decision-making process for individual merit increases, as well as in the calculation of the bonus amount.

Two years ago, you introduced the concept of guided distribution curve. Managers don’t really like this constraint, but, thanks to an effective calibration process, eventually the distribution of top performers, over-achievers, employees meeting expectations and staff needing support for performance improvement is smoothed and validated by the CEO… even if it is sometimes a little off the official distribution guideline.

And today, as expected, some of the ELT members list some complaints about the distribution curve.

A question in particular generates a lot of debate : why can’t a high performing Division get 60% or more of its employees rated as over-achievers ? “If the Division is rated 4, then the distribution curve should “slide to the right” as well, and instead of having 50 to 65% of employees rated 3 – at target, the Division Head should have the right to have 50 to 65% of employees rated 4 – above expectations… without having to justify anything during the calibration process”.

Those are real concerns, especially in the face-saving culture that is often prevalent in Middle Eastern cultures. So it’s healthy to debate these topics. In my real-life example, here is how things went :

After listening to some back and forth arguments, the CFO interjected on this suggestion. Obviously, if you get 50 to 60% of employees rated as above expectations, employee costs risk spiraling out of control, both permanently (higher salary increases) and in the short-term (bonus).

Some ELT members then suggested : so, why don’t we disconnect our performance ratings from salary increases and bonus calculations ?

And before anyone else could respond, the COO intervened and cut the possibility out : “No. We still have too many employees who think they are a top achiever. And our managers are still too nice, if 44% of them rated employees as above expectations or top achiever in the first round of performance ratings, before calibration. And your Pay for Performance system looses teeth if you disconnect the performance rating from the payout – remember how employees perceived inequity when our old bonus system used a discretionary rating decided by the CEO – and that rating was often different from the performance rating given by the manager ? We will not disconnect the performance rating from the bonus and merit increase.”

Why am I sharing this story ? As a consultant, or the HR Director or Head of C&B, you know that you have achieved great success when your top executives are the ones defending the pay-for-performance system, even if it would seem “easier” to let go and be ”nice” to managers by reducing that constraint.

What can you do to help your top management help you in such a discussion ? Here are 3 simple tips that I gave to the HR Director before the meeting:

  1. Produce relevant statistics about the results of your performance management cycle (how many employees performed self-appraisal, how many managers rated their employees within timeline and the initial performance distribution curve, the final distribution curve, how is it correlated to the company performance…)
  2. Present multiple cost scenarios, not just the “target” and “actual”. Think about 2 or 3 likely scenarios and gauge what the financial impact would be. Remember that at this point, you don’t have to be as precise as for the actual payment, so you don’t need to prorate amounts for employees who left the company or other such details. What matters is that you’re able to quantify a rough amount, as this will help frame the discussion.
  3. Prepare an education / communication pack that includes anticipated questions from employees and managers. Include the official answer from the organization, as well as, if needed, the rationale for that answer. After the strategy meeting, I also suggested to the HR Director to complement it with an ELT-specific document that included the points raised during the discussion, as well as the decisions made and why they were made. This not only seals the decision, but also helps the ELT members support the performance management approach in their Divisions.

By preparing, distributing and presenting these documents before “the big meeting”, you can easily provide top executives with the background information that will support decision-making. Don’t ever forget to present the business impacts of your data, so that they feel empowered to own the information and use it as a business driver, not an “HR thing” – this will deeply influence their perception of your programme’s worth.

 

This article was first published as a guest post at The HR Observer.

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Comments

  1. tony slimmings says:

    oh dear, or you could simply let go of the silly concept that performance related pay actually leads to improved performance! Last time I looked I was not a rat and I have not been conditioned to run around a maze for more cheese!

    • Sure Tony, nobody said that employees are conditioned for increased performance just by an incentive of pay for performance.

      However, pay for performance does not have only negative impacts : try to take it away from key populations such as your sales teams, or your top performers, and attrition rates could hit the roof… or engagement hit an all time low, whoch also hurts the performance of the organisation badly. Pay for performance is not just an incentive, it is also a reward. And top performers do not stay in an organisation where they feel their performance is not recognised and not rewarded appropriately. If you don’t have a system in place that lets you identify those top performers, and reward them for their contribution, you have to accept the risks on your retention and engagement levels.

      • tony slimmings says:

        Sandrine, you make a fair point that sometimes you may need to play by the rules of the game regardless of the sense of the rules. Although I also recall a time when the bankers and pension sales people became very good at particular performance related pay games!

        I do believe that freeing organisations of mercenaries will in the long run lead to a more profitable business as the people left are focussed on actually doing a good job not doing the job that is rewarded (sadly not always the same thing).

        I am not however against paying good people very well or indeed organisation profit or productivity improvement awards, I just cannot understand how we adopted research on dogs, rats and pigeons into the world of individual compensation without any evidence that it actually works!

        Excellent site by the way, keep it up!

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