With a wealth of options now for managing performance it can be tempting to pick a system that you’ve read about or is used by the competition. Don’t implement a performance management scheme in your business without considering these 6 things.
1. What do you need the system to do?
What is it that you actually want to achieve with your system? Is it to identify top performers, create a talent pipeline, reward great performance, motivate and develop future managers, futureproof the business, allocate the rewards of your success equitably or something else? All of these are legitimate reasons to have a system. And the best systems can do all of these. But they all require very carefully thought through approaches so that you achieve your goals with the system.
One classic dichotomy is the tension between reward/motivation and employee development. If your system discriminates between great, average and poor performance as a tool for targeting training and development opportunities, this is highly motivational for all employees not just those at the top. By contrast, singling out only top performers for praise and reward, be it financial or an alternative, will have a radically different impact on company culture and performance.
2. How will you manage it?
Performance management systems involve quite a bit of work once you get beyond brief feedback conversations with employees around the coffee machine. Introducing any kind of ongoing system, with more than a dozen people, especially if management tiers are involved requires planning. You’ll need to keep records, train your employees and supervisors, and keep on top of the data collection process. You can use a software platform such as Air to help you with this task, so take the time to research carefully before investing time and effort.
3. How will you communicate the process to employees?
We’ve seen systems introduced that failed because of lack of employee and management buy-in. If people are worried about what the system means for them, and if managers don’t follow through with commitment, the system will atrophy and die. One thing is for sure, your people will take their cue from the top. If the leaders don’t invest visible time and effort into their own development as leaders, and that of their immediate direct reports, nobody else will. It will be another example of “do as I say, not as I do”. Get buy in by taking on feedback, consulting and leading from the front. Use a beautiful and simple HR platform such as Air’s onboarding tasks to quickly and easily automate the tasks of informing new employees about the system.
4. How will you allocate performance related bonus earnings?
Many businesses use performance review systems to allocate a bonus pool among employees. Before rushing to one method consider carefully the unintended consequences of any decision. These decisions are more profound than you might think because they reflect deep assumptions about the personal values of the leadership and the culture of the business. For example, it can seem attractive to allocate all profits evenly across the business. This avoids any tough conversations, promotes fairness and equality and sends a strong message about teamwork. Nothing wrong with any of that, until you consider the question of how to deal with evident and clear differences in performance between individuals. Is it really fair, to give out big pay-outs to someone who is riding coattails on their higher performing colleague?
By contrast, linking earnings to individual’s performance is fraught with its own difficulties. Perhaps the low performing individuals are cursed with poor line management, or another external constraint in the business environment that they have no control over. Even something as cut and dried as a sales commission may be a proxy for the allocation of more promising accounts or territories in a biased way by managers.
Some businesses go the middle way and reward whole teams. Again, challenges arise. For example, should the accounts team get the same rewards as the facilities or marketing team? How to value their contribution over and above their colleagues?
5. How will you develop the leadership team to use the system?
If you aren’t doing all the feedback yourself, you’ll need to ensure the leadership team are equipped. Without these skills, any feedback exercise can become at best a waste of time and at worst harmful.
We’ve seen systems fail not because there was anything wrong with the system itself, but because the people who were using it didn’t use them well. When this happens, a consensus can develop very quickly that the system is useless, or even that performance management itself is pointless. A well thought out system, such as OKRs, can really help you develop your employees skill set.
6. How does the system fit your business?
Every business is different. Your business culture will determine what system is right for you. As we’ve seen above, if the emphasis is on equality and teamwork think about which behaviours will enhance better co-operation and communication and ensure your system helps people develop these. If you need to rapidly develop new hires, focus on the skills and capabilities needed to get them up to speed quickly and use the system to identify learning gaps. If you think that your business as a whole lacks capability in one critical area, for example responsiveness to change, then focus your efforts on replicating the behaviours of successful change-responsive organisations.
A successful performance management system is a key tool for any business leader. It enables you to be clear with people on the behaviours, skills and strengths they need to magnify and develop to be successful. A truly winning formula.