By Claudine Kapel
Many organizations assert they want to deliver pay for performance. But a new study on performance management practices suggests there may be a big gap between what organizations say they want – and what they actually do.
The study by Mercer paints a gloomy picture about the effectiveness of performance management processes globally. In fact, Mercer’s 2013 Global Performance Management Survey found very few companies – only three per cent – believe their overall performance management system delivers exceptional value. The survey featured responses from 1,056 companies around the world, although the majority of respondents were in the United States and Canada.
One area of weakness relates to what organizations actually do with performance ratings.
For example, while 89 per cent of the survey respondents reported having a pay for performance philosophy, only 42 per cent said they “track and measure the alignment between performance ratings and compensation decisions.”
Which of course, raises the question: How can you say you’re delivering pay for performance if you’re not monitoring how performance ratings link to pay?
“The metrics used to evaluate performance management concentrate on compliance measures, with relatively few companies focusing on anything of a strategic nature,” notes Mercer.
Three out of four organizations report measuring the percentage of their workforce completing performance evaluations. Yet only 23 per cent of companies measure the percentage of high performers selected for succession planning or high potential programs, and only 19 per cent measure the differentiation in retention rates between top and poor performers.
About a third of the survey participants felt improving managers’ ability to have “candid dialogue” with direct reports about their performance was the key to improving the performance management process overall. That’s not surprising, given a third of the survey participants also reported their managers are only “marginally skilled” in this regard.
While Mercer acknowledges the importance of candid dialogue, it says its study points to two even more important drivers of performance management success.
According to Mercer’s analysis, linking performance to development planning and setting SMART goals (specific, measurable, ambitious, but achievable, relevant and time-bound) are “the two skills that matter most in delivering on a company’s desired performance management outcomes.” The survey participants also gave themselves low marks in these areas, indicating 48 per cent of their managers are only marginally skilled in linking individual performance to actionable development planning and 29 per cent are only marginally skilled in setting SMART goals.
As a result, “many companies have a big gap to fill in people management capability in order to deliver on expected results of performance management,” says Mercer.
It notes many companies appear to undervalue the importance of goal setting, and assume “managers intuitively know how to conduct performance planning effectively.”
Another stumbling block lies in how organizations manage the goal setting process. “Part of setting SMART goals is creating alignment with the goals of the business unit and company,” notes Mercer. But only 56 per cent of companies cascade goals from the company to the business unit, and only 51 per cent cascade goals from the business unit to the employee.
Although performance management as a process has many detractors, the Mercer study reinforces some long-standing wisdom about human resource programs in general: the key to success lies in the implementation process.
Even the most brilliantly designed programs and processes will fail to deliver if they’re not effectively introduced and consistently applied over time. And effective implementation necessitates training for users as well as monitoring and measuring outcomes to ensure objectives are being achieved and course corrections are made as needed.
Unless organizations get leaders and managers on board with the principles of effective performance management, there will continue to be disconnects between what is said and what is done.
Claudine Kapel is principal of Kapel and Associates Inc., a Toronto-based human resources and communications consulting firm specializing in the design and implementation of compensation and total rewards programs. For more information, visit www.kapelandassociates.com.