As Published in Business 2 Business, August 2007

Make Performance Reviews Perform

Annual Reviews Give Performance Management A Bad Rap

By Ira S Wolfe

One of the biggest mistakes companies make, according to Matt Angello, is delegating performance management exclusively to human resources.  “Sure, HR has a role to play,” he says, “but arguably performance management is an executive-level function, managed by HR but led by the CEO – tone from the top with downstream enabling processes. 

Angello, founder and principal of Bright Tree Consulting Group, has seen many organizations never realize their planned success and growth because they misunderstand how to capture the potential of their people and underestimate the strategic importance of managing performance.  He should know – he’s experienced the good, the bad and the ugly of performance management over the past 20 years, serving as Senior Vice-President of Human Resources for several Fortune companies including Armstrong World Industries and Pepsico. 

Performance management begins with the end in mind – a company’s operating objectives, developed by the CEO and his/her executive team.  The next challenge is ensuring that individual employee behavior and actions turn activities into results.   The challenge then becomes sharing the goals and plans in a relevant and actionable way with all the employees – the people who actually will do the work.  “As you can see,” Angello notes, “performance management isn’t a new, trendy management tool or fad.  It doesn’t require new servers, new software, new employees, or retaining a few ‘black belts.’ What it does take is focused and disciplined communication.

All too often, the CEO and executive team assume that employees are more familiar with the operating plans and strategic targets than they actually are.   This is not surprising because senior team members talk to each other about operating goals and plans all the time.  They mistakenly assume employees talk about this “stuff” too.  Without a deliberate and sustained effort by the CEO to drive the message and stress its importance, performance management will flounder as a result of the age-old business nemesis – communication.

“Performance management is the single most important lever that any organization has in its toolbox to achieve its growth and success objectives,” according to Angello who emphasizes “single most important lever,” when he speaks.

Despite its critical role in growing an organization effectively, performance management in many companies consists primarily of annual appraisals. These once-a-years reviews provide a reflective snapshot of how an employee has performed over the previous year as well as suggestions for what they need to achieve in the next year.  This strategy is like planning where you are headed by studying what you see in the rear view mirror. 

A second significant problem with current performance measurements is that in most organizations there is no standard by which all employees are measured.  In most cases performance appraisal consists of one supervisor's rating system versus another supervisor's rating.  Different managers expect different things of their employees, even if they are doing similar jobs.

Managers want to tell their people the truth about how well they're doing but they also want to be good to their people, particularly in the area of compensation.  The result is the Lake Wobegon Effect, the human tendency to overestimate one's achievements and capabilities in relation to others. Lake Wobegon you might recall is the Garrion Keillor’s fictional town from the radio series A Prairie Home Companion, where, according to Garrison Keillor, "all the women are strong, all the men are good-looking, and all the children are above average".  

The reasons for this halo effect vary.  Regardless of the cause, the organization suffers when nearly every employee’s performance is above average, or at the minimum rated higher than his/her performance justified.  Some managers hope this halo effect boosts an employee's morale and confidence by rating his performance better than he deserves. Other managers just don't want to be bothered writing comments justifying poor performance.

Managers select ratings that don't require any feedback or don't want to put anything in writing that might be held against them should the employee ever file a complaint. And others don't provide the rating an under-performer deserves because if the employee quits, this will make more work for the manager that results in more interviewing and training. And who knows - the next employee might even be worse!. Whatever the reason for the halo effect, many managers just choose the easy way out and exchange positive reviews for mediocrity.

But for every glass-half-full viewpoint, there exists the horn effect. This occurs when the manager believes "nobody's perfect and there is always room for improvement.” These managers don't believe in rewarding an employee with a “10” (out of 10) even when he/she deserves it. A few employers actually use a rating scale of 1 to 9 because no employee deserves a 10 in their minds.

As a result, a significant of all this subjectivity, a perception gap exists between employers and employees regarding the effectiveness of performance reviews, according to the recently released Salary.com sponsored 2006 Performance Survey of 2,000 employees and 330 HR professionals representing small to large companies. 

In addition to the lack of standard criteria in evaluating performance, it's not easy for a manager to drop biases or personal dislikes out of one’s ratings of an employee.

With effective performance management in place, individual goal achievement feeds organizational momentum.  Without it, employees and management face off in the unenviable job of explaining how and why each of them ended up where they did, neither of them in the place they intended.

Consequently individual and organizational goals move full steam ahead on separate parallel tracks.  As the year end approaches, the individual or the organization- or both- often find themselves peering at one another from different destinations. 

When an individual employee fails to meet his/her goals, the organization fails to meet its strategic objectives.  

Clarifying Performance:  Expectations = Results + Actions & Behaviors

To perform well, employees need to know what is expected of them. Improving performance without clear objectives, according to Angello, is like trying to sight a rifle without a target. 

In discussing performance expectations an employee should understand why the job exists, where it fits in the organization, and how the job’s responsibilities link to organization and department objectives. The range of performance expectations can be broad but can generally be broken into two categories:

• Results (The goods and services produced by an employee often measured by objectives or standards)
• Actions & Behaviors (The methods and means used to make a product and the behaviors and values demonstrated during the process. Actions and Behaviors can be measured through performance dimensions.)

Performance expectations serve as a foundation for communicating about performance throughout the year. They also serve as the basis for assessing employee performance. When you and an employee set clear expectations about the results that must be achieved and the methods or approaches needed to achieve them, you establish a path for success.

Sidebar #1

Seven building blocks to an effective performance management process: the foundation for rewarding excellence.   

• Sync individual employee work efforts with the organization’s mission and objectives, the employee and the organization understand how that job contributes to the organization.
• Focus attention on setting clear performance expectations (results + actions & behaviors).  Help the employee know what needs to be done to be successful on the job. 
• Be specific. Use objectives, standards, performance dimensions, and other measures it focuses effort. This helps the department get done what needs to be done and provides a solid rationale for eliminating work that is no longer useful.
• Define job-mastery competencies.  Identify the critical abilities, competencies and knowledge that employees must have, and then recruit internally and externally for those employees or candidates who demonstrate proficiency or high potential.
• Set career development goals as part of the process. Make it very clear how every current position supports employee growth and the additional opportunities the employee needs to explore. 
• Check-in regularly with discussions which include status updates, coaching, and feedback.  Frequent check-ins promote flexibility, allowing you and the employee to identify problems early and change the course of a project or work assignment.
• Emphasize that an annual appraisal should simply be a summary of the conversations held between you and the employee during the entire cycle, it shifts the focus away from performance as an “annual event” to performance as an on-going process.

An effective performance management process, while requiring time to plan and implement, can save organizations and its employees time, resources and energy. Most importantly, it can be a very effective motivator, since it can help an organization and its employees achieve the best possible performance.