HR improving at performance management

When it comes to performance management, practice makes perfect — or at least practice makes passable, according to a new study.

While many Canadian businesses remain unhappy with their performance management programs, a growing number say they are finally getting it right.

“There have been significant improvements in the performance management systems of quite a few organizations,” said Prem Benimadhu of the Conference Board of Canada, which conducted the study. Performance management is not a science, it is an art, he said. Because there are no simple formulas to apply, it takes a while for organizations to get it right. “I think they are getting better at it because there has been a lot of learning from previous attempts.”

The Conference Board of Canada surveyed 331 large and medium-sized Canadian businesses on a wide range of HR issues for its Compensation Planning Outlook 2003.

More than 40 per cent of respondents said their systems need improvement, and another 21 per cent said their systems were adequate, just one-third rate systems as “effective” (29 per cent) or “very effective”(five per cent). While still a minority, it is an improvement from past surveys where only one-quarter rated systems as effective.

There is greater pressure to do performance management well, said Benimadhu. The competition is greater than it once was; markets are putting pressure on organizations to perform and shareholders are expecting constant growth. “You can only grow that way if you have a good performance management system,” he said.

Disappointment in performance management programs is largely a product of poorly run programs, said Hari Das, a professor of management at Saint Mary’s University and author of a new textbook on performance management. “I would say that it is one of the weakest links in the HR area.”

The only way organizations can differentiate themselves in a highly competitive global market is through the quality of employees. And with a short supply of talent likely to remain for some time, a well-run performance management program can be more cost effective than recruiting. “If you find an employee who is not performing as well as she should then a cheaper alternative now will be to coach and train her,” he said.

Performance management is an opportunity for HR to improve the quality of the workforce and therefore the bottom-line performance of the organization. Often it’s not happening, said Das.

There are a number of reasons for disappointing performance management results, said Das. Often the program is not an integrated part of a bigger strategy so there is no rigorous connect to compensation, training or career counselling.

At a more basic level, most people just don’t like evaluating other people, and often managers don’t want to alienate their employees so they give them higher evaluations then they deserve.

On top of that, performance criteria are not well defined or there is an absence of standards to measure performance.

The Conference Board study revealed several common characteristics of successful programs. “Organizations that consider their performance management system to be effective attribute their success to key factors including open and ongoing communication, frequent (e.g. quarterly) reviews, consistent application, ease of understanding and administration, alignment of individual and corporate goals, links to individual career planning and support of top management,” said the report.

Organizations are setting well-defined targets and expectations and it’s more common to see performance goals reviewed year-round rather than once a year, said Benimadhu.

When managers are talking regularly with employees about performance improvement goals, problems can be identified and coaching or training can be offered, he said. This reduces the risk of disappointing surprises when it comes time to do the actual review.

Managers are one of the most important factors to an effective program, said Benimadhu. For a very long time managers balked at spending time on performance management programs. It’s not easy telling people they are not doing what is expected of them, and managers are not good at it because they have not had the training.

Managers who don’t do a good job of performance management have a tendency to give across the board pay increases. “They think if everyone gets their one or two per cent then everyone is happy,” said Benimadhu. “But not everyone is happy because the top performers are not getting what they deserve.”

This sort of system keeps the satisfactory employees but alienates the outstanding talent.

“Your organizational performance goes down because your outstanding performers say there is no need to put in extra work.”

But that too is changing, he said. There has been an increase in training of managers around performance management and according to the study, more than half of responding organizations hold managers accountable for the learning and development of their staff. Accountability for the quality of new hires is less common at 27 per cent.

Halton Region, a regional government of four municipalities just west of Toronto, ties pay increases to performance. There are no cost-of-living increases, so if people are underperforming, they may not get any increase, said Janice Sidney, manager of compensation and benefits.

Last year, 70 per cent of employees met their objectives; 24 per cent of those were rated above average and three per cent were considered superior. A 70 per-cent success rate is about right, she said. “If we get 70 per cent of people achieving what they are supposed to achieve, that is a good thing from a business point of view. If the objectives are being set reasonably, then I would expect the majority of people to achieve them.” Employees who are not meeting expectations are reviewed by HR. It’s important to find out why they are not performing to expectations, said Sidney.

Halton launched its performance management system in 1997, since then there have been a number of refinements.

The program is working well, but changes can always be made to make it better, she said. There is always room for improvement in the objective setting process, for example. Goals should stretch the employee but they have to be realistic, measurable and developable. This is something Halton Region has been working on. “We’re really tightening up the objectives so that it is really clear when you have achieved one and when you haven’t,” she said.

The organization has tried to quantify employee competencies so improvement can be easily measured. It has to be more than just taking a course, she said.

They’ve also been working to closely link the personal objectives to departmental goals.

Originally, every non-union employee was expected to work on personal development as well as business-based objectives. Both sets of objectives were given equal weighting but that put too much emphasis on the softer side, she said. Now they are trying to ensure employee objectives are more closely tied to departmental goals.

But Sidney said that no matter how well-designed the program is, if managers aren’t doing their part then it is unlikely the program will have the intended effect.

“The success of any performance management program is largely dependent on how well it is managed by the managers,” said Sidney.

If they are not perceived as doing it well then employees will not support it. There has been a lot of training for managers, role playing and mock discussions are intended to make them more comfortable with the process.

“There is a lot of different ways you can structure a performance management program,” said Sidney. “I think a lot of it comes down to ensuring the managers are on side and that they are treating the staff equally. The system doesn’t have to be that complex, everyone just has to understand what the expectations are.”

Donna Wilson, vice-president of HR for Vancouver City Savings Credit Union (VanCity), said that while they are pleased with their performance management program they also continually look for ways to improve it. “I don’t believe one should ever be totally satisfied,” she said. “Do I have 100 per cent participation? Is everyone doing it the way they should? No.”

VanCity’s system was launched in 1998 and HR has struggled to get managers comfortable with the process. “There are a couple of areas where we found managers have difficulty. One of them is coming up with smart objectives: what is a stretch goal and what isn’t a stretch — how much can they push (employees)? And the other is just how to have the conversation.”

While HR has worked to help managers get more comfortable with the process, she said they are reluctant to formally hold managers accountable and force them to do the the performance management process. It could lead to an increase in the completion rate, but the quality could suffer, she said.

“The strategy I would like to follow is leading by example. I really don’t like the idea of mandating, ‘Thou shalt do this and if you don’t we are going to punish you,’” she said. But the right behaviour needs to be modelled from the top of the organization. That may mean changing compensation plans to ensure the top managers of the organization go through the performance management process for their direct reports.

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