EXPERT’S CORNER - Performance Management: still work in progress?

by Jorge Llorente, Director of HayGroup

Article published in ADP Magazine, February 2006
Translated from Spanish by Cézanne Software.

Try to imagine a system that allows you to achieve your strategic objectives, motivate your employees and, at the same time, provides managers with a real measure of the progress that’s being made – all with minimal investment. It would be a “rara avis” in corporate management. But this is what is expected of (and in several companies has been achieved using) performance management systems. However, while research shows that performance management is one of the fundamental pillars of good people management, there are still only a few companies that do it well.

There are many reasons for this, but the first one is the definition of performance. What do we mean by performance? Usually performance is defined as the success of a person in a certain job. Many organizations though, do not agree on what constitutes success. The profusion of names used to refer to the systems and processes that are the tools of performance management confuses the situation even further. You’ll all have heard of executive assessments, management by objectives, balanced scorecards, personal development plans, competency management and employee appraisals.

For certain roles, some organizations judge success on achieving quantitative objectives, regardless of how those objectives are met. For instance: for a commercial company, a sales person is successful if s/he achieves or exceeds the sales goals set by the company. The best sales person is the one who sells the most. Other companies, in other markets, may measure success on how results are achieved, usually based on qualitative objectives. For instance: in a service company, a professional is judged successful if s/he achieves customer satisfaction. It may also be that employees that have the knowledge and skills that their job requires are successful. This is especially true for technical jobs that demand specific qualifications.

The answer to the question “What is the performance” is therefore holistic. It is a combination of the knowledge and skill required for the job the employee’s motivation and attitude, the effort they are prepared to make, as well as the results they achieve - both quantitative and qualitative. In summary: to know, to want, and to be able.

In order to translate this into a performance management system we need to understand the company’s definition of performance – and how they encourage it. The most common is compensation, where you reward the best. For this purpose quantitative objectives are usually the decisive factors in measuring a person in his/her job.

This approach usually leads to an objectives based system, sometimes with very specific goals, and a strong link to compensation, generally in the form of variable pay. These systems can confuse people as to the quality of their output. Even where systems aim to clarify what should be done and what should be achieved, meeting goals and performing well in the job often don’t coincide.

External factors, which may be difficult to imagine when a forecast is put together and, sometimes, sheer luck, can influence whether results are achieved or not. A seller of cold soft drinks may get great results during a particularly hot year, even if his/her performance is not excellent. Or, just the opposite, an excellent seller of soft drinks can get bad results during cold and rainy periods.

As these two cases show, achieving results doesn’t automatically mean good performance, even where there is a clear link to variable pay. Instead, it is better to look at performance in a broader sense. This way managers benefit from a more inclusive view and can make better informed decisions. An integrated performance management system, which takes into account the job profile, the employee’s attitude and their results, can help the company to identify performance gaps and redesigning training and development plans so that employees can advance through the company. It also lets the company track each person’s contribution to the company. All this will allow a more balanced approach to performance management than an objectives-led approach that only looks at variable compensation. However, not every company has an holistic vision of the performance of their people, mainly because of the problems of implementing such a system. In order to be successful, a performance management system must include several elements:

- Dedicate focus, time and effort to the implementation, as opposed to just the design alone
- Make performance management and employee development the top priority on the executives’ agenda.
- Give each person “his/her own moment” to talk about his/her worries and expectations, assess his/her job and establish objectives to improve it.

Are we surprised that the performance management is still work in progress in so many companies? This has to be because there are still many weak links: managers don’t consider it a priority, there is no consistency between the results and the approach, and the technology doesn’t work properly. What ever the reason, this is a test that we have to pass in order to achieve management excellence.

The author
Jorge Llorente, Director of systems for managing people in Hay Group, works with top executives on complex and big impact projects that involve the definition and implementation of HR strategies and policies, as well as in organizational and managerial models (balanced scorecard, business models and associated metrics …).
Among his areas of expertise are: design of integral models for managing people, careers and capabilities, output management, study and improvement of working climate and company culture, initiatives on change management, innovation in managing employees.

Education and professional experiences:
Mining Engineer at the University of Madrid.
“Major Programs” of Andersen Worldwide in the US, Holland, and Spain.
Master in Consultant Techniques at the E.A.P. in Madrid.

Analyst consultant and group leader of Information Systems in Andersen Consulting (now Accenture):
Senior Consultant of “Change Management” in Andersen Consulting.

Manager of the “People Performance” and Marketing areas and HR Director at Towers Perrin.