Performance Reviews are part and parcel to team administration, but what is all the fuss about, and how are they supposed to work?
At all times, the success of any business is in the balance between investment and return upon that investment. After all, a business needs to both comply to all manner of laws and regulations, as well as generate enough revenue to be able to continue existing and (preferably) grow.
To understand the state of the business, reports are made at all different levels. This ranges from the Sales teams reporting on what kind of deals they will make (pipeline), Finance department doing the books (forecasting) and Operations managing the costs of keeping the company’s wheels turning (capital efficiency). All this generates a continuously updated overview of the “health” of the company, which we will call a Management Dashboard.
For Human Resources this means keeping track of the people who are working for the company. On the whole, Performance Management for HR can be divided into three main topics:
- Appraisal
- Compensation
- Development
Appraisal
This is the component of Performance Management most people are familiar with; the Performance Review. The simplest definition of this is to conduct analysis on people’s ability to meet the requirements and expectations of the role they play in the company.
In most companies, this appraisal is a yearly event conducted by the Management, where people have 1 on 1 meetings with their managers and discuss their performance of the past year. This is then recorded and usually requires both employee and manager to sign off on the result.
More and more companies however are either moving to biannual performance reviews (where usually there is a “mid-year review” and a yearly “performance review”) or even a system of continuous check-ins.
Benchmarks
The first hurdle is one of definition. What is performance, and how do you measure it? In some cases this can be simple, such as a Sales Rep whose contract requires a certain amount of revenue from Sales in a period of time. Or, a Service Desk Agent who is required to finish 20 conversations per hour. It is also possible to use negative performance, like the number of faulty items produced at your workstation, or the maximum time a bus driver has to complete a circuit.
Setting realistic and sensible goals for people is an absolute necessity, as these are the foundations of what constitutes doing a good job. They need to be clearly defined and communicated to people before they start their job – would you accept a job where after the first day you hear you have to makes 100 Sales Calls per hour? It’d mean almost half a minute per call, that’s impossible. You’d be right to object against such harsh performance indicators.
Usually HR has these KPIs (Key Performance Indicators) listed per role and seniority in that role. These performance indicators are checked routinely against industry standards, and adjusted where needed.
Describing Performance
There are two main ways of describing performance: Binary or Relational. In the first case, performance is reviewed only based on the requirement of the job. At this point, it means you are either able to do your job, or not. This is usually reserved for simple jobs, where people can (and do) get replaced routinely. It’s a very binary system, and has no distinction for the why and how of things. You’re in or out, functional or not.
The second way is to describe a person’s performance relative to their job requirements. Rather than passing judgement immediately, there is a greater degree of nuance. For example, one can meet the expectations, greatly exceed them, or not meet the expectations. Rather than the binary form’s yes or no format, this invites further discussion as to why someone doesn’t meet expectations, or greatly exceeds it. Generally it also greatly reduces the stress of people who feel judged and are worried about losing their jobs immediately.
For example, an external cause could have prevented a person from achieving their targets, while otherwise this would not happen. In such a case, the expectation goes down, and a person can still perform “as expected”, even though they would fail to meet numerical targets.
Timing
Having a review of this kind more often is a good thing, because it means that the system for compensation (see the next section) will be used more often. This leads to multiple smaller adjustments across a year, rather than a “big bang” result, where people sometimes are unaware of their actual performance until they get “graded”. While most people will have a decent idea of how well they perform, they don’t always adjust their actions to conform to this, so multiple check-ins allows for more gradual adjustments which benefits the company as well as the employee.
Workload
However, performance appraisals and the associated compensations take a lot of time and effort. The following things are involved in a single cycle of performance reviews:
- Setting/Defining or Verifying the benchmarks for performance
- Starting and chasing the performance reviews
- Checking the quality of the reviews and chasing unexpected results
- Registering results, managing complaints and objections
- Registering the compensations, updating the performance benchmarks
As you can see, this involves a lot of time, people and legal requirements. This information is sensitive personal information, so this process needs to comply to strict guidelines. As a result, to keep work manageable most companies stick to a yearly or biannual review, but encourage monthly or even weekly “informal checkups” which do not involve the official and heavy-handed channels.
Compensation
It is obviously not enough to know how well your people are doing, you also want to adjust things to produce better outcomes in the future. In some cases, it can be achieved by simply increasing the requirements. If a Sales team manages their targets without breaking a sweat, you might ask them to sell more. If holiday season approaches, a warehouse might demand higher productivity.
But adjustment can also be downward. One reason can be that goals were unrealistic, so instead of trying to push people harder (at the risk of losing people) the company might decide to hire more people and lower the KPIs. This would cost more money on the short run, but in the long run would be healthier for the company and its reputation.
Compensation can also take place in the form of a bonus, for exceptional performance beyond requirements. This could be part of a person’s contractually agreed variable pay (meet the targets, 10% bonus, exceed targets by 100% or more and you get an additional 10% bonus) but can also be a special one-time reward awarded by the company for their efforts.
There are many forms compensation can take, from monetary to natural to psychological, but the core of the matter is that either the job, the process or the benchmarks for performance are altered as a result of the outcomes of the analysis.
Development
The third leg of Performance Management involves long-term changes to the structure of a role or a person’s career as a result of trend developments in performance. For example, a person who outperforms expectations routinely may be given a promotion, or might be ushered into a Talent program. A job which is routinely judged to be “really 2 jobs done by 1 person” might be split up into two distinct functions.
Personal Development
Here we are talking about long-term, positive changes to a person’s role, career or reward. A one-time bonus is compensation, but a monthly pay increase is Development. One might be promoted to a higher seniority (Junior to Medior, Medior to Senior, etc), a higher function in the same “job group” or team management responsibilities.
It can also mean education, a talent program, or mentoring from a Senior or Management colleague, all of which advance your career and capabilities. This is win-win because it makes you more valuable, but also immediately allows the company to then draw on your new value and gain additional productivity or efficiency.
Before accepting my own role in Capability Development at Fujitsu, I was fortunate enough to be asked to lead a project to establish a 5-year business plan to be presented to our HQ. While this took some time on my part, it allowed me to gain insight into the running of a company at corporate level, as well as gain experience in running a project that felt really important. It was challenging, but was very rewarding to me.
Structural Development
Sometimes the changes to be made are not in people, but in job requirements, task processes or management itself. This is why it’s very important to validate the performance analyses made to determine where the underperformances are coming from, or where performance could be improved by working on the system rather than the people.
Maybe a process is flawed and people waste time circumventing it. Perhaps a manager is really difficult to deal with, so approvals are not done. A system might be down so frequently it slows down the production line. All manner of systematic changes might be needed to allow people to work to their potential.
Traffic Light models in Performance
People involved in performance reviews are always looking at the best time, frequency, templates and balance between complexity and speed to arrive at reliable results at least impact on the business.
A commonly used model has the following traits:
- Performance is reviewed yearly
- There is a checkup halfway through the year
- Performance is measured against a number of quantitative (productivity) indicators and a number of personal indicators (such as absence, morality, teamwork)
- Performance is made against a weighted value, and listed as “Under expectations”, “Meets expectations” and “Exceeds expectations”. The value is weighted against external sources the employee had no influence on
- Manager and Employee sign off on the results and they are entered into the system for HR to verify.
- Routine checkups (weekly or monthly) are encouraged but unofficial
- All performance reviews are “sanity checked” by HR and then sent on to management in an anonymous format. After determining Compensation in a broad sense, meetings are held again to discuss individual cases that stand out.
- Compensation and Development results are then announced to the Manager, who then schedules another 1:1 talk to inform and support the employee.
- Following this, each person’s new goals, benchmarked targets or development plan is designed, discussed and filed.
Conclusion
Performance Management is a complicated but vital part of managing a company, and everyone involved should strive to keep it transparent, honest and productive. Performance reviews can be confrontational at times, as much as it can be frustrating to be a top performer but the company not having the opportunities to develop you further.
Performance Management should strive to ensure that all who fall below the benchmark are supported and lifted to the bar.
Those who perform well should be challenged to perform better and reap greater rewards.
Those who exceed all expectations should be recognized and handed their due rewards.
Those who are considered talents and future leaders should be involved in management and leadership opportunities but also to feel part of the company’s decisive structure.