Does your performance management system measure up?

Diane Lustenader, SPHR

If your performance management system consists of an annual conversation that creates more frustration than understanding, seems like “just a ritual” or does not affect your bottom line, read on!  In an era of litigation mania, many managers see performance documentation as useful records in combating wrongful discharge lawsuits.  While this may be true, effective performance management should be so much more.

Let’s start with a common understanding of some terms.  Performance management (PM) is a continuing interactive process between employee and manager with an objective to improve the performance of both the individual and the organization.  The process includes setting, measuring and providing feedback on performance expectations.  The process involves periodic performance appraisal events as well as ongoing coaching, checkup meetings and organizational goal setting.

A performance appraisal (PA) is the event at which managers and employees develop a common understanding of the measurement of performance during a specified period of time, share present perceptions and create future plans.

Phase I – Standards & Goals

From an organizational perspective, establishing corporate strategy and tactics and sharing those objectives and activities at all levels throughout the organization is the beginning of establishing performance standards.  Employees need to know what the expected results are so they can participate in two-way conversations about how they can contribute to those goals.  Establish standards of performance for the routine duties of each job and communicate them on an individual basis.

When answering the question, “What does it mean to do a good job in the parts department of our organization?” would the managers and employees in your company give the same answer?  Posting charts, targets, standards and measurements visibly help everyone understand the expected results of their position, their department, other departments and the company.  Certainly in privately held companies, there may be a reluctance to embrace open-book management, but there are other measures of organization and individual effectiveness that will help all involved focus on concrete outcomes.

Sample Job Standards
Customer Service/Inside Sales Representatives

• Invoicing within 24 hours of shipment (desired result improved cash flow)
• Frequency customers accept substitute products (result – more inventory turns, fewer back orders, customer retention)
• % of errors on bills, shippers, commissions, etc (result – lower overhead)

Field Service Engineers

• % calls/month solved on 1st visit (weighted by difficulty)
• Total service cost per weighted call (including transportation, tools, and documentation processing)
• Median response time between calls and arrivals (result customer satisfaction and repeat of business)
• No. of contributions to company’s trouble-shooting manual (weighted by each item’s potential dollar savings, time savings, etc.)
• Filing expense and service report within 3 days after return to the office (result – quicker cash flow)

How do employees learn about the expected results of the company and their positions in your enterprise?  Experience suggests that communicating performance standards in multiple ways has a higher degree of working.  Some chances to inform employees of anticipated results include:

• During the job interview
• During orientation
• In the position description
• In the workplace
• In performance appraisals
• In the strategic plan

While it is important to form specific, observable performance standards, it is also critical to determine what constitutes “exceptional” performance.
Goal Setting

• Conditions that will exist when the desired outcome has been attained.
• A time frame during which the outcome is to be completed.
• Resources the company is willing to provide to help achieve the desired result.

SMART goals are effective goals:

• Specific
• Measurable
• Attainable
• Results-oriented
• Time-based

Goals should be challenging, but achievable and establishing with the employee, For example:
“To increase the flow of invoices through the Accounting Department to a minimum of 150 daily by October 1.  The total cost to achieve this should not exceed $1,500.”
“Follow-up on all sales leads and inquiries within two weeks from date received with a mailing, phone call, and a notice to the rep.”

Where practical, employees should measure their own performance and communicate upwards to management.

Phase II – Ongoing Performance Coaching

Ongoing two-way communication between manager and employee is the key to successful performance management.  This is the manager’s opportunity to provide specific comments to employees, on a more informal but just as serious basis than the annual or semi-annual performance appraisal.  It is also the employee’s chance to give information to the manager about performance and also regarding environmental conditions which may act as “circuit breakers” to the performance cycle.  If some environmental condition significantly changes, the manager and employee can together revise the performance standards and goals for the appraisal period.

All too often, however, the months drag by and managers and employees do not take a few moments to talk about progress.  When appraisals come around, employees may feel like the review is full of “surprises” and that their manager is a “garbage dumper.”
“Garbage dumping” managers save up their negative comments from an entire performance cycle and dump them on employees during the performance appraisal interview.  This does not give the employee a chance to alter behavior or results to achieve the desired performance and is an easy way for managers to end up in court.
Performance coaching provides employees with communication about what they are doing well and what they need improvement on.  It balanced with both the good news and the bad.  Managers have a chance to build on the strengths of employees.
Some managers use the “feedback sandwich” technique:
“good news”
“bad news”
“good news”
“John, you did a nice job on your sales reports this month.  They were complete and contained specific information about the consumers’ needs so we can prepare accurate proposals.  Do you remember what our performance standard is for the timeliness of these reports? … That’s right, 3 days.  Your record lst month was 8 days.  When you turn in sales reports on time, we can get a proposal out and have a better chance to get the order.  John, I know that someone as careful as you are in preparing the reports can arrange your schedule to get the reports done within 3 days.  What can I do to help you meet that performance standard without jeopardizing your performance in other areas?”

Performance, coaching statements should contain:

• Facts – observable behavior, not conclusions.
  Objectives - positive statement of performance you do want.
  Solutions - methods employees can use to overcome barriers and achieve standards.

Schedule time on your calendar for brief meetings with your employees around project milestones, at least quarterly.  Solicit their opinion of how things are going first.

Remember, the more visible goals and standards and measurements are, the easier it is to have informal discussions about results that are out in the open.
Coaching reminders:

• Publicly praise – and make it specific so others know how they can get recognition, too.
• Privately discuss substandard performance
• Evenhanded communications – if anything err on the side of more positives.

Keep desk files with notes about performance coaching so that when it is time to prepare the formal appraisal, you have good records from the entire review period… of both things that have gone well and those that have not.

Phase III – The Appraisal Meeting

Schedule the review about a week in advance, arrange a private comfortable setting and state the purpose and agenda of the meeting.  This shows respect for the employee and his/her schedule.  Make sure that when you schedule the interview, you have secured all the internal approvals and checks you need for the PA form and goals.
A couple of hints on the forms themselves:

• Using odd numbers for rating scales may create a central tendency in responses.
• No one likes to think they are “average” or “meeting standards.”  More up-to-date labels are “effective” ore “competent”.
• Provide specific examples of behaviors and results to substantiate performance ratings.
• Use the position description and performance standards as the criteria for evaluating employees – don’t compare them to others or to you!

Research suggests that having employees prepare self-appraisals can increase the two-way communication during appraisals interviews.  The best self-appraisals are ones which ask employees to report their results against the original (or revised) performance standards and goals and also ask a handful of open-ended questions designed to generate discussion on the employee’s strengths and areas to improve.
Try to avoid having the self-appraisal be a mirror image of the manager’s form with rating numbers and not much narrative.  This could lead to unproductive discussions about numbers and not about substantive matters surrounding performance.
Sample Self-Appraisal Questions
1 & 2 required.  Choose 3 more to answer.

• In which job responsibilities do you show the greatest strengths?  Give examples
• In which job responsibilities do you need improvement?  Give examples.
• Furnish some examples of your significant accomplishments during the past review period and explain how they contribute to overall corporate objectives.
• What specific business goals and projects do you believe should be your priorities during the next review period?
• In what areas are you doing a better job than in the prior review period?
• In what areas are you doing a less effective job than in the prior review period?
• Give specific examples(s) of how you could have communicated more effectively with customers, supervisors or colleagues.
• Give specific example(s) of how you could have communicated more effectively with customers, supervisors, or colleagues.
• Present example(s) of how your leadership contributes to the company’s business results?
• Present examples(s) of how you could have exhibited leadership that is more effective.
• What are your career goals and what are you doing to achieve them?
• What training or assistance do you believe would improve your career development and opportunities? Why?

Some organizations have employees turn in the self-appraisals to managers ahead of time.  While it can provide the manager additional information in preparing the written review, there is a stronger danger that seeing the employee’s self-appraisal may influence the manager’s evaluation.
Start the meeting stating, “This meeting and this process are important to the company, to you and to me.”

Exhibit your interest and your professionalism using the SILENT method:

• Sit square facing the employee
• Investigate, ask questions
• Lean forward
• Eye contract
• Nod occasionally
• Take time

This meeting is very important to employees.  They have high expectations about the outcomes.  Employees know that compensation, training and promotional decisions will be based on the appraisal and that causes excitement and apprehension.  And, if you read Dilbert, you know that these meetings are subject to public ridicule and sarcasm from being so often bungled.
Listen.  Ask for the employee’s views about his/her performance using the self-appraisal or just using some of the questions from it.  Withhold comments or judgments.  The only talking you want to do at first is to confirm what you hear and ask questions for clarification.
Present your assessment and build on the employee’s strengths.  Go over each item on the form.  Give specifics.  Don’t “skip” or gloss over any item.
Ask for the employee’s reaction.  When your appraisal and the employee’s self appraisal do not agree (positively or negatively), explain your reasons using specific examples.  When agreement cannot be reached, remember that you cannot force people to change their minds.  Summarize both points of view and move on to the next item.
Together, set SMART goals for the next review period.  This is an opportunity to tell the employee about the direction of the organization and the department for the next year and to determine what specific contributions the employee can make to larger organizational goals.  This may be the opportunity to select developmental activities for the employee. 
Sample Development Activities

• Coursework and study
• Fill-in for vacation or on leave employees
• Join or chair a work task force
• New projects, special assignments
• Observing others with desired skills
• Represent manager at meetings
• Research and reading
• Transfer to another department

Summarize and close the discussion.  Summarize by asking the employee to identify strengths and some areas for improvement.  Restate the goals.  Add to the employee’s list if any important issues were missed.  Have the employee sign their appraisal and give him/her a copy.  Set a general date for an interim meeting.

Phase IV – Pay Decisions

It is recommended to have the conversation about pay adjustments at a separate time from the discussion about performance.  When the two topics are combined, the employee may not remain focused on the performance matters waiting to hear about money.  Some organizations actually have performance appraisals and goal setting scheduled around their fiscal year and pay adjustments at the half-year to avoid that problem.

The strong trend of companies in the 90’s has been toward “pay for performance” or merit-based pay adjustments.  The message to employees is that they have to earn their adjustment with each year’s performance.  The higher the performance, the higher the raise, based on the organization’s ability to pay.  1998 forecasts for merit increases reveal the following averages:

This information may be used alone or in combination with data about an individual’s position in their pay range.  A typical pay philosophy would be that, given equivalent performance, an employee with a salary below the midpoint of a range (i.e. “market salary”) should receive a higher raise than an employee with a salary above the midpoint.

Following is a sample chart for determining merit increases without regard to the employee’s current salary:

A sample chart for exempt staff, which includes consideration for position in the range follows:

With average raises running around 4.0%, it is difficult for companies to provide high raises to recognize exceptional performers.  When you give one employee a 7% raise, someone else may have to get 1% to balance the salary increase budget.  This becomes more of a challenge for companies who calculate raises based on anniversary dates.  It requires managers to be very consistent and fair and not respond to the differing business conditions throughout the year.

Wrapping it all up

Determine the goals for your performance management system – and tie them to the bottom line.  Really work to develop people committed to organizational goals and their own development.  One step at a time.

Diane Lustenader, SPHR, is President of lake Associates, Inc., a national human resources consulting firm specializing in compensation and compliance.  She can be reached at dl@lakebiz.com or 518-732-0526