After fighting the war for talent, employers now need better systems to measure employee performance
HR departments are turning their attention from finding people to ensuring the people they have are doing a good job — the problem is that many of the systems designed to measure performance are themselves flawed, according to a recent study by a leading HR consulting firm.
The survey of 25 firms in the Chicago area, conducted by Andersen consulting, revealed most managers and employees do not value their performance management systems, many of the systems are obsolete, and while the vast majority of employees receive reviews, more than 50 per cent said they found the feedback insignificant.
There are a number of reasons for the surge in interest in performance management, said Christopher Ryan, director of people strategy and HR management with the Chicago office of Andersen consulting, from the need to identify potential leaders to the popularity of the Jack Welch book which detailed the forced ranking system at GE. But the most important reason was the shift in focus from retention of all employees to retaining the best employees.
“For the last five years, the critical focus was on retention. We had a boom economy and the emphasis was on retaining the employees you had. Supervisors were hesitant to provide direct, honest performance feedback,” said Ryan.
“Two years ago, our phone was ringing off the hook with people saying we need to figure out how to retain our workforce. A year later, people were saying we have a real lax culture. We are not holding our employees accountable for their actions. We know we have a lot of problems.”
With an ineffective performance management system, several things can happen, he said. Employees and managers don’t feel a sense of accountability for their actions, employees get more lax about the use of resources and costs start to go up. “Whether it is a factory floor or a call centre, a lack of accountability means performance numbers go down.”
In some companies where performance management is poorly implemented, turnover actually goes down a little bit, but this is not a good thing, said Ryan. Top performers, a minority, leave while others feel comfortable getting by in a lax environment. When poor performers are able to get by without maximum effort, the retention of top performers begins to suffer, said Ryan. “Top performers don’t want to stay around a company where poor performance is tolerated.”
The study also found:
•more than half of respondents (56 per cent) said the process does not link strategy or strategic planning process;
•most systems use goals and objectives, or responsibilities and tasks as criteria in performance evaluation, far fewer use the balanced scorecard approach (eight per cent) or forced ranking systems (eight per cent); and
•almost half of respondents said their systems are more than four years old, and for 40 per cent the systems are more than six years old, suggesting the systems have not kept up with changes in the workplace.
Many performance management systems are out of date, said Ryan. A lot can happen to an organization in five years and performance management systems need to reinforce management philosophy and the new mission and values of the organization.
Aside from problems with program design, implementation can also derail performance management. “The performance management system is no better than the supervisor who delivers the feedback,” he said.
A recent study by University of Toronto management professor Maria Rotundo revealed how, regardless of how well designed the system is, implementation can still make it less effective.
One of the problems is that performance appraisal is largely subjective so it is possible that in a room of 20 people everyone could define job performance differently, said Rotundo.
“Two employees may engage in the same behaviours on the job yet receive completely different performance ratings by their managers.”
There is a tendency for some managers to value employees who are most similar to themselves more than employees who do things differently. So no matter how well designed the system is or how clear the forms are, raters typically demonstrate a low level of agreement when rating employees.
The survey of 25 firms in the Chicago area, conducted by Andersen consulting, revealed most managers and employees do not value their performance management systems, many of the systems are obsolete, and while the vast majority of employees receive reviews, more than 50 per cent said they found the feedback insignificant.
There are a number of reasons for the surge in interest in performance management, said Christopher Ryan, director of people strategy and HR management with the Chicago office of Andersen consulting, from the need to identify potential leaders to the popularity of the Jack Welch book which detailed the forced ranking system at GE. But the most important reason was the shift in focus from retention of all employees to retaining the best employees.
“For the last five years, the critical focus was on retention. We had a boom economy and the emphasis was on retaining the employees you had. Supervisors were hesitant to provide direct, honest performance feedback,” said Ryan.
“Two years ago, our phone was ringing off the hook with people saying we need to figure out how to retain our workforce. A year later, people were saying we have a real lax culture. We are not holding our employees accountable for their actions. We know we have a lot of problems.”
With an ineffective performance management system, several things can happen, he said. Employees and managers don’t feel a sense of accountability for their actions, employees get more lax about the use of resources and costs start to go up. “Whether it is a factory floor or a call centre, a lack of accountability means performance numbers go down.”
In some companies where performance management is poorly implemented, turnover actually goes down a little bit, but this is not a good thing, said Ryan. Top performers, a minority, leave while others feel comfortable getting by in a lax environment. When poor performers are able to get by without maximum effort, the retention of top performers begins to suffer, said Ryan. “Top performers don’t want to stay around a company where poor performance is tolerated.”
The study also found:
•more than half of respondents (56 per cent) said the process does not link strategy or strategic planning process;
•most systems use goals and objectives, or responsibilities and tasks as criteria in performance evaluation, far fewer use the balanced scorecard approach (eight per cent) or forced ranking systems (eight per cent); and
•almost half of respondents said their systems are more than four years old, and for 40 per cent the systems are more than six years old, suggesting the systems have not kept up with changes in the workplace.
Many performance management systems are out of date, said Ryan. A lot can happen to an organization in five years and performance management systems need to reinforce management philosophy and the new mission and values of the organization.
Aside from problems with program design, implementation can also derail performance management. “The performance management system is no better than the supervisor who delivers the feedback,” he said.
A recent study by University of Toronto management professor Maria Rotundo revealed how, regardless of how well designed the system is, implementation can still make it less effective.
One of the problems is that performance appraisal is largely subjective so it is possible that in a room of 20 people everyone could define job performance differently, said Rotundo.
“Two employees may engage in the same behaviours on the job yet receive completely different performance ratings by their managers.”
There is a tendency for some managers to value employees who are most similar to themselves more than employees who do things differently. So no matter how well designed the system is or how clear the forms are, raters typically demonstrate a low level of agreement when rating employees.
