Overcoming Challenges in Using Individual Objectives for Performance Management

There are several challenges associated with using individual objectives as the basis for performance management.

Inconsistency among managers can result in objectives that are too easy, unattainable, or unsystematic across individuals who occupy the same job. If managers are not trained to set objectives of similar difficulty and complexity for employees in the same job, one employee’s objective could be to perform a simple data collection task, while another’s in the same job could be to manage the design and implementation of a complex program evaluation process. If the overall impact and contribution of the results associated with these different objectives are not considered, the employee who executed a simple data collection task could be considered as performing equivalently to the employee who implemented a complex program evaluation process, simply because they both achieved their objectives. Thus, a key challenge is ensuring that fair, equitable, and job relevant objectives are set for all employees.

In highly routine and predictable jobs, it is sometimes possible to predefi ne a set of objectives that apply uniformly to all employees. This not only saves time that would otherwise be spent by each manager and staff member developing individual objectives, but it also ensures that all employees in the same job are held accountable for the same expectations and standards. When identical objectives apply to everyone in a job, job analysis procedures like those discussed in Chapter 6 can be used to defi ne these, ensuring their job relevance.

In many jobs, the objectives for different employees vary signifi cantly, depending on the nature of the individual’s duties and assignments. When it is not possible to use the same objectives for all employees, it is best to have supervisors develop individual objectives from validated tasks or work behaviors that have been identifi ed for the job. The objectives will need to contain more specifi c information than the tasks or work behaviors (e.g., what specifi c project, customer, product, etc. the employee is responsible for), as well as specifi c quality, quantity, and timeliness expectations. However, by starting with a list of validated tasks or work behaviors, the objectives developed for each employee can be linked to valid job content. As objectives are defined for employees holding similar or identical jobs, they can be compiled and reviewed across managers. This helps to ensure that similarly difficult and complex objectives are being set for individuals in the same job and level.

Even if training and examples are provided to help managers develop objectives, they will still be at least somewhat unique to each employee, in most cases. An issue then becomes how to evaluate the relative contribution of the myriad of results that different employees deliver. Given that some employees deliver higher impact results than others, it would not be fair to consider all employees who achieve their objectives as performing the same. An effective strategy that has been used in several public and private sector organizations to address this issue is to develop standards for evaluating the relative contribution of different results, in addition to evaluating whether or not timeliness, quality, quantity, or fi nancial measures were achieved. The use of individual performance objectives without this additional evaluation fails to differentiate between employees who are contributing more or less and for differentially rewarding them.5 An example of such standards is shown next.

Another challenge is that setting concrete objectives in advance can be difficult for jobs that are unpredictable or constantly changing. Consider the challenges in trying to develop specific objectives for R&D jobs where it is impossible to predict when meaningful discoveries will occur. An effective strategy for these types of jobs is to set shorter term objectives that are more predictable. Feedback can be given and interim appraisals conducted as employees reach key milestones during the rating period. In fact, given the fluid nature of many work environments, some experts have advocated not even trying to set longer term objectives, claiming that this is an exercise in futility, and instead recommended that the focus be on setting shorter term objectives as the work evolves.

A final challenge in setting objectives occurs when it is difficult to associate outcomes with a specific person’s effort, because the work is team focused or requires significant interdependence with others. In these circumstances, objectives should be set at the level where the key work products are produced. If jobs are so intertwined or dependent on a team, it may not be practical or appropriate to set individual objectives. Instead, objectives should be set at the higher group or team level.

Setting Objectives Collaboratively with Staff

The first performance conversation managers and employees should have at the beginning of the rating cycle is to identify the employee’s performance objectives. Both managers and employees need to do some advance planning for this discussion. The meeting should take place in private without interruption. It’s important that the meeting is a collaborative effort where employees participate and provide their input, so they will be committed to their goals. During the meeting, managers should discuss the department or office goals with employees and their ideas about the objectives the employee should achieve. Depending on the level of the employees and the type of work they are doing, it may be appropriate for employees to also discuss objectives they wish to achieve. During this conversation, there are several common questions that typically arise, which managers need to be prepared to address.

No more than three to five major objectives should be identified for each employee. Major objectives refer to key deliverables and significant projects or outcomes employees are expected to achieve. While it is frequently possible to set sub goals for major objectives and employees may wish to do this for their own planning purposes, it is not recommended that the objectives included in an employee’s performance plan contain this level of detail. Having a large number of narrow objectives at very specific levels of detail will be cumber some to manage and therefore are not recommended.

Once managers and employees have come to agreement on the employee’s objectives, a strategy that can facilitate employee ownership is to have employees prepare the wording of their objectives for their performance plans. Managers can then review and sign off on the final set of objectives. This not only helps to ensure mutual understanding of what is expected but also makes efficient use of managers’ time in executing the process with many direct reports.

During the rating period, managers and staff may need to revisit the objectives as unforeseen events occur that interfere with achieving them. Although objectives can be changed during the rating period, it is best to “freeze” them at least three months prior to when ratings will be made. A key concern in implementing a performance management system is ensuring that employees understand their expectations and are provided with sufficient time to achieve them. Last minute changes can lead to perceptions of “changing the rules at the 11th hour” and may lead employees to challenge their evaluations.

The Bottom Line

The development of individual performance objectives that drive key results can be an important and effective component of a performance management process. However, developing fair, job relevant, and useful objectives requires training and considerable effort on the part of managers, employees, and human resources staff. If organizational members are not committed to developing effective objectives and doing this consistently for all employees, individual objectives should not be included in the performance management process. Poorly developed objectives will not only be de-motivating to staff but can leave an organization vulnerable to potentially successful legal challenges. Thus, if there is unwillingness to devote the time, energy, and resources necessary to overcome the inherent challenges involved in developing good objectives and monitoring the effectiveness and completion of these, the best alternative is to include only behavioral performance standards in the system. The development of these is discussed next.

Practical Exercises

Developing Objectives and Measuring Results

There are two primary activities involved in developing measures of results. The first is identifying performance objectives that state the outcomes an employee is expected to achieve. The second is specifying these in sufficient, measurable detail that it is clear to both managers and employees whether or not the objectives have been met. Ideally, the results to be achieved should be tied to the organization’s strategy and goals. As discussed, this is typically achieved by developing cascading goals, where organizational goals are cascaded down through the different levels to individuals. These linkages help to ensure that the work of all organizational entities is aligned and focused on achieving important organizational goals. Although an individual’s objectives should support higher level goals, an employee’s development needs can also be taken into account in setting their objectives. These can be targeted to improving current job performance or preparing the employee for career advancement.

Linking Individual Objectives to Higher-Level Goals There are two strategies that can be used when linking individual goals to higher level goals at the next level :

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Start with an employee’s individual performance outcomes and work upward to link them to relevant higher level goals

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Start with a higher level goal that is relevant to an employee’s job and work downward to develop an individual performance objective

The decision about whether to link upwards or downwards is a personal preference. Some find it easier to start with something concrete from their job and work upwards towards a less tangible concept. Others find it easier to start with a broader, higher level concept and develop something concrete they can do on their job that relates to this. An example of how department goals could be cascaded to individual objectives appears below. Note that the individual objectives are related to only one of the department goals. Objectives can be related to more than one goal at the next higher level, but it is unlikely that goals at one level will relate to all of the goals at the next level.

Practical Exercise

At the end of this chapter, practical Training Exercise 6 can be used to help employees learn how to link individual objectives to higher-level objectives.

Identifying 

Individual Objectives There are several guidelines that should be followed to develop effective performance objectives. The first is that difficult but attainable objectives lead to more effective performance than moderately difficult goals. Second, in order for employees to achieve their objectives, they must feel committed to them and they must feel they are achievable. If employees feel that they cannot reach their objectives, they will be demotivated to try. This is why it is important to ensure that employees accept their objectives and are motivated to achieve them. The best way to ensure this is to make employees an active part of the objective setting process and work with them to arrive at objectives that are challenging and achievable. It is also important for managers to communicate and commit their support by providing guidance and resources to employees as well as removing obstacles to goal attainment. The “SMART” mnemonic helps managers and employees remember the key characteristics of effective objectives.

While the idea of setting individual objectives may seem straightforward, the process of doing this is usually more time consuming and difficult than people expect. Especially initially, when managers and employees are not accustomed to developing objectives, they find it challenging to identify and clearly define them. One reason is that both managers and employees tend to naturally think in terms of the work behaviors employees perform on the job and not tangible, well defined outcomes. For example, job descriptions typically contain.

work behaviors or job tasks. Identifying performance objectives requires going beyond these and thinking about the specifi c outcomes, products, or services that result from work activities. Two examples of work activities appear on the previous page, along with how these could be translated into performance objectives. The fi rst work activity is to manage customer projects. An objective from this activity could be managing a specifi c project according to a project schedule and meeting customer satisfaction metrics in the end. The second work activity is to conduct evaluations of human resources programs. An objective of this activity might be to conduct a specifi c program evaluation study, where defi ned quality and timeliness metrics are met.

Ensuring Expected Results of Objectives are Measurable

Performance objectives should be clearly defi ned in terms of measurable outcomes so that both managers and employees know when and whether the objective has been achieved. Jobs that lend themselves best to setting measurable objectives have static performance requirements and hard productivity measures (e.g., dollar volume of sales, profi tability, miles driven, or pieces produced). On the surface, writing objectives for these types of jobs may seem easy and straightforward. But, consider the following questions :

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Did the worker who produced the most pieces also produce the highest quality pieces ? 

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Did one employee have more modern equipment than another, enabling her to produce a higher volume of product, irrespective of how hard either worked ? 

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Was the driver who went the furthest distance speeding and endangering others the entire way ? 

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Was one salesperson’s territory in Wyoming and another’s in New York City ? 

Based on the number and proximity of potential customers, the person in New York may have had more opportunity to make sales than the person in Wyoming.

The bottom line is that even when measures seem straightforward to defi ne, it is important to think through the consequences of  those that are selected. For example, quantity measures are usually easier to defi ne than quality measures. However, if only quantity metrics are used, employees will focus on producing a lot, possibly to the detriment of producing quality. Likewise, it’s important to take into account the individual’s opportunity to perform in his or her particular circumstances. If one employee is working on a machine that produces products twice as fast as another employee’s machine, the employee with the slower machine will never be able to outperform the one with the faster machine, no matter how hard that employee works. Rather than impose the same goals on all staff, consideration should be given to real differences in opportunities employees may have so that stretch but achievable objectives can be set for everyone. There are four types of measures that are commonly used: timeliness, quality, quantity, and fi nancial metrics

Although there are four primary ways to measure results, these can be used together. In fact, linking different types of measures usually improves the quality of the measure, for example :

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Processed 99% of candidate job applications within one week of receiving them (quantity and timeliness). 

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Developed an online training course that taught 90% employees how to independently use automated transactional systems and reduced training costs by $500/employee (quantity, quality, and financial metrics).

The more detail managers can provide in terms of the target objective and expected results, the more clearly the performance expectations will be understood. In addition, this will also help avoid disagreements about whether an objective has been successfully met. A very important caveat, however, is not to fall prey to measuring peripheral aspects of the objective that may be easy to measure but do not assess the most important things. For example, meeting a deadline is easy to measure but improving customer service may be what’s important to measure.

While many different types of measures can be identifi ed, there is the very practical issue of which and how many of these can be reliably and accurately assessed without creating systems and processes that are so burdensome that they die of their own weight. To implement and maintain an objective setting process that is effective and manageable over time, the measures selected need to capture what’s most important, refl ect critical bottom line results, and be practical to obtain. Shown below are several examples of objectives that are more or less well defi ned. These examples show how a clear defi nition of expected results can increase understanding and avoid disagreement around whether or not objectives were actually met.

In developing objectives, managers need to ensure that they are written to refl ect fully successful performance for the job and level, such that most employees would receive “meets expectations” ratings on their objectives. If an employee exceeds the objectives (for example, produces signifi cantly better quality, quantity, timeliness, or impact than defi ned), he or she should be given a higher rating. However, high ratings on performance objectives should be reserved for individuals who perform well beyond the expectations for their job, and these ratings should be the exception rather than the rule.

Legal Requirements

We begin this part with a discussion of legal issues because there are well-articulated legal and professional guidelines that govern the development of measures that are used to assess job performance in work situations. Equal employment opportunity and fair employment practice laws, such as Title VII of the Civil Rights Act and the Equal Pay Act, make it possible to challenge employment decisions. While litigation related to employment practices has occurred for over 30 years, its incidence has recently proliferated. These challenges can result in jury trials, compensatory or punitive damages, and high-profi le class action lawsuits. Legal requirements are relevant to performance management when appraisals are used as a basis for decision-making, such as pay, bonuses, promotions, or reductions in force. As a result, they can be the subject of employment litigation. Both the results of a performance management process (i.e., the ratings) as well as procedural aspects of performance management systems can be challenged. As examples, challenges can be targeted at the specifi city or subjectivity of performance criteria, standardization of operational procedures, or lack of internal consistency (for example, ratings that do not differentiate well between employees but pay increases and bonus awards that do), among other things.

There are two main types of challenges that can be made against an organization’s performance management system. The first is called a disparate treatment case, the second is the disparate impact case. In a disparate treatment case, the employee is claiming that she or he was treated differently by an employer than other employees who were in a similar situation. For example, assume both Mary and Jim failed to come to work one day, and the employer fires Mary but not Jim. If the reason the employer fired Mary was because she is female, then this is unlawful because the decision was based on the gender of the employee. If Mary was fi red was because she had consistently bad attendance, this could be disparate treatment due to differences in Mary and Jim’s attendance records. However, this would be lawful.

In a disparate impact case, the claim is that the employer has a practice that systematically and negatively impacts an entire group, for example, the employer won’t hire individuals unless they have college degrees. This practice might have a much larger impact on minority candidates as a whole than it has on white candidates as a whole, such that the requirement for a degree results in signifi cantly less minorities being hired than whites. To summarize, then, a disparate treatment challenge concerns how a specifi c individual was treated, while a disparate impact challenge claims that an organization’s system or process systematically discriminates against a protected class of people (e.g., females, disabled persons, people over 40, African Americans, etc.). While disparate treatment has been conceptualized as an individual claim, it has been recognized by the courts in class actions. The payoff to plaintiffs is much higher in disparate treatment claims (i.e., punitive damages) so they have been increasingly weaving these arguments into cases, as early as the 1990s. A recent article from the American Bar Association (http://www. abanet.org/irr/hr/spring04/forced.html) discusses the use of disparate treatment arguments as part of the class actions on age in performance management.

While any type of challenge is time-consuming and can be expensive, class action lawsuits can result in signifi cant monetary damages and can last literally decades. In addition, if a human resources system is found to be faulty as a result of a lawsuit, the organization may be required as part of the settlement to implement signifi cant changes to the system. These are often overseen by court-appointed outside experts. In this situation, organizations can lose control of their own human resources systems and be required to implement what is directed by the outside expert group. Thus, not only can litigation be expensive and time-consuming, but it can result in outsiders playing a signifi cant role in the design and oversight of an organization’s human resources systems and processes.

Organizational leaders sometimes need to be made aware of the potential for legal challenges and their consequences. There are specifi c steps that need to be taken to be able to defend a performance management system if it is challenged. These steps require additional work, time, and resources. Especially when there is a desire to get a new system implemented quickly, there can be pressure to forgo the additional work that is required to address legal concerns, especially if leaders view the chances of being challenged as very small. More than one organization’s leaders have made the decision not to be overly concerned about legal requirements, only to suffer signifi cant legal problems later on. It is therefore important that organizational leaders understand the legal requirements and possible risks so that they can make fully informed decisions about how to develop and use their human resources systems.

Because performance management is a frequent focus in employment litigation matters, it is important to be familiar with the laws and professional guidelines that apply to the design and implementation of these systems. While an in-depth discussion of legal issues and comprehensive review of associated case law is beyond the scope of this book, numerous resources are available for obtaining this information, including :

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Kahn, S. C., Brown, B. B., & Lanzarone, M. (1996). Legal guide to human resources. Boston: Warren, Gorham & Lamont, 6–2 to 6–58. 

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Malos, S. (1998). Current legal issues in performance appraisal. In J.W. Smither (Ed.), Performance appraisal : State of the art in practice (pp. 49–94). San Francisco : Jossey Bass. 

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Malos, S. (2005). The importance of valid selection and performance appraisal : do management practices figure in case law ? In F.J. Landy (Ed.), Employment discrimination litigation (pp. 373409). San Francisco : Jossey Bass. 

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Martin, D. C., Bartol, K.M., & Kehoe, P. E. (2000). The legal ramif i cations of performance appraisal: The growing signifi cance. Public Personnel Management, 29(3), 379–406.

Shown below is a brief summary of guidelines derived from case law and professional practice standards that are important in defending an organization’s performance management practices.

In the legal arena, there are two concepts that are important to understand – adverse impact and validity – as they play a central role in determining the veracity of potential legal challenges an organization might face.

Adverse Impact

Adverse impact means that the outcomes from a human resources system can be associated with employees’ race, gender, age, or other personal factors, such that individuals who belong to certain groups receive systematically less than individuals who belong to other groups. Potential adverse impact is evaluated against protected demographic groups, such as African Americans, Hispanics, females, and individuals over 40. There are different ways to examine adverse impact in a performance management system. If ratings are directly tied to outcomes such as pay increases, bonuses, or stock options, one can examine whether there are systematic and significant differences in the rewards received by different groups. A simple way to examine this involves use of the four fifths rule.

If a human resources system is shown to produce adverse impact and the organization wishes to continue using that system, there are legal requirements that the system must have demonstrated job relevance or validity. The existence of adverse impact without validity leaves the organization vulnerable to challenges against which it will not be able to prevail. While validity can be used as a defense for a performance management system that produces adverse impact, it is wise to minimize adverse impact to the extent possible. This not only decreases the chance that the organization will face costly and time consuming legal challenges, but it also helps to avoid unfavorable views of an organization that can occur when its human resources systems are known to produce adverse impact.

Because adverse impact reflects the proportion of majority versus protected group members who receive desirable outcomes, it cannot be assessed until after the appraisal process is complete and final pay, promotion, etc. decisions have been made. This is obviously late in the game to realize that a system may be producing undesirable levels of adverse impact. For this reason, other analyses can be performed to evaluate the like lihood that a system will produce adverse impact. Specifically, one can examine the average performance rating scores that different groups receive using a statistic called the “Effect Size.

Validity 

If performance ratings are linked to important outcomes and produce an adverse impact against a protected group, the law requires that the system be shown to measure important requirements of the job, or in other words, be a content valid system. Although there are other types of validity, content validity is the most practical and acceptable form of validity for performance management systems. Content validation requires conducting a thorough analysis to identify a job’s critical performance requirements. Job requirements are the important work behaviors or tasks that are performed and the competencies that are required to effectively perform these work behaviors and tasks. The performance management system must focus on measuring how effectively employees perform critical work requirements. Content validity is demonstrated through a series of expert judgments, which document that the performance measures comprehensively assess important job requirements. A brief overview of the validation process is shown below, following steps 1–7, and more detailed guidance for developing valid outcome (i.e., results) and behavioral performance measures is provided in the next two chapters.