Performance Management

Corporate Leadership Council

Performance ManagementA Preview of Council Findings

Corporate Leadership CouncilPresentation Materials

Building the High-Performance WorkforceA Quantitative Analysis of the Effectiveness of Performance Management Strategies

© 2002 Corporate Executive Board

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Seven Key Themes

The Performance Improvement Challenge

Overview of Our Analysis

The High-Performance Workforce

Road Map for the Presentation

© 2002 Corporate Executive Board 4

Formal Performance

Review• Emphasis on

performance strengths• Emphasis on

performance weaknesses• Emphasis on personality

strengths• Emphasis on personality

weaknesses• Emphasis on skills and

behaviors needed in the future

• Emphasis on specifi c outcomes of formal performance review (e.g., promotions, raises, or bonuses)

• Emphasis on specifi c suggestions for doing the job better

• Emphasis on long-term career prospects within the organization

Organizational Culture

• Coworker involvement• Diffuse decision-making

authority• Risk tolerance• Coworker cohesion• Innovation• Flexibility• Differential treatment

of best and worst performers

• Internal communication• Future orientation

Informal Performance Feedback

• Emphasis on amount of effort put into the job

• Emphasis on performance strengths

• Emphasis on performance weaknesses

• Emphasis on personality strengths

• Emphasis on personality weaknesses

• Emphasis on skills and behaviors needed in the future

• Emphasis on specifi c suggestions for doing the job better

• Fairness and accuracy of informal feedback

• Feedback that helps employees do their jobs better

• Immediate versus delayed feedback

• Manager likelihood to volunteer informal feedback

• Method of delivering informal feedback (e.g., face-to-face, in writing)

• Manager knowledge about employee performance

Performance Management

System• Challenge and

applicability of development plan

• Employees’ accountability for “things that matter”

• Employees’ understanding of how system works

• Employees’ understanding of performance standards

• Extent to which employees receive performance ratings they deserve

• Fairness of performance standards

• Link between performance management system and organizational strategy

• Number of formal reviews received each year

• Presence of 360-degree reviews

• Presence of employee development plan

• Presence of procedures for handling grievances with performance reviews

• System credibility• Use of rank-ordering

Managerial Quality• Breaks down projects into

manageable components• Clearly communicates

expectations• Creates work plans and

time tables• Diffuses unhealthy rivalries

or competition among team members

• Encourages employees to be positive and enthusiastic about work

• Expresses confi dence in employees’ ability to do job

• Helps team get started on a new project

• Helps attain needed information, resources, and technology

• Helps fi nd solutions to problems at work

• Holds people accountable• Identifi es or removes

unnecessary barriers at work (such as unnecessary rules or regulations)

• Inspires others• Listens carefully to views

and opinions• Measures performance and

results• Persuades and encourages

others to move in a desired direction

• Recognizes and rewards achievement

• Translates long-term goals into step-by-step plans

• Makes frequent changes to projects and assignments

On-the-Job Development and Training

On-the- Job Development OpportunitiesOpportunity to:• Spend time with a professional coach • Do challenging and leading-edge work• Experiment and take risks• Have signifi cant accountability and

responsibility• Help launch a new business, initiative,

or program• Help turn around struggling business• Work with a mentor • Be promoted• Work for strong senior executive

team• Work in a different country• Work in a variety of jobs/roles• Work in new business units • Work in new functional areas• Work on the things you do best• Work with a diverse group of peopleTraining• Training content– Business (e.g., accounting, fi nance)– Diversity– IT– Leadership– New employee orientation– People management (e.g.,

communication, team-building)– Process management (e.g., managing

timelines or budgets, resource allocation)

– Product– Quality/Six Sigma– Sales– Technical– Other

Day-to-Day Work• Challenge of projects and

assignments• Connection between

successful project completion and incentives such as:– Size of annual merit increase– Size of annual bonus– Opportunity for higher

performance rating– Opportunity for promotion– Raise in base salary– Opportunity for stock

options• Employees’ infl uence in

selecting projects• Employees’ personal enjoyment

of their work• Employees’ understanding

of connections between day-to-day work and organizational strategy

• Employees’ understanding of how to complete projects and assignments

• Importance of projects to business unit and organization

• Importance of projects and assignments to employees’ long-term careers

• Importance of projects and assignments to employees’ personal development

• Number of projects and assignments

• Time to complete projects and assignments

Potential Performance Management Drivers

Individual Performance

Attitudes of High-Performance• Discretionary Effort • Organizational Commitment • Match with Job • Having Necessary Resources • Team Strength • Job Satisfaction • Intent to Leave

Source: Corporate Leadership Council research.


Formal Performance Review

The Corporate Leadership Council’s Model of Individual Performance Improvement

Informal Performance Feedback

Organizational Culture

Day-to-Day Work

On-the-Job Training and Development

Individual Performance

Managerial Quality

Performance Management System

Attitudes of High-Performance

• Discretionary Effort

• Organizational Commitment

• Match with Job

• Having Necessary Resources

• Team Strength

• Job Satisfaction

• Intent to Leave



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Thinking About Performance ImprovementPerformance Improvement: Same Workforce, Better Performance

Number of Employees

Defi nition

• Steady, quantifi able improvement

• “Right shift” in curve

• Same person, better performance

• Same workforce, better performance

Performance


Percentage Improvement in Performance Ranking

30%


With Sincere Thanks…Partnering with the Membership, the Council Surveyed Over 19,000 Respondents

from 34 Companies, Seven Industry Groups, and 29 Countries

Entertainment and Media

Consumer Products and Retail Health CareChemical and

Energy Manufacturing

Financial Services Technology

IADB

Source: Corporate Leadership Council 2002 Performance Management Survey.


Not All Created Equal

Defi ning Relative Impact on Performance


(50.0)

0.0

50.0

(50.0)

0.0

50.0

A-Level B-Level C-Level D-Level

Level of Performance DriverA-Level ≥25B-Level 15 to 24.9C-Level 0 to 14.9D-Level <0


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Seven Key Themes

1. The Performance Management System: The Singular Power of Clarity

2. Performance Culture: The Freedom to Innovate, Communicate, and Tolerate Risks

3. Role of the Manager: Solutions Enabler

4. Formal Review: The Delicate Balance Between Praise and Critique

5. Informal Feedback: The Primacy of Fairness and Accuracy

6. Day-to-Day Work: An Evolving Social Contract

7. Job Opportunities: High Profi le, Good Fit


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Potential Performance Drivers

Performance Management System

• Challenge and applicability of development plan

• Employees’ accountability for “things that matter”

• Employees’ understanding of how system works

• Employees’ understanding of performance standards

• Extent to which employees receive performance ratings they deserve

• Fairness of performance standards

• Link between performance management system and organizational strategy

• Number of formal reviews received each year

• Presence of 360-degree reviews

• Presence of employee development plan

• Presence of procedures for handling grievances with performance reviews

• System credibility

• Use of rank-ordering


Questions Regarding the Impact of the Performance

Management System on Performance

1. Do 360-degree reviews improve performance?

2. Is it important to performance to be held accountable for things that matter?

3. Does rank-ordering improve performance?

The Performance Management System


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1.4 0.2(0.1) (1.6)

Performance Drivers: Performance Management System

Connection and Understanding Are More Important Than Actual Components of the System

Maximum Impact of Performance Management System on Employee Performance

Change in Performance

High

Low

ContentMean = 1.6

Connection and UnderstandingMean = 12.9

Fairness and CredibilityMean = 3.1

* Total effects below traditional levels of statistical signifi cance (t < 2.0).


Level of Performance DriverA-Level ≥25B-Level 15 to 24.9C-Level 0 to 14.9D-Level <0


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Costs and Benefi tsPower of the Performance Management System by Diffi culty and Cost

Diffi culty and Expense of Formal Performance Management System Characteristics, in Order of Impact on Performance

Diffi culty Ratings:XXXX 75th to 100th percentile in diffi culty

XXX 50th to 75th percentile in diffi culty

XX 25th to 50th percentile in diffi culty

X Bottom 25th percentile in diffi culty

Expense Ratings:$$$$ 75th to 100th percentile in expense

$$$ 50th to 75th percentile in expense

$$ 25th to 50th percentile in expense

$ Bottom 25th percentile in expense

Overall Rank (Impact on

Performance)Formal Performance Management System Characteristics,

In Order of Impact on Performance Diffi culty Expense

1 Employees’ understanding of performance standards X $

2 Presence of 360-degree review XX $$$$

3 Employees’ accountability for “things that matter” XX $$

4 Employees’ understanding of how system works X $

5 Link between performance management system and organizational strategy XX $$

6 Extent to which employees receive performance ratings they deserve XXX $$$

7 Fairness of performance standards XXX $$$

8 Grievance procedures XX $$

9 System credibility XXX $$$$

10 Presence of employee development plan XX $$

11 Challenge and applicability of development plan XX $$

12 Use of rank-ordering XXXX $$$$

13 Number of formal reviews received each year XXXX $$$


Corporate Leadership CouncilPresentation Materials

Closing the Performance GapDriving Business Results Through Performance Management


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Inability to Guarantee Performance Improvement

Root Cause #2:

Don’t Know How to Operationalize What Matters

Most to Performance

Root Cause #1:

Don’t Know What Matters Most

to Performance


The Other Half of the Problem


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Distance Between Aspiration and OperationProblems Impeding Performance Management Effectiveness

Problem #1:Insuffi cient

Manager Skills

Problem #2:Inadequate

Manager Focus

Problem #3:Narrowly Defi ned

Ownership

Problem #4: Disconnect

with Strategy

Problem #5:Failure

to Execute



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Source: Andersen Human Capital Group, Rethinking Performance Management, September 2001: 3; Axelrod, Beth, et al., “War for Talent, Part Two,” The McKinsey Quarterly, 22 March 2001; Lester, Tom, “It’s Time to Appraise Our Methods of Appraisal,” Financial Times, 19 March 2002; Corporate Leadership Council research.

Problem #1: Insuffi cient Manager Skills

Role of the Manager in Performance Management

Assessment Feedback Corrective Action

Managers struggle with assessing the right performance criteria.

Signifi cant gap between employees

who want feedback and those who receive it.

Managers are unable to defi ne appropriate

consequences.

Assessing the Right Criteria, 2001

Importance of Feedback, 2001

Consequences of Performance, 2001

Percentage of Respondents Who Say Their Performance Management System Measures the Right Criteria

Percentage of Employees Who Believe

Candid Feedback Is Important

Percentage of Employees Who Have Received Candid

Feedback

17% 17%

89%

39%

Percentage of Respondents Who Say Their Performance Management Process

Identifi es the Right Consequences for Low or High Performance


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Problem #2: Inadequate Manager FocusManagers are often not owning the

performance management process…

Percentage of Managers Indicating That They Would Be Pleased if Their Companies

Moved More Aggressively on Low Performers

…often for good reason…

List of Manager Reasons for Not Doing Performance Management

Source: Axelrod, Beth, et al, “A New Game for C Players,” Harvard Business Review (1 January 2002).

Despite the Best Intentions

“Managers come to us for training and get so enthusiastic about performance management by the time they leave. However, we know that they all go back to their business units, things get busy, and performance management just stops being a priority for them.”

Senior HR Executive Fortune 500 Company

Source: Corporate Leadership Council, Exploring the Measurement Challenge, Washington: Corporate Executive Board, Fall 2001.

…and often without any repercussions

Percentage of Organizations Tracking Managers’ Track Records for Developing Employees

Percentage of Companies

Actually Tracking

• “I do not have time.”

• “I don’t get paid to do performance management.”

• “The performance management system doesn’t impact performance.”

• “I won’t risk alienating an employee who can come back and sue us.”

Percentage of Companies

Considering It “Important” or “Very Important” to Track

96%

80%

13%


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Problem #3: Narrowly Defi ned Ownership Managers “own” the performance of employees

but may not be the most advantaged to do so

Multiple Roles Affecting Individual Performance

Then Now

Representative Project Life Cycle 6 months 6–8 weeks

Nature of Work Function-Specifi c Project-Based

Alignment of Goals Vertical Vertical and Horizontal

Need for Organization-Level Performance Transparency

Medium Very High

Whose Performance Is It Anyway?“There are now areas of my work that I have a greater specialty in and know more about than my manager does. How can he be expected to realistically assess my performance on these areas when he doesn’t really understand some of them?”

Technology Manager, Financial Services Company

Changes in the Performance Environment1995—2002

Formal Manager

Employee

Mentor HRBusiness or

Division Leader

Customer Peer

Project Manager Coach


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Problem #4 : Disconnect with StrategyInsuffi cient focus on business drivers

Typical Performance Management Stages

Current Performance Management Characteristics Result

Reward

Appraisal

Monitoring and Feedback

Goal Setting

• “Peanut Butter” Approach—”A Little Spread Everywhere”

• Loss of High-Return Talent

• Over-Retention of Low-Return Talent

• Inaccurate or Undifferentiated Evaluation

• Unclear Sense of Employee’s Value to the Organization

• One-Size-Fits-All Feedback • Low Incidence of Performance Improvement

• Over-Emphasis on Short-Term Objectives

• Long-Term Objectives at Risk


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Problem #5: Failure to ExecuteTraditional performance management fails to provide for systematic goal achievement

Name of the Game“There is no silver bullet. It really is a game of execution.”

Michael Dell Chairman and CEO Dell Computer Corporation

“Cheerleading” Not Enough

Case-in-Point: Aspire Corporation*

Aspire Corporation’s goal cascade…

* Pseudonym.

…and as a result, targets were missed (by a larger and larger margin) each year

Aspire* Sales Targets

…provided little guidance as to how to realize goals…

Guidance to Sales Force on Goal Execution

“GO!”

Target

Actual

1997 2000 2001

Executive Team Strategy Session Business Goals

BU BU BU

Individual Goals

Sales Team

Obstacles to Goal Realization

• Annual process too infrequent to respond to emerging performance issues.

• Performance goals based on incremental achievement rather than overall strategy.

• Business unit level of performance planning overlooks cross-unit opportunities/confl icts.

• Performance goals fail to provide clear steps for action.


I II III IV VUpskilling Managers

at Performance Improvement

Establishing Performance Management

as a Manager Priority

Expanding Lines of Performance Accountability

Focusing on Business Drivers

Managing for Employee Goal

Realization

Emerging Toolkit

Rater Calibration Training

Personal Board of Directors

Causes of Underperformance

Diagnostic

Line-Based Performance Management Champions

Dual Performance Rating

Parallel Performance Management Systems

Development Group Leader

Contribution-Based Segmentation

Customer-Driven Performance Assessment

Goal-Strategy Task Force

Goal Alignment Cascade

Closing the Performance GapDriving Business Results Through Performance Management

Source: Corporate Leadership Council research.* Pseudonym.

Sherwood Company**

Performance Management

Business

Transcript of Performance Management