Optimize your performance management system

performance2Lately, there’s been a lot of press about the lack of value performance reviews bring to a talent management process. Some claim they are simply too subjective and that as a result, only serve a compensation purpose; while others say that because the process only takes place sporadically throughout the year, with little follow-up, it doesn’t help employees achieve better results.

In a recent post, we also acknowledged that performance reviews can indeed be time consuming for both managers and employees. Yet, our experience shows that the main reason why performance management systems rarely deliver on their intended promise is that management often fails to either 1) understand the true value and purpose of the reviews, or 2) utilize the process in an objective and result-driven manner… Or both.

What’s more, the very results that many companies seek to obtain from performance reviews are often quantitative (e.g., number of sales, revenue generated, etc.), whereas the real value of performance management resides in providing both a qualitative and quantitative assessment of an employee’s skills and competencies within an organizational context. In other words, companies primarily use performance reviews to determine compensation, rather than using them as strategies to generate additional value and optimize their output.

Let’s take a closer look.

The performance evaluation conundrum: Results or competencies?

One of the most common flaws of performance review processes is that they focus on evaluating workers’ quantitative output, rather than their competencies. There’s no denying that your workforce needs to generate value for your company, but are you evaluating your employees’ actual contribution to your success or focusing solely on financial results over which they may have very little to no control?

This line of questioning is critical as we move into a new era of workforce planning, one that is now past most of the hurts and pains caused by the financial crisis, which had many employees suffer the burden of additional responsibilities being assigned to them via employers’ cost-cutting strategies. And as we enter a brand new age of having to do more with less, it is even more critical to focus on the real value (i.e., current contribution and potential for future contribution) that your employees bring to your organization, rather than isolated financial targets.

A competency-based performance management system combines planning, management and appraisal of both performance and competencies by assessing not only results and accomplishments, but also the methods used to get there. This shift from evaluating quantitative results to rating desired behaviors and skills makes the performance management process more valuable in the sense that it becomes a tool to empower employees in their development of new skills, as well as a way to distinguish between ‘performers’ – one who executes as anticipated – and ‘bar raisers’ – one who contributes to the productivity, growth and competitiveness of your operations.

Many organizations shy away from a competency-based performance management system simply because it is easier to hold employees accountable for hitting or missing quantitative targets, rather than attempting to measure their qualitative input, especially when the bottom line is running thin.

But there is a big financial value in assessing overall contributions, as opposed to only focusing on specific financial results. An employee may be highly productive and provide great value for a company – be it in the form of peer motivation/inspiration or taking on additional responsibilities at no additional cost to the organization – but not necessarily hit his/her intended financial targets for the period under review. This ‘bar-raising’ behavior should be remarked and rewarded, as it may be contributing to maintaining a lower turnover ratio and/or overall human capital expenditures.

When you integrate competency models into your performance review process, it becomes easier to evaluate the metrics that really make a difference. Plus, it motivates employees by providing them with both feedback that takes notice of their input at many levels and opportunities to develop and advance; two distinct drivers of superior performance.

All things being equal: Past performance as a deterrer of future output

We cannot and won’t argue that past performance isn’t an important metric, or that it shouldn’t be included in a performance review process. But penalizing an employee for failure to meet a quantitative target may also come at a cost – as mentioned above, this employee may be adding tremendous value in other ways and not recognizing it can lead to a lack of motivation or desire to ‘go the extra mile’.

Where performance reviews solely or mainly based on past results fail is that they typically go on the assumption that management can predict an employee’s future performance based on what has been accomplished in the past. This ‘ceteris paribus’ assumption rarely bears any credibility in matters of human capital because while it is possible to draw fairly accurate conclusions when attempting to predict the behavior of individual X when placed in context Y, this assumes that we already know the characteristics of X and Y.

Yet, in an organizational context, these values (particularly Y – which can be time, operational processes, or workforce turnover, to name a few) are in constant movement. As a result, we are no longer attempting to predict the behavior of, say, an entry-level employee of 25 years of age with a college degree (etc.) to a specific environmental context. Rather, we are attempting to predict the behavior of an evolving individual as he/she experiences variations of Y, thereby making the ‘ceteris paribus’ assumption obsolete. It is therefore nonsensical to ‘bet it all’ on your managers’ ability to predict an employee’s future performance based on what has been observed in the past.

Competency assessments to ensure organizational success

The success of competency models as a basis for performance reviews is that they work to describe emerging and anticipated skill requirements, rather than skills that have been effective in the past. As such, customized competency models allow you to rate an employee’s strengths (competencies, skills, behaviors and interests) in accordance with what is required for your organization to succeed going forward.

This process makes it a lot easier to optimize your workforce planning strategy, as it helps you determine whether or not an employee is

1)     Suited to the organizational culture and strategic direction

2)     Possesses the competencies to master his/her current role or the potential to develop skills required by a different role (one in which he/she would deliver more value)

But evaluating competencies does not only serve the needs of the organization; it also allows employees to feel valued within their professional environment, as they are given an opportunity for development and mobility, in accordance with their skills and interests.

We recently wrote that one of the most common myths of succession plans is that companies believe a successor has to be ready now. This also applies to your performance management system, on the basis that a viable top performer is developed with this very purpose in mind.

Granted, this has important implications for management, as it explicitly commits them to provide employees with formal training, coaching, and other competency development activities. But the rewards are significant. In fact, this sort of competency-based system uses the principles of the “self-directed change” theory, which holds that adults change only when they:

  • Feel it is in their own best interests to do so
  • Feel dissatisfied with their existing situation or level of performance
  • Are clear about a “desired” situation or level of performance
  • Are clear about action steps they can take to move from the actual to the desired situation or level of performance

So where do I start?

Implementing a competency-based performance review system from scratch is a complex process, but here is an overview of the steps involved:

  1. Design the core of the performance management process, including the objectives of the process, senior management expectations, frequency of performance discussions, etc.
  2. Determine weighting for performance on the competencies, and identify the competencies required for superior performance in present jobs.
  3. Train managers and employees in the new performance management process. The training should include all the information identified above, as well as the competencies used as part of the performance management system.
  4. Provide training in performance coaching to all supervisors, including how to assess employees on their “actual” levels of competence. Managers should be able to objectively explain the reasons for their ratings, and show that they have considered feedback from peers to establish the ratings.
  5. Organize formal sessions during which employees are given the opportunity to identify their “desired” levels of competence to meet their career goals.
  6. Implement or enhance corporate professional development tools and programs to ensure that employees are given the tools they need to develop the competencies they need to succeed in both their current and future job roles.
  7. Schedule regular coaching sessions during which developmental progress is evaluated.

Of course, these steps only serve as guidance. You can learn more about competency-based performance management on our website’s dedicated area, where you will find valuable articles and downloadable PDFs, or by contacting us for a private consultation.

If you are ready to start developing a competency-based system, we invite you to read more about our onsite workshops and consultancy support for building and implementing competency models for a variety of applications in your organization.

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