Improving Performance Management

Studies suggest relatively few companies are having success with their performance management programs, despite the fact that such programs are viewed as a crucial HR activity. The result has been a surge of strategizing about how to improve today's programs.

Performance management has become such a hot topic that in HRI's most recent Major Issues Impacting People Management Survey, HR professionals ranked it as the most important HR activity today, out of 38 issues. Yet, performance management programs are getting, at best, mixed reviews. A 2004 Watson Wyatt survey of 1,190 U.S. employees found that only about 30% of workers think their company's performance management program has helped them get better at their jobs. Even more dismally, only 19% think their organization's system allows sub-par performers to improve.

It's not only employees who are skeptical, especially when it comes to specific performance appraisal techniques. A 2002 survey from Development Dimensions International found, for example, that only 39% of companies that used the forced ranking system for performance appraisals rated it as even "moderately effective." Another survey, this one conducted jointly by the Society for Human Resource Management and Fisher College of Business at Ohio State University, found that just 42% of surveyed HR professionals either agreed or strongly agreed that performance appraisals are based on "objective, quantifiable results."

That's not to say that performance management can never work well. "These systems, if designed and implemented properly, can have a strong, positive impact on individual performance and financial results," said Scott Cohen, national director for talent management at Watson Wyatt. "Our studies suggest possibly a 20% improvement in shareholder value."

The magic words here are "designed and implemented properly." That's easy to prescribe but difficult to do, largely because good performance management depends on an array of interrelated factors, from compensation structures to corporate culture. Watson Wyatt makes various recommendations for improving performance management programs. For one thing, such programs should use terms that employees can easily understand and that are tied back to the business rather than terms that sound like "psychobabble" and "HR-speak." Watson Wyatt also advises companies to "recognize star performers and confront poor performers as soon as possible" and to replace paper forms with user-friendly automation.

Culture and training are also critical ingredients, according to various experts. Not only does a system need to accurately reflect core values and beliefs, it's got to have buy-in from top leadership. Otherwise, it becomes a kind of busy-work ritual that no one takes seriously. And everyone who is managing and/or appraising performance needs to be well trained. These managers must understand the terminology in the same way, and they must know how to use a common set of tools. What's more, they need to be well trained in the art of coaching, and they've got to make time in their busy schedules to actually coach.

Some experts believe that linking pay to performance is also integral to good performance management. "Apparently, tying the results of performance appraisals to financial rewards does lead to the performance appraisal system being effective," reports a study based on research conducted by the Center for Effective Organizations at the University of Southern California. Another important factor is tracking the effectiveness of the system. "The system should be structured to ensure that company and employee performance goal alignment can be confirmed at any point in the performance management cycle, and the probability of meeting targeted performance objectives can be calculated," writes Leslie A. Weatherly in HR Magazine.

Systems also need to focus on the most appropriate performance measures, even while limiting the number. "In my view, 12-14 is the absolute maximum number of competences that should be required at an individual level," writes Richard Parkhouse of PRPi Consulting in London.

Systems should also rate performance more frequently than the traditional once-a-year schedule. Information technology helps make this possible. "[U]sing computer programs similar to those that track telephone operators' minute-to-minute performance, companies are reviewing performance of all kinds of workers much more frequently," reports U.S. News & World Report. Although such technology is a powerful tracking tool, it shouldn't be viewed as a silver bullet. Ultimately, it's people who must interpret work data and diagnose problems accurately. And it's people who are ultimately responsible for helping one another improve both individual and organizational performance.

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For more information on the recent Watson Wyatt survey, go to

http://www.watson wyatt.com/news/press.asp?ID=13032

Other documents used in the preparation of this TrendWatcher include:

"How to Make a Performance Management System Powerful." IOMA's Pay for Performance Report. ProQuest. May 2004, p. 1.

Morales, Bellann. "Achieving Performance Improvement Through Information Technology." Infotech Update. ProQuest. November/December 2003, p. 7.

"Organizations Seek Stronger Performance Management." IOMA's Pay for Performance Report. ProQuest. June 2004, p. 2.

Parkhouse, Richard. "Rewarding Global Performance." Benefits and Compensation, Internet [http://www.pwc.com/extweb/ NewCoWeb.nsf/0/C75EACD7BE6A246D85256E770063F5A1?Open Document]. April 2004, pp. 3-6.

"Performance Management Plans Perform Badly, U.S. Workers Say." HRfocus. ProQuest. June 2004, p. 8.

"Performance Management Programs Need Major Overhaul, Survey Suggests." Bulletin to Management, May 20, 2004, pp. 161-162.

Schoonover, Stephen and Charles Palmer. "A Systematic Approach to Employee Performance Gets Measurable Results." Mass High Tech. ProQuest. May 3, 2004 , p. 16.

Weatherly, Leslie A. "Performance Management: Getting It Right from the Start." HR Magazine. ABI/INFORM Global. March 2004.