The Art of Performance Management

The Ecce Homo fresco in the Sanctuary of Mercy in Zaragoza, Spain, was relatively unknown until 2012. That year, an ill-fated attempt to restore the work and the end result--a completely new painting that stretched the very boundaries of what can be considered "art"--rendered the fresco notorious (this story will become relevant again by the end, I promise).

Unrelated, but also in 2012, were an influx of stories in the media about organizations that had removed their formal performance rating systems. REI, Adobe, Pandora, Workday, Juniper Networks, and others had scrapped the traditional methods of performance management and replaced them with practices that were better suited to their organizational goals.

i4cp conducted research on this phenomena in 2013 (Performance Management 2013: Still Waiting for Real Change) and found that only 6% of organizations had discontinued formal performance ratings in the past year. While this shows that there are some companies that are making this move, the low number is out of proportion to the hype that surrounded the no-performance-rating movement.

Many of the companies listed above are i4cp members, and in speaking with those organizations and with organizations that were planning on keeping a traditional rating system, the ideas for our next study on performance management, Creating a High-Performance Culture (non-members, download a preview of the full report), were created.

Issues that were explored in this subsequent study include best and next practices with traditional performance management systems, bottom-up actions that can help performance management in organizations without significant leadership support, and low-cost improvements that can be made to performance management (PM) that don't require a massive overhaul of the existing system.

For various reasons, many organizations either can't change their PM system (e.g. a government contractor that is required to keep these details) or don't believe it would give them a good return on the investment involved (e.g. a service organization that ties ratings directly to compensation). For these types of companies, the ideal would be a performance management system that drives organizational performance and is as unobtrusive (both in terms of time and money) as possible.

The i4cp study revealed four key findings:

• Modern performance management is customer-focused.
  High-performance organizations have PM programs that are all about the customer. The metrics that employees are judged by are directly customer-related, such as NPS (net promoter score), customer satisfaction, sales, etc.
• Performance management is consistent across the organization.
  Don’t confuse consistency with uniformity--i4cp found that if there is a PM system for lower-level employees, there should also be one for your highest-level executives. The system may be different, but exempting the C-suite from PM creates a sense of unfairness, which is detrimental to engagement and thus organizational success.
• Show & Tell PM is successful PM.
  Of all the changes that can be made to an existing PM process, more transparency is probably the most cost-effective. Organizations are more likely to succeed when leaders openly share goal information across the company, and lead by example in making decisions based on data. Keep in mind that how individuals and departments are performing relative to their goals is not important--the key here is for employees to understand how their performance fits into the big picture.
• Coaching is the key to PM success.
  It is not often that there is a practice that is both positively correlated to success and the absence of that practice is negatively correlated to success, but this is one. Organizations that fully integrate coaching into their PM practices are more likely to be successes, and those that don't are more likely to be failures. Coaching can take many forms, but if there is no plan in place to develop employees and managers, there is almost no point to PM at all.

The study includes examples of current practices at Micron Technology, Clariant, and Emeritus Senior Living, and insights into how these practices work in both U.S. and European-based organizations. Clariant, for example, has a CEO that is also head of the human resources and talent management review groups. That sort of high-level understanding of the importance of performance management translates to a very direct and understandable goal structure.

Performance management isn't going away. It may get renamed, but the concept of evaluating and improving employee performance is permanent and universal. What is becoming better refined are the methods that we use to achieve those goals. Some organizations are starting with a blank canvas and a fresh palette, and that works for them. However, if your company already has something that looks fairly good, a complete overhaul may spell disaster; all that may be needed are a few well-placed brushstrokes to really make it right.