When people think about implementing a performance management system, some of the fi rst things that come to mind are developing a competency model, selecting an automated tool, and, importantly, determining how quickly the new system can be ready for use. What people sometimes underestimate or don’t realize at all is how much of a shock a new performance management system can be to organizational members. They are surprised by :
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How much employees sometimes fight against or undermine a new system
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How much emotion is generated
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How much effort is needed to get everyone on-board with a new system.
This is especially true when the system involves major changes that are threatening to employees, such as linking performance management to pay. Before thinking about the details of the performance management system itself, two important decisions need to be made and three steps are necessary to lay the groundwork for a new system.
What Is the Purpose of the System?
Many organizations use their performance management system as a basis for decision making, such as pay, bonuses, promotions, assignments, and reductions in force. Other, but fewer, organizations use their performance management systems to guide employee development. This means using performance information as a basis for development planning to help employees enhance their skills. Neither decision making nor development is an unequivocally better use of a performance management system. Both purposes have their advantages and disadvantages. However, one or the other purpose is usually better fit for the goals and circumstances in a given organization.
While use of performance management for decision-making or development is more appropriate in certain situations, it is extremely diffi cult, if not impossible, to serve both purposes equally well with the same system.1 An example will show why.
For a performance management system to achieve its maximum benefit, it is best to choose one purpose – decision - making or development – and then develop the system to support that purpose. In many organizations, however, there is a precedent for using performance management systems for both decision - making and development purposes. In these situations, one option is to break up the two uses by first having a decision - making review and then having a developmental discussion at a later point in time, or vice versa. This can help to avoid some of the problems inherent in trying to discuss decisions and development at the same time. One caveat is that managers and staff often perceive it as burdensome to have two formal review sessions for these different purposes, and it can be difficult to ensure that both discussions actually happen. Nonetheless, in situations where a system is used for both purposes, encouraging split discussions for decision - making versus development is the most productive strategy.
In situations where it is possible to make a decision about the purpose of the system upfront, there are consequences of this that are important to understand. First, the purpose of appraisal affects the variability of the ratings managers provide. Ratings that are used for decision - making tend to be more lenient than ratings used for development. This means that most employees receive ratings at the high end of the rating scale, and there are fewer differences in the ratings received by different employees. The reason why managers rate their employees at the high end of the scale is that they do not want to jeopardize the rewards that are available to their employees. If there are fixed pools of money, which there always are, managers worry about how their ratings will stack up against other managers’ ratings. For example, if one manager’s ratings reflect employees’ strengths and development needs but another manager’s only refl ect strengths, employees working for the first manager may well end up with smaller raises or bonuses than those working for the second. As a result, when rewards are tied to evaluation outcomes, managers tend to provide ratings of their employees that will compare favorably against the ratings given by other managers. When all managers end up doing this, the ratings of all employees across the board are driven upward.
Alternatively, ratings that are used strictly for development purposes tend to be for employees’ own benefit – to help them understand their strengths and address performance gaps. In this situation, there are essentially no negative consequences associated with identifying development areas, particularly when the expectation is that these will be identified for all employees. As a result, ratings used strictly for development purposes tend to be more variable, better reflecting employee strengths and development needs.
While the purpose of the performance management system should be based on the organization’s performance management goals, this decision has implications for several system design decisions.
What Type of Rating Will Be Made?
If performance management is used for decision making, numerical ratings are essential. This is because a numerical score is needed to order employees to guide decision making. Decisions cannot be made in a systematic or fair manner based on unstructured narratives. Also, it is diffi cult to make meaningful decisions based on categorical ratings, such as “pass or fail” or Exceeds, Meets, or Fails to Meet Expectations, because these don’t provide much differentiation between employees. For example, everyone who receives a “pass” (or “fail”) would need to be given the exact same pay, promotion, etc. Evaluation of multiple dimensions or competencies using a five or seven point rating scale is the best strategy for achieving sufficient distinctions between employees to make sound decisions about pay, promotion, and so forth.
If a system is used strictly for development, there is less need for numerical ratings. In fact, these often detract from development. This is because numerical ratings cause employees to be more concerned about their “score” and the message it sends than understanding their development needs. Rather than use numerical ratings, many development systems use categorical ratings to identify whether a rating dimension or competency “is a development area” or “is not a development area.” Sometimes more differentiated categories are used to set development priorities, such as :
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Development Need for Current Job
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Development Need for Career Progression
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Not a Development Need
Will Managers Provide Narratives to Support Ratings?
From a development perspective, narratives provide more useful information than numerical ratings. Even when performance is rated against defined standards, ratings do not convey exactly what the employee did in sufficient detail to fully explain the rating or provide meaningful feedback. Alternatively, narratives can be rich, customized, and useful sources of feedback, because they usually provide context and examples that aid employees in understanding the rationale for their ratings. Narrative descriptions also help managers calibrate their ratings (discussed below) by providing specific examples of behavior that can be discussed with other managers to ensure they are all applying the performance standards in a similar way.
While narratives can facilitate decision-making, they should not be used alone as a basis for decisions. Without accompanying standards and numerical ratings, narratives tend to be unstructured, unstandardized, and can reflect the motivation and writing skills of the manager more than the performance of the employee. Further, it is extremely difficult to rank order employees or assign rewards based on narratives alone. One caveat is that care must be taken to ensure that rating narratives support the numerical ratings. If this is not the case, employees will, at a minimum, be confused by their evaluation or worse, they may have grounds for challenging their ratings.
Will Information Come from Multiple Rating Sources or Only the Manager?
Because managers, peers, direct reports, and customers see different aspects of a person’s performance, multi source assessments offer an effective and credible way to obtain feedback. When multiple raters are involved, the manager is no longer the sole judge of performance. This allows the manager to assume more of a coaching and mentoring role, helping to interpret the feedback and plan development steps. When multi-source assessments are used, it is important to collect ratings from at least three raters of each type (e.g., peers, direct reports). This helps to protect the anonymity of individual raters, which is important for obtaining accurate and useful feedback. Particularly in the case of direct reports and peers, feedback providers do not want to risk damaging relationships if their feedback is not appreciated by the receiver. Additionally, individuals representing rating sources other than the manager (e.g., peers, direct reports) often are not experienced in making performance ratings. The use of at least three raters from each source helps to ensure that more reliable feedback results from the process.
If performance ratings will be used for decision-making, managers should provide the final evaluations. While managers should gather and consider information from other sources, it is important that they serve as gate keepers, judging its credibility and quality, and balancing it against other available information. This is important because raters from different sources often do not have the experience, perspective, or motivation to make accurate ratings. In fact, research has shown decrements in the quality of multi source ratings when they are used for decision making versus development.
Will Processes Be Included for Managers to Calibrate Their Ratings?
Rating calibration is a process where managers get together within a business unit or function to discuss their ratings of employees and identify areas where they may have inadvertently applied different standards. Even when a rating system contains well defined rating standards, each manager may still interpret those standards somewhat differently. For example, when deciding whether a project was of moderate or high complexity, one manager may come to a very different conclusion than another. By discussing more specific details and examples of performance, managers develop more similar views of how to interpret and apply the standards, resulting in ratings that are more systematic and fair across employees. In performance management systems that are used for decision making, it is important for managers to calibrate their ratings to ensure similar standards are applied. In development systems, rating calibration is useful but not as important.
What Performance to Measure?
There are differences of opinion about what should be measured – behaviors, results, or both? Behavioral assessments focus on identifying the most critical dimensions or competencies that are required to perform effectively on a job (e.g., Communication, Critical Thinking, Managing Resources, Planning and Organizing, etc.) and defi ning behavioral standards that describe levels of performance effectiveness in these. The standards help managers match their observations of employee performance to an appropriate rating level in each area.
Opponents of the behavioral only view feel that an exclusive focus on behaviors is remiss in not suffi ciently emphasizing results that contribute to an organization’s success. Organizations have long been driven by bottom line results. This focus has only continued to increase in recent years, especially in light of intense national and international competition. This “results focus” has not only affected private sector organizations but a similar trend has been observed in public sector and not for profit organizations, as well organizations that traditionally have not been driven by bottom line results. As examples :
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To better compete in their market, IBM underwent performance based restructuring in the 1990s.
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Also in the 1990s, the Internal Revenue Service (IRS), Federal Aviation Administration (FAA), and Government Accountability Office (GAO) all initiated performance management systems that focused on achieving key business results.
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Recently, the U.S. Departments of Defense (DoD) and Homeland Security (DHS) have implemented similar results oriented performance management programs.
Although results oriented approaches to performance management are intuitively appealing, an exclusive focus on results can, in fact, yield a deficient performance assessment because little or no consideration is given to how employees go about achieving their results. While one can achieve impressive results, performance is not effective if individuals are extremely difficult to work with, unhelpful, or cause problems. However, it is also the case that an employee can be extremely helpful, considerate, and interpersonally effective, yet never get anything important accomplished. While an organization can choose to focus exclusively on results or behaviors, many have opted to include both because comprehensive performance assessment should consider what someone has achieved (their results) as well as how they went about achieving these (their job behavior). In Chapters 7 and 8, strategies are provided for effectively defining and measuring both results and behaviors that circumvent some of the challenges associated with each type of measure.
Ensure Support for the New System
For a performance management system to be effective, organizational members must accept it, believe it is worth their time, and be motivated to use it. Research on implementing many different types of organizational programs clearly shows that success depends, first, on top management support for the program. The stronger the leadership commitment, the greater the system’s success will be. Without management support, the system will fail.
What’s needed for effective implementation of performance management is a committed CEO who believes in its benefits, engages in effective performance management practices, and makes all employees accountable for doing the same. One particularly effective CEO in an auditing organization demonstrated his commitment to the performance management system by communicating extensively about the importance of performance management, modeling effective performance management behavior with his direct reports, and making effective performance management a critical evaluation element in all managers’ appraisals. This CEO’s obvious commitment to performance management through both his words and deeds resulted in the organization having a highly effective performance management process that was taken seriously and shown to drive important organizational metrics.
Some organizations will already have a strong performance management culture where top management understands its value and uses it effectively. In others, it may be necessary to educate the executive team on the critical role that performance management plays in helping organizations achieve their goals. They may also need to be educated on their critical role in leading the effort. Piloting a new system with executive or leadership teams can be a useful strategy for gaining the support of these individuals. In situations where there is not a strong performance management culture, it can be established over time. However, it is not wise to proceed with implementation until leadership support has been secured.
For a performance management system to gain support, people must see it as a process that helps them achieve their goals. If leaders do not view performance management as an important strategic tool for accomplishing their goals, they will not take it seriously, devote time to it, or use it properly – consequently, it will not yield its potential benefits. One effective strategy of getting leaders on board is to show them how performance management helps drive individual behaviors and contributions that, in turn, produce results for the organization. To do this, the performance management system needs to set expectations that drive important organizational goals and measure performance on factors that are directly linked to organizational success. Showing that effective performance management drives business results gets leaders’ attention and demonstrates the value of these systems.
Beyond leadership support of and belief in the value of performance management, in the end, a system’s success relies on how effectively managers and employees use it. Getting organizational members on board to support a new system is essential, irrespective of whether the system will be used for decision making or development. An effective strategy for gaining commitment to a new system is to involve members of different constituencies in the design and implementation process. An organization’s key constituencies usually include the major business lines or functions, different geographic locations where the organization does business, and representatives from different jobs. This advisory group, which is usually identified by management in collaboration with human resources, needs to be led by an experienced performance management expert who can successfully guide the group through the development and implementation process. There are four important functions the advisory group performs. It must do the following :
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Provide guidance representing their constituency • Share information
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Serve as a conduit for convincing others about the merits of the new system
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Pilot test the system components
Provide Guidance Representing their Constituency
The advisory team can be used to provide input on decisions regarding system design or implementation. Since advisory group members represent different constituencies, they need to gather input from those they represent to understand the needs and desires of different groups. To the extent possible, it is best if advisory group members can come to consensus regarding significant system design issues. This helps to avoid dissatisfaction and in fighting during the process.
Share Information
Another important role of the advisory group is to share information with the constituency they are representing. This helps to make sure organizational members are kept up to date about progress, implementation steps, and schedules. Sharing information requires iterative communications, where advisory group members exchange information between organizational members and the advisory team. The advisory group needs to be armed with briefing and other communication materials to ensure consistent information is shared across the organization.
Serve as a Conduit for Convincing Others about the Merits of the New System
Employees usually have significant concerns about how a new performance management system will affect them, especially if the system will be used as a basis for pay, promotions, reductions in workforce, and other important outcomes. Thus, insiders are needed to champion the benefits of the system and mitigate or address concerns. Advisory group members need to be personally convinced of the value of the system and trained to effectively market it to others. Because direct interactions between employees and advisory group members can have much more impact than general emails or other mass communications, these are a very important part of the strategy to sell the new system to others.
Pilot Test the System Components The advisory group serves a final important role in helping to pilot and revise the system. Before large scale implementation, it is wise to pilot test any new system to ensure that all aspects are working well and the right design decisions were made. One important advantage of pilot testing is that it provides a fresh perspective from people who were not intimately involved in the system design. It also provides a gauge of the reactions other organizational members are likely to have and familiarizes more people with the system prior to large scale implementation. This broader involvement serves to communicate further about the system, ensures that it meets organizational needs, and encourages others to help implement the process properly.
Realistically Assess the Organization’s Appetite for Performance Management
During the initial design, development, and pilot testing processes, sponsors of the performance management system need to continually assess the organization’s appetite for performance management and make adjustments accordingly. In trying to develop the best system possible, inexperienced developers sometimes err on the side of including unsustainable requirements. A case scenario will show how this resulted in unintended negative consequences for one organization.
Some organizations need more formal performance management processes than others. For example, if informal feedback is regularly provided as a natural course of events, scheduled formal feedback sessions will probably be seen as burden some and ineffective. Likewise, if an organization is a pure sales organization and cascading goals really come down to making certain revenues and profi ts, an elaborate and time consuming process on this is not likely to be well received. The bottom line is that it is essential to be realistic about what performance management requirements organizational members have and will tolerate on a long term basis. Even if there is high level support during the design and implementation process, this does not mean that time consuming or burdensome requirements will be accepted. This is especially true if the requirements are not seen as adding value.
If there is not high level support and genuine belief in the value of performance management, it is even more important to carefully consider what users will accept when designing the system. Overall, it is better to implement a less burdensome system that people will use than a comprehensive system they will ignore. Although both managers and staff need to devote time to performance management to achieve its benefits, anything that can be done to make the process as efficient as possible (e.g., automation, predefining performance standards and objectives) should be done to maximize acceptance and use of the system.
Plan the Communication Strategy
Communication about a new performance management system should begin as early as possible, informing organizational members that revisions are planned and gathering input and feedback on desired system features. If implementation of a new system involves major changes that are threatening to employees, a comprehensive change management strategy will be needed. For example, if there was never an obvious link between performance and rewards and the new system will have an explicit one, employees may feel threatened and resist or sabotage the process. The communications and changemanagement process must clearly and simply explain the advantages and rationale for the new system.
Organizational members should be provided with ample opportunities to comment on the new system. Employee concerns should be addressed by providing explanations or making changes to the system. Obviously, it is not practical to make changes in response to each and every comment an employee may have. On the other hand, if many employees are voicing similar concerns, a great deal of goodwill will be generated by making changes that address these. It shows employees that their voices are being heard. Additionally, implementers should not underestimate the lengths employees will go to be heard, if they are unhappy with the direction the organization is taking and have recourse to do something about it.
As part of their communications, some organizations undertake full-blown professional advertising campaigns, with marketing materials, “toys,” and massive communication efforts to sell a new performance management system. The important point is understanding that extensive change-management work and communication are necessary to implement a new performance management system successfully.
