Are performance rankings on the way out?

Roundtable takes a look at how to improvement performance management

It’s around the break of the New Year that the often-unwelcome tradition of performance management reviews and goal-setting comes calling. It’s an area that continues to challenge HR, but some employers are trying new approaches to improve the process, judging by a roundtable hosted by the Strategic Capability Network (SCNetwork) in Toronto.

When Maple Leaf Sports & Entertainment (MLSE) decided to abandon performance ratings, it considered the amount of effort and cost that went into that process, for everyone — employees managers, executives — and how to do it differently, to do it better, said Kim Carter, head of HR at MLSE in Toronto.

“It’s about the quality of conversation, it’s about paying people for performance, so those are the two things that we want to make sure happen — how do we build something that makes sense for us?”

The key for MLSE was to operationalize it so it doesn’t become a twice-a-year conversation. 

That means having people building out, setting people’s business priorities and then doing it all through the company’s HRIS and having those set for employees and managers to see the changes happen, she said. It puts the ownership back on employees and leaders to execute on business priorities and development priorities.

“When you’re having your one-on-one, that’s kind of the basis of your discussion — how do you really build that into what they’re doing every day?” said Carter.

“For us, it’s that we are going to hold managers accountable and we’re going to move forward under the assumption that people can make these decisions, so you’ll get your plot of money and you’ll reward your top contributors as you see fit. Not on a bell curve but on overall contribution.”

Having those conversations is hard and more work but in trying to make it operational, it becomes part of the regular one-on-one sessions, said Carter.

“Just having it part of the technology too is that we can measure all the activity on it, so we know what groups are actively in there, going back and forth and managing those conversations. So it allows us to go in and start to work with them a little bit more.”

With forced rankings, a company may be paying for performance but when you dig down and analyze the data, star performers may be making incrementally more, such as two per cent, than the average Joe, said Carter, who cited a large pharmaceutical company in the United States that has gone so far as to have its executives decide how to distribute the pool of money — with no parameters.

“They can give one person all of it and the other one gets nothing, if they want to. And it has an approval process but overall they have the final word. And then, on top of that, they give you a report to say, ‘Dear Kim, you’re an HR manager, there’s 15 HR managers, they all got an average bonus of this, your bonus is this.’ So you actually get to see where you rank against everyone else in your level. So they take a fully transparent picture of it.

“So you’re an employee (at this pharmaceutical company) and you get this report showing you’re at the bottom of the list, so you’re either going to say, ‘I’ve got to get out of here or I’ve got to improve.’ And what’s wrong with that?”

Cineplex intuitively does that, said Heather Briant, senior vice-president of human resources at Cineplex in Toronto. 

“Rewarding 50 per cent or more on individual performance means people know that their personal contributions matter.”

But it’s also about the conversation and giving leaders the courage to have great conversations, she said.

“In a perfect world, you really don’t even need multi-raters because you really would be connected enough to people. We put pressure on all these ratings all the time on every person in the workforce and… so much of it is such a forced process.”

Even if ratings are disposed of, there is already a method of correlation to what people are paid, said Suanne Nielsen, chief talent officer and corporate secretary at Foresters in Toronto.

“You have to apply judgment as a leader for how you’re going to sort out pay, who’s your highest performers. You know who they are… your lowest ones; you don’t need a rating to tell you that. I’m all for improving the quality of conversations between managers, on how people can have a greater impact on improving performance. And putting the rating aside because it’s distracting.”

Ratings are part of the issue but organizations that shift their whole system from an annual review-type cycle to something that’s more ongoing is where there’s success, said Mark Edgar, senior vice-president of HR at RSA Group in Toronto, adding you have to have the leadership capability to manage performance in a more ritual way. 

The key is to ensure appropriate differentiation, said Norm Sabapathy, executive vice-president of people at Cadillac Fairview in Toronto. His company doesn’t do rankings per se but it differentiates people several ways, one being performance results. The company recently redesigned its short-term incentive program for its top 650 people, he said.

“It’s gone really well, especially when one considers the general anxiety associated with changing compensation systems. The idea was to drive a greater link between pay and performance as well as boost results accountability linked to the short-term incentive program. We also improved our ability to calibrate performance across the organization cross-functionally, which is an area where I think many organizations can improve.

“And it was simple — we didn’t use a fancy compensation consultant or system, we used Google Sheets to create software to facilitate real-time performance calibration as leaders rated objectives across the organization.”

To calibrate results effectively, the company had to modify the ratings scale to ensure accountability to a common standard, which was an ah-ha moment, said Sabapathy.

“We essentially needed to define what results looked like at each rating level and then get people’s heads around it, including laying out for them the realistic positive and negative outcomes related to how each person handled the process. We implemented a comprehensive change management approach to support this, including training, behaviour management and communication, to help people understand how the new world calibrated to the old world. 

“Once we did that, we were able to measure progress in real-time, calibrating groups and course-correcting if they were skewing right or left as we managed the overall team across the finish line up to final approval by our board.”

 The process increased transparency and perceptions of fairness, said Sabapathy.

“Every function had a common rating scale and people understood the organization was trying to ensure calibration of performance relative to expectations within each function.  Because no function was considered better than another function, that minimized ‘turf wars,’ boosted positive employee perception, and HR’s oversight of the whole process was perceived as helpful.”
Another way Cadillac Fairview differentiates is through talent calibration, he said. 

“But we focus on giving people the right message; we don’t give them the rating. The organization invests a lot of time each year on its talent review process, and the focus is on the growth and development of people rather than telling them in what box they happen to be at any given time. A talent rating is dynamic and can easily change over time; for us, the outward labelling of each employee does not add much value. Our focus is on assessing people’s true strengths they can leverage, as well as the most critical areas where they can develop, and then providing them with clear and candid feedback.”

The area of goal-setting seems to be one that’s often woefully lacking, said Ian Hendry, president of the Strategic Capability Network and vice-president of HR for Interac in Toronto, who asked the group whether HR was improving in this area, whether goals receive the consideration they deserve and whether they’re often too vague.

“Interac has a corporate scorecard with 28 metrics, with line or functional businesses having primary or secondary responsibility,” he said. 

“The primary drives performance and holds the principal accountability, but by articulating which other functions are key contributors in the process, it provides a clear line of sight for all.   

“We use the secondaries (to say) ‘This is the way I’m going to help those primaries achieve those results,’ so it demands collaboration for it to be successful. And then you can drill down into more specific departmental and individual goals, which sets the stage for a comprehensive goal-setting conversation.”

 And then there are monthly business updates where Interac assesses plan to results and how to address disparities, said Hendry.
“The monthly review communicates down to levels below the executive level and more pertinent information is going to filter through the organization. So when you have quarterly performance check-ins with employees, you’ve actually something quite tangible that links back to the corporate scorecard.”

Cadillac Fairview uses a system that has assignable goals, so that’s helped, said Sabapathy. 

“Naturally, we can’t force every goal down through the organization, but at least for important common goals, we cascade those so each person is using the same deliverables and metrics, including cross-functionally; it’s worked really well.”

Goal-setting is part of Foresters’ year-end discussions, said Nielsen.

“We’ve set our organizational priorities and communicate them and we invite people, the leaders, to cascade that down and set their priorities in alignment and so on. And then it gets embedded into the beginning of the performance management cycle, the objectives for the year. So, again, it’s evaluated at the end.”

As for goals being too vague, people can’t get out of the tool unless they say how they’re going to measure that, she said, “so it sort of forces you into it.”

Foresters also does a goal calibration exercise, so in January, the executive team will share primary objectives for the year around strategy and how they’ll be measured, said Nielsen. 

“And we challenge each other: ‘Is that a significant goal? Is that how you measure that?’ Or ‘I had no idea you had this on your list, I’ve no idea if I can manage that in the performance management program…’ so it’s an interesting way to go.”

Every few years, Foresters does an exercise where all the top leaders in the organization sit in a room and put the corporate priorities on the wall. They then write down their own set of priorities on Post-it notes and place them on the wall under the priority they line up to, said Nielsen.

“It’s interesting to see how many don’t really line up to the corporate priorities.”

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