Components of a “Best Practice” Employee Performance Management System
By Dr. Howard Risher
“Can’t live with it – can’t live without it” might be a good way to describe the status of many employee performance management systems. There may be no other management responsibility that causes more anxiety. That is true in every sector. For managers, policies requiring them to complete a performance appraisal form for an employee have been less popular than going to the dentist. All too many employees are similarly not comfortable with the way their performance is evaluated. Some critics would argue it’s a no-win for anyone.
Despite the resistance, however, there are organizations where performance management is an accepted and valued process that has contributed to improved performance. In fact, analyses by Gallup show that performance management is central to employee engagement, and engaged employees are more productive, have lower turnover and absenteeism, and better safety records. There is also an argument that younger workers who have grown up with video games, with instantaneous feedback and rewards for good performance, expect the same when they go to work. All of which is to argue that the payoff from investing in more effective performance systems easily offsets the cost.
One of the obvious issues is that the problem is at the heart of being a good manager – a role that depends on addressing performance issues effectively with staff. Managers need user-friendly ‘tools’ that help them to focus on the issues that are relevant to work management. There are a number of companies now marketing technology-based systems but the firms typically were started by people whose experience was in the development and marketing of ERP systems where the users are a small number of specialists. Employee performance management, in contrast, is a highly decentralized responsibility and therefore a different problem. The need is for systems that even the lowest level supervisor will find easy to use.
Tenzinga is one of the few systems that meet that test.
The Best Practice Approach
The critics have been many and harsh. It seems at times that no one is willing to defend performance appraisal practices. Everyone it seems, including the HR staff, is aware the practice is problematic. The track record is often not filled with a lot of successes. Attitudes are generally more negative than positive. There is inevitably early resistance to gaining acceptance for new practices.
The argument to counter the critics starts with the distinction between performance appraisal and performance. The former is generally described as a year-end event to complete an appraisal form, often by checking off a few boxes that indicate a supervisor’s view of how well an employee performed. In the worst case – although by no means an unusual case – the performance dimensions or criteria are abstract notions like ‘flexibility’, ‘dependability’, and ‘creativity’. Performance dimensions like those cannot be defined in job-specific terms which makes it extremely difficult to apply them to a job and individual – and then to defend the decision. Completing the form sometimes takes as little as 15 minutes. That exercise is virtually meaningless and adds nothing of value. The critics are right in criticizing the traditional appraisal.
In contrast, performance management starts at the beginning of the year with performance planning. Each supervisor meets with his or her people to discuss and reach agreement on the individual’s primary responsibilities and what they are expected to accomplish. That starts with a position description and the job duties. They need to discuss and reach agreement on how performance will be assessed on each duty. For many duties, it is possible and very clearly desirable to identify objective or verifiable performance measures. These ‘measures’ are often referred to as performance standards.
Whenever it’s practical, the best practice approach is based on goals related to each duty. Goal setting has been widely used for several decades but it is only in the past few years that employers have pushed it down to non-management positions. It is not always possible to define performance goals for every job but it is always important for a manager and employee to discuss and agree on what they employee is expected to accomplish.
‘Best practice’ performance management also includes regular dialogue throughout the year between the manager and his or her people, discussing events that impact on performance, addressing problems, modifying performance plans, providing feedback and coaching, and otherwise encouraging the employee to perform at a high level.
The focus of the discussions should be on actual performance, the day-to-day duties, special projects, and recent work-related events. Managers need to be able to document the issues as they arise so the information is available to discuss with an employee. A quick or cryptic note can prove to be very valuable in those discussions. Too often, the period before an appraisal is scheduled is like the week before Christmas when every child is well behaved and hopes their parents have forgotten the misbehavior.
Ideally the employee should also be able to add his or her notes to the file. That is a decided advantage compared with traditional approaches. It gives them a sense of control that is too often missing.
At year-end, the supervisor is still expected to summarize his assessment of the employee’s performance but if there has been regular discussion of performance issues, there should be no surprises. The completion of the form now is the documentation of conclusions throughout the year.
The year-end appraisal meeting is also an appropriate time to discuss the employee’s career plans and development needs so they can continue to progress. This is far different from the traditional appraisal.
The critics would have employers discontinue annual appraisals. But employees always need feedback so they have a good understanding of their career prospects and development needs – that’s fundamental. Research has confirmed that employees want to feel they are growing and developing the skills to be good at their job. They want to progress and tackle new challenges. That is particularly important for younger workers and with the projected heavy baby boomer retirements, the need to recruit and retain younger workers will be critical.
Organizations also need to identify their ‘star’ performers and those few employees who simply have not satisfied performance expectations. They need special policies to manage the employees in both groups. That is basic to effective performance management.
Some proponents of performance management proponents argue individual development planning should be the primary reason for assessing employee performance. The support for individual development feeds an employee’s sense of commitment to the organization.
The Gallup research findings are another solid reason for developing effective performance management practices. Their analyses show that 12 survey questions are related to the level of employee engagement – their “Q12” questions. They use these questions to categorize employees as ‘engaged’, ‘not engaged’, or ‘actively disengaged’. They define engagement as employees who “work with passion and feel a profound connection to their employer. They feel involved in and enthusiastic about their work.” Every employer would benefit from having engaged workers. Of the Q12 questions, nine or ten, depending on how they are interpreted, are related to the practices associated with performance management.
The Tenzinga system fully satisfies those requirements.
The Basic Problem — Defining Performance Expectations
The key issue in the Gallup questions is the employee’s understanding of what’s expected. That’s a ‘nuts-and-bolts’ issue that starts with the employee’s position description (PD). Those documents are too often not kept up to date but they are basic.
If the PDs are no longer accurate, it makes sense to update them. Employment law generally requires accurate job documentation, based on job analysis. That can be a major investment of time so it makes sense to explore ways to both satisfy the law and minimize the time. To state the obvious, job incumbents know the job requirements better than anyone so they should be asked for input. Its possible now to purchase dictionaries of job descriptions that will need fine tuning but still cut down the time. Typically these products have software to help maintain and update the descriptions.
As an idea, it might make sense to scrap the old traditional PD format and adopt a newer version with more of a focus on performance. For example, it might be useful to add a section on the criteria for evaluating performance. Job duties can be stated with more of an emphasis on purpose and results, and not on activities. The PD can send an important message that performance and results are a priority.
The list of job duties, responsibilities, and tasks is the starting point for discussing performance expectations. A traditional approach is to define standards of performance for each job duty. That might be something as simple as, for a secretary, answering a phone within three rings. The standards should be combined with agreement on ways to asses or measure performance.
A simple and practical way to define standards is to turn to ‘customers’ and ask them about their expectations. Every employee has customers – that is the people they are working to provide a product or service, and those individuals as a rule have expectations that they can articulate.
There is a huge chasm between the practices in organizations that rely on a superficial set of generic work dimensions, like ‘cooperation’ and ‘initiative’, and those that invest the time to define specific performance standards. It is fully possible to translate a job duty or responsibility, as stated on a PD, into one or more specific performance measures that are far more objective. It takes time but the investment pays off.
Goal setting also starts with the PD. It takes a little while for people to learn to define reasonable goals if it is not an established practice. Moreover, there are jobs where it is not practical to define goals – a Registered Nurse is a good example. However, goal setting is at the heart of effective performance planning. People tend to set goals for themselves all the time so it is a widely accepted idea.
The ‘best practice’ thinking now combines results and some version of job competencies – defined as knowledge, skills and behaviors – for assessing performance. A decade or so ago the leaders at GE concluded that the traditional short-term focus on financial results did not contribute to the long-term health or success of the organization. They refocused their executive performance system on “the what and the how” – where the what is job results and the how is the way a manager handles his job. The competencies associated with becoming an effective manager are now standard in many performance systems.
Competencies are widely used in human resource management as well as fields like career counseling. Hospitals are required to define competencies for all patient care employees as a way to insure a qualified staff. Employers have adopted “core” competencies, that communicate shared or desired values such as “ethical behavior”, “generic” competencies such as “teamwork” and “treat visitors as guests”, as well as job or occupation specific competencies, associated with job success. For example, studies of nursing jobs show that the basic responsibility, “Planning and Managing Care”, involves specific competencies. Those studies paint a picture of outstanding nursing performance.
The issue with competencies is to develop a profile of those key competencies –– that are associated with job success. The typical employee would like to be seen as a valued contributor so they are interested in knowing how to succeed. Competencies can be developed for any job, from a receptionist who needs to understand how to answer phones, to a senior executive who is expected to demonstrate “Financial acumen”. The focus on job success is the common thread for defining competencies that are relevant to evaluating a job incumbent’s performance.
It takes a little work but it is highly advantageous to define competencies relevant to each career level or stage. We of course expect more from experienced employees than from trainees. As an employee progresses up his or her career ladder, they should naturally enhance their competence, add new competencies – we expect more from them – and that should be reflected in the criteria used to assess their performance. By the time they reach the top of their career ladder, the best performers should be close to ‘experts’ in their fields.
Competencies have already been defined for most occupations. They can be purchased from consulting firms or acquired from many professional associations. They should be restated to conform to a planned format but that should not take a small team of high performers more than a couple of meetings.
Some managers put all of this together on their own. They’ve worked for managers who provided effective support and feedback, they’ve read one or more of the many books and articles on the subject, or maybe its instinct – they know the way they would like to be managed. For other supervisors, the performance management system should be designed to provide a framework to guide the way they plan and assess an employee’s performance.
The Tenzinga system can handle the requirements.
The Biggest Problem – Defending Performance Ratings
Undoubtedly the most controversial element in the appraisal process is the final performance rating. The basic question is always the same – Are the ratings a valid (or accurate) measure of how an employee performed? Unfortunately, studies have confirmed that ratings are often not defensible.
A virtually universal problem is that supervisors have a tendency to overstate or inflate the ratings of their people. We all like to think we are above average but when 80%+ of a work group is rated that way, it sets off alarms. Some critics argue that the distribution of ratings should fall into a normal or bell shaped distribution, with as many people above the average as below it, but that never seems to happen in any organization.
There does not appear to be a permanent cure for inflated ratings. One answer tried in several prominent companies, starting with GE, is the so-called forced distribution or forced ranking approach. GE’s policy was based on a three-level rating scale and required managers to rate no more than 20% of their people as outstanding and 10% at the unacceptable level. The balance, 70%, were assumed to all be performing at a ‘meets expectations’ level. The top 20% were granted significant financial rewards to keep them with GE; the bottom 10% had two-years to turn it around and show improvement. Several other prominent companies adopted the same basic approach, and many others use a less formal policy..
Reportedly, however, GE has backed away from this policy. They realized that after a few years and forced terminations at the bottom, the people who are rated as unacceptable would previously have been rated as good perfomers. Moreover, they also realized that in an operating unit that has a highly successful year, its reasonable to find more than 20% who are truly star performers, while in a poor performing unit, the number should be less than 20%. The forced distribution idea can also run into problems with employment laws if older workers or members of protected groups are disproportionately affected.
The TQM guru, Dr. W. Edwards Deming, a prominent critic of appraisals, argued that one of the inherent problems is that supervisors often disagree on how an employee performed. He observed that one supervisor might rate an employee as a ‘3’ while another believes the same performance warrants a ‘4’ rating. As evidence of the problem, a recent study showed that in matrix organizations, where employees report to two managers, they frequently do not agree on the rating. That is evidence of a problem.
People who study psychological decision making and measurement – psychometricians – have completed hundreds of studies trying to develop a defensible rating process, with little progress. There is no ‘silver bullet’ approach to insure valid performance ratings.
A frequent issue in their studies has been the number of rating levels. Studies have tested as many as nine rating levels, presumably in an attempt to make the ratings more precise. Somehow, regardless of the number of levels, the ratings are always bunched in the higher levels – the inflation problem.
The logic in increasing the number of levels suggests they view this as a measurement problem. From a technical perspective, this is not measurement in the way we commonly use that term. We are accustomed to using either an interval (e.g., temperature) or a ratio (e.g., money) measurement scale.
Performance ratings are different; they are ordinal values (or ordered categories) and far less rigorous. We know a ‘4’ performer is better than a ‘3’ but we cannot say how much better. We also cannot say an employee is a 3.8 – ordinal values are not that precise. That’s a technical issue but important here.
That means it is better to fall back on what is sometimes described as ‘buckets’ or categories. A manager needs to classify or categorize his people based on their performance and stay away from ideas of precise measurements.
That logic also applies to the number of rating levels. The organization needs to identify the best performers and the worst – its stars and its turkeys. They stand out in every work group. Research shows the stars are typically 15 -20% and less than 5% fail to meet expectations. Co-workers generally agree on who belongs in each group. The workers in the balance of the work force have strengths and weaknesses but overall are meeting expectations – they are doing their job. It is certainly important to give them the feedback they need to improve but there is no purpose served arguing about whether they are ‘3s’ or ‘4s’
That leads to what is undoubtedly the best answer – three rating levels. Basically the levels are : Exceeds Expectations, Meets Expectations, and Failed to Meet Expectations. That meets the needs of the organization and makes the decisions easier for the manager.
The Tenzinga system is based on three rating levels and its focus on specific performance standards should minimize any possibility that ratings are not defensible.
Using the Performance Rating Information
Performance ratings, according to the textbooks, are used in multiple HR applications. The most prominent use is to justify pay for performance salary increases. The credibility of the ratings is a critical concern. When the ratings lack credibility, there can be strong resistance to pay for performance. And there are many critics of pay for performance, particularly in the public sector. For employers that intend to move to pay for performance, the key is gaining acceptance of the new policy is the performance management system.
Performance ratings are also important in individual development planning. Employees need feedback on their strengths and weaknesses so they can better plan their careers and their personal development. Inflated ratings absolutely undermine the planning. Employees also need job-specific feedback so they know where they stand. An accountant, for example, needs to know what skills are needed to qualify for promotion; telling him or her that they need to be more “flexible” or “dependable” – or any of the other often used generic dimensions – is not very helpful.
A related use is succession and career planning. Both benefit when the ratings cover knowledge, skills and abilities known to be needed for job success.
The ratings are also used of course in terminations and demotions, and it is these applications where the issue of validity is critical. Managers need to be comfortable with the performance system and confident that they will be able o explain and defend their decisions.
Tenzinga can satisfy this requirement.
The Role of Technology
Managers in organizations that rely on paper-based performance systems would probably throw up their hands and go on strike if they were asked to handle all of this manually. The common complaint is that performance management is too time consuming – which suggests managers do not see performance management as a priority. That is a leadership issue as well as a system design issue.
Technology reduces the time to handle the process and it also facilitates adding components and features that would be impractical with a paper system.
One of the components is the collection of performance feedback from multiple sources. Many supervisors simply do not have regular opportunities to observe their people actually working. They are away from their office or carrying out their work on the internet or by telephone. Many also do a lot of their work on a computer. That of course is a common reality in ‘knowledge organizations’.
It is also true that other people, especially customers, have a much different and perhaps more important perspective of how an employee is performing. Their input is essential to an accurate and complete picture of an employee’s performance. From a related perspective, perhaps the most important perspective of a manager’s supervisory skills is that of the people he or she supervises.
The importance of capturing feedback from all of the relevant sources led to the now widely used practice referred to as multi-rater or 360-degree assessment. Typically the employee and his/her supervisor discuss and agree on who will be asked for input. It cannot be the employee’s friends of course. Each rater may have a somewhat different perspective and for that reason is logical only to ask them to comment on specific aspects of the employee’s performance. Technology makes that possible.
Technology also facilitates note keeping, and assembling comments by other managers along with performance data as the year unfolds. Employees will accept the system more readily if they can add information to their file when it’s timely. When they accomplish something commendable early in the year, they do not want it forgotten when the evaluation is finalized. Technology again is the answer.
Tenzinga makes all of this much easier.
Satisfying the Legal Requirements
Performance ratings are used for employment decisions – salary increases, promotions, terminations, etc. – and for that reason they are treated under the law as the same as an employment test. When the performance ratings adversely affect a protected group, problems can arise. For that reason, it always makes sense to monitor ratings and coach managers who appear to be creating problems.
In those cases when an employee has initiated legal action, the courts have required evidence that (1) the performance criteria were based on valid job information, (2) policies were communicated to managers and followed consistently, (3) adequate training was required for anyone involved in the performance management process, and (4) employees had access to a grievance procedure that has been followed. That is a high standard that many performance systems would fail to pass.
Tenzinga’s reliance on documented job duties satisfies the legal requirement.
The Importance of Leadership
If we were to look back only a few years, performance appraisal was always an HR requirement. It was handled that way since before World War II. Someone in Human Resources sent out the appraisal forms, hounded supervisors to fill them out, added the forms to an employee’s file, and processed the paperwork to trigger personnel actions. Managers and supervisors complained about the time it took and reluctantly complied – the process was seen as a nuisance and practically meaningless.
The management of employee performance as discussed in this paper is a very different exercise. With the traditional approach to management, employees were supposed to follow the rules and do as they were told. The supervision was easy. But in today’s dynamic and competitive world, employers need more from their people – and that makes the role of supervisor much more demanding. Performance management needs to be seen as a basic competency for any manager or supervisor.
The single best way for a newly promoted supervisor to learn how to manage performance is to observe how higher level managers handle it. That learning process starts when an employee is first hired of course. It is more than likely, however, that the track record of past failed systems means managers do not know how to manage performance effectively. If performance management has not been a priority, the role models may not exist and there may not been pressure for managers to develop the necessary skills.
That makes training essential. It of course needs to cover the use of the performance system. It also should cover the ‘soft’ skills needed for effective feedback and coaching.
Above everything, however, is the importance of leadership. Top management needs to make the management of employee performance a priority. They need ‘to walk the talk’ so their direct reports make the commitment and that commitment cascades down to the lowest level supervisors. The leaders need to reinforce that message and to recognize those individuals who handle this responsibility in an exemplary way. Role models are important at every level. It starts at the top.