How Do You Manage Performance?

performance_management

Continuing with the theme of “performance management” from our previous post, which shared input from our Partners in Improvement, this post will focus on the specific activities associated with the practice.

While most readily agree that managing employee performance requires first and foremost clear communication of what is important for the organization and how the individual could best contribute, they also recognize that, as one Partner put it, “the #1 reason people don’t do what you want is that they don’t know what you want.”

So, communication about targets and goals can be listed as the first requirement or item on the list of “best practices.”

Further, this communication must not only be done as part of the strategic planning and execution process, but also as part of the everyday conversations and coaching between employees and their managers.

Along similar lines, coaching was considered to be the most important and effective Performance Management method.

This would include providing frequent constructive feedback for individuals, implementing a mentorship program, coaching of teams, and
senior managers exhibiting the behaviors that they are looking for.

The Partners recommended sitting down with people regularly to have a dialog about what is going well, what help they need. Immediate feedback is most useful.

The next activity identified and discussed was performance reviews. Not surprisingly, annual performance appraisals came in for some criticism — but there were also some suggestions for how they might be done better.

Several Partners mentioned that the annual reviews were a source of angst and dread, perhaps by both parties. They were always late and were considered among the more onerous of management responsibilities.

Others questioned their effectiveness. For example, when a bank implemented formal performance appraisals that evaluated Loan Officers on the dollar value of loans approved and measured the Credit Department on ‘the quality of the loan portfolio’ (i.e., no defaults), it reduced profits and created dysfunction and animosity. The Credit Department was careful to take no risks, while the Loan Officers focused on quantity, hoping that something, at least would be approved.

The bank as a whole suffered.

This example is by no means an exception — Purchasing Departments are often measured by purchase prices, leading to excess inventory when they order in bulk and substandard material when they give too much weight to price instead of incoming quality and timeliness. One of the drawbacks of annual individual performance reviews – especially when tied to compensation — is the high risk of driving the optimization of individual metrics while sub-optimizing the organization as a whole.

But one of the Partners said that their performance review process was greatly improved by increasing the frequency from annual to quarterly. The feedback discussions were both more timely and less stressful.

Others found that when reviews were de-linked from salary adjustments they could focus more effectively on coaching. But then another participant said that they had stopped doing reviews when they had a salary freeze and not able to offer bonuses because the reviews and the salary increases were linked to one another so closely,

Finally, the amount of time spent on performance management varied from 10% to 45%, and it seemed to differ in large part based on whether an organization was focused on formal annual reviews or on frequent coaching or people and evaluation of processes. The majority leaned toward more time and more frequency of interaction.

Our next post will complete the series and will focus on the motivational aspects of performance management.