Performance Management Flashcards
Definition Performance Management
is a goal-oriented process directed toward ensuring that organizational processes are in place to maximize the productivity of employees, teams and ultimately, the organization.
is a continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning their performance with the strategic goals of the organization.”
Performance Management (PM)
Is crucial for the implementation and accomplishment of the corporate strategy.
Close relationship between incentives (incl. appreciation, development, promotion, pay increase) and performance should be in place
Dynamic, consistent, continuous process - not just the formal HR system/template oriented process.
Each part of the system should be integrated to ensure continuous organisational effectiveness.
Performance appraisal (PA)/ evaluation
is a formal system of review and evaluation of individual or team task performance.”
- Is only one, albeit a vital instrument of performance management
- Periodic (usually annual) event
- Formal review
Elements of performance management
- Focussing on the essentials
-Strategic/Goals
-BSC
-Goal-setting cascade
objective setting - Managing performance / implementation
-objective setting –> implementation process –> performance Evaluation/feedback discussion –> HR-related actions and measures - Drawing conclusions
HR-related actions and measures
–> other Personel measures
–> Personnel- development
–> Performance- Related Incentives
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Using the Performance Evaluation
Performance Management evaluation Usage:
Evaluation Criteria:
-Traits, behavior, competencies
-Goal (objectives) attainment
-Improvement potential
–> Human Resource Planning
–> Training & Development
–> Career Planning
–> Compensation Programs
–> Internal Employee Relations (e.g. promotion, demotion, transfers, termination)
–> Assessment of Employee Potential
The three common purposes (performance evaluation)
- Develop people
* Individual development
* Coaching & mentoring
* Retention of top performers
* Leadership Development - Reward people
* Pay for contribution
* Promotion & advancement
* Total rewards - Drive Organisational performance
* Goal alignment
* Further developing the organisation
* Culture development
* Promotion & firings
Performance evaluation process definition
is a continuous annual cycle with three main phases: Setting objectives, conducting interim meetings, and evaluating objectives and competencies, including a feedback meeting.
Performance evaluation process (explication)
A. Objectives setting with employees
B. Interim discussion / mid- year review
-change/ adjust objectives if is necessary
C. Evaluation: performance and competence assessment
-compensation process
D. Feedback discussion
-Personel and Talent development
A. Objective Setting
− Objective setting is an essential phase of the management of performance.
− Corporate objectives are translated into the objectives and responsibilities of individuals and teams (objective-setting cascade) and establish a link between corporate strategy and individual goals.
− Objectives are important because they provide the basis for continuous performance improvement.
− They create performance incentives and reinforce a performance culture.
− Employees know in which direction they should direct their efforts. Objectives provide orientation and create clarity about what successful performance means. Employees know what is expected.
→ It is important to give employees the opportunity to participate in setting their own objectives.
Thus, objectives should be set in agreement between line manager and employee.
− Objectives need to be SMART
Target Setting Cascade
Deduction of Operational Targets from Strategy
I. Corporate level:
-Strategic Obectives of Firm
II. Organisational & Process Level
-Operational Process Targets
III. Employee Level
-Operational Employee Targets
SMART Formula
Specific: Objectives must be formulated clearly, unambiguously, concretely and concisely. The target state must be described precisely.
Measurable: The achievement of objectives should be determined by measurable information (quantitative objectives) or observation (qualitative objectives). Measurement criteria and assessment scale must be transparent.
Achievable: Objectives should be appropriate to the employee’s role and resources, achievable in the time available and realistic. Objectives should be challenging and motivating.
Relevant: Objectives are derived from and support the objectives and requirements of the company and/or department.
Time bound: Objectives are defined in terms of time, i.e. start and end dates are specified. Milestones have been agreed for large targets.
Objective Types
Quantitative vs. qualitative objectives
− Performance targets
− Behavioural objectives
− Development goals
− Team goals
B. Interim Discussion / Mid-year Review
− Approximately in the middle of the year, so-called «interim discussion» or «mid-year review» should take place
− Employee receives feedback on performance
− If necessary, corrective measures and support will be discussed
− If necessary, objectives should be adjusted in the mid-year review
However:
− Line manager should monitor performance continuously
− Give regular and timely feedback
− Offer support, discuss and implement corrective measure throughout the year
C. Evaluation
− Sources of evaluation
− Performance evaluation methods
− Potential evaluation errors / biases
Sources of Evaluation
- Supervisor evaluation
- Self-evaluation
- Evaluation by subordinates
- Peer evaluation
- Customer/client/partner evaluation
- 360° Feedback
Performance evaluation methods
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Result-based methods
− Focuses on measurable outcomes (e.g. sales numbers, customer service ratings, productivity)
− Line manager and employee jointly agree on objectives for the next appraisal period.
− Result-based practices:
− Management by Objectives (MbO):
− Line manager and employee determine jointly objectives tied to corporate strategies and
goals
− Action plan specifies what has to be accomplished by when
− At the end of the rating period: performance evaluation and feedback based on accomplishment of objectives
− Work Standards Method:
− Compares each employee’s performance to a predetermined standard or expected level of
output (eg. feasible in manufacturing settings)
− Is often coupled with a particular incentive pay plan known as the piecework plan
Comparison methods
− Evaluate an employee’s performance against that of other employees.
− Employees are ranked from the best performer to the poorest performer.
− The most common methods are:
− Forced ranking: Employees’ performance is compared and evaluated in relation to each other.
− Forced distribution (stacked rating system): Fixed specifications or forced distribution of assessments (according to Gauss); specifications for individual organizational units, teams, etc.
Pro comparison methods
− Creates and maintains a high performance culture, thus suitable for companies with a strong performance culture
− Makes it clear to employees where they stand in comparison to others
− Creates better comparability between areas (same benchmarks)
− Prevents the tendency to the centre (Central-Tendency- Effect) or towards excellent performance
− Better differentiation and justification of bonuses and their differences
Cons comparison methods
− Emphasizes individual performance at the expense of team performance
− Leads to unhealthy internal competition
− Normal distribution does not have to correspond to the
effective power distribution
− Represents a comparison between team members rather than an objective performance evaluation
− Bad ratings are forced
− Harmful to morale (eg. fostering envy), cohesion and
motivation of employees and managers
− Dysfunctional behaviour (eg. holding information back)
− Often visibility weighs more than actual performance
− May lead to legal action (discrimination)
Trait Systems
− Evaluate employees based on traits or characteristics (e.g. quality of work, quantity of work, appearance, dependability, cooperation, initiative, judgement, leadership responsibility, decision- making ability, or creativity)
− Evaluation are typically scores using descriptors, ranging from unsatisfactory to outstanding
− Limitations:
− Highly subjective
− Rates individuals on subjective personality factors rather than on objective job performance data
− Traits represent a predisposition for behaviour and do influence behaviour, but do not
fully account for behaviour.
Behavioural Systems
− Rate employees on the extent to which they display successful job performance behaviours
− Tree main types of behavioural systems are:
− Critical Incident Technique (CIT)
− Behaviourally Anchored Rating Scales (BARS)
− Behavioural Observation Scale (BOS)
Critical Incident Technique (CIT)
− Focusses on how the employee went about doing what was done.
− Line manager and employee to identify performance incidents (e.g. on-the-job behaviours and behavioural outcomes) that distinguish successful performance from unsuccessful ones.
− Line manager observes the employees and records their performance on these critical job aspects.
− Line manager rates employees on how often they display the behaviours described in each critical incident.
Advanatge CIT
useful because it requires extensive documentation that identifies successful and unsuccessful job performance behaviours by both the employee and the line manager.
disadvantages
demands continuous and close observation of the employee, record keeping may be overly burdensome.
Behaviourally Anchored Rating Scales (BARS)
− Are based on the CIT, and the scales are developed in the same fashion with one exception: the incidents are written as expectations (employee does not have to demonstrate the exact behaviour that is used as an anchor to be rated at that level).
− Only the most representative behaviors will be listed for the job. A typical job might have 8-10 dimensions under BARS, each with separate rating scale.
Advantages BARS
is the most defensible technique in court because it is based on actual observable job behaviours; encourages all rates to make the evaluations in the same way
Disadvantages:
difficulty of developing and maintain the volume of data necessary to make it effective; requires companies to maintain and regularly update distinct appraisal documents for each job
Behavioural Observation Scale (BOS)
− Similar to BARS in its development
− BUT BOS displays illustrations exclusively on positive performance incidents or behaviours
Disadvantages BOS
difficult and time- consuming to develop and maintain; requires observation of job behaviours on a regular basis
Approaches to objectifying the assessment
− Systematic assessment (relevant and clear criteria)
− Create a concrete requirement reference
− Default scales with unique designation
− Self-assessment (comparison of self-assessment/external assessment)
− Multiple appraisal (several appraisers and perspectives)
− Multi-method assessment (objectifiable performance results and behaviour)
− Involvement of the appraised in the decision-making process (cooperative appraisal interview)
D. Feedback Discussion
− Employee appraisals (exchange between employees and line manager) are essential components of performance management
− At least three conversations:
-Objective setting meeting at the beginning of the appraisal
period (clarify expectations and goals)
-Interim discussion approximately in the middle of the assessment period (in order to be able to make target corrections) as well as
-Appraisal interview at the end of the appraisal period (year-end interview)
-Ideally, however, there is continuous dialogue and timely feedback on performance and development throughout the year
Success Factors Feedback Discussion
− Good preparation of manager and employee for the interview
− Allow enough time for the interview
− Clear structure and outline of the conversation
− Appreciative attitude, pleasant atmosphere and constructive discussion climate
− Presence, exchange at eye level, active listening
− Make it comprehesive, short and simple sentences
− Talk about performance / objectives and not personality
− Objectivity, concrete with examples, reference to requirements, descriptive not judgmental
− Critical issues are addressed
− No unexpected criticism but reference to day-to-day feedback
− Reach agreement on further procedure
Feedback Rules
- Right on time
- Positive messages first (negative information is perceived more strongly)
- Constructive
- Only things that can be influenced or changed
- Be brief
- I-Messages
- Only inputs that can be absorbed and/or influenced
- Ask if you are not sure
Do‘s in Management Process
− Employee objectives should be derived from the company/business unit objectives
− Expectations of line manager and employee should be aligned in the objective setting process
− Team objectives encourage shared responsibility
− Objectives should be SMART
− Objectives should be challenging -> avoid demotivation due to unrealistic objectives
− Conduct at least 1 mid-year review, adjust objectives if necessary
− Train managers to give feedback in a constructive way
− Line managers should give regular feedback during the
year regarding the employees’ performance
− A common understanding what “good”, “very good”, “not sufficient” performance is should be encouraged and how this is measured
Don‘ts
− No objectives are agreed
− The performance evaluation contains only quantitative
objectives
− Evaluation criteria are not defined (or understood) precisely enough
− Too many objectives are defined, priorities are missing
− Evaluation is not fair (not reliable and/or not valid)
− Managers are not aware of possible evaluation errors
− Objectives are communicated without a objectives setting discussion
− Forced Distribution for organisational units with less than 30 employees
− Discuss pay at the same time as performance
− The process of performance evaluation is not considered important by line managers
Criticism of traditional PM in more detail
- Large time commitment and bureaucratic (focus on process and rules instead of content)
- Too many purposes are to be fulfilled with a single approach
- Not flexible and agile enough due to annual cycle approach
- Past-oriented evaluation instead of future-oriented development
- Focuses too much on individual work instead of team work
- Can be demotivating, anxiety generating and even undermine company culture
Biggest problem for PM
implementation is poor in most companies
- Errors in the setting and handling of goals
- Errors in the assessment of performance
- Errors in the feedback process / appraisal interviews
- Lack of investment in introduction of concept and training
- Lack of engagement and commitment by managers and employees
Consequence of the biggest problem for PM:
− Compulsory or symbolic exercise, which is handled without commitment and a toll on motivation
Trends and new approaches to performance management
-Digitization
-Democratization
-Demographic change
-Dynamization of global economy
–> Reinventing Performance Management
New Trends in Performance Management
− Short term targets (e.g. per quarter), agile planning
− Continuous dialogue, more frequent feedback, check-ins
− Focus on personal development and strengths (coaching instead of judgement)
− Mutual assessments
− No or specific ratings
− No forced ranking/distribution
− Decoupling of performance appraisal and bonus and/or removal of (individual) bonuses
− Stronger focus on team
− Feedback with apps (e.g. Impraise, Loopline, Youlab)
− Process is kept lean and informal: Emphasis is placed on the personal conversation, administrative effort is minimized.
Example 1: Objectives and Key Results (OKR)
− OKR is an agile methodology that teams use to develop and manage goals at all organizational levels of a company.
− OKRs consist of two elements: the qualitative, inspiring Objectives and the quantitative Key Results.
− Creating horizontal coordination (no silo thinking)
− Short-cycle and agile target implementation process
− Reduction of central control, strengthening of self- organization
− Target achievement is not linked to the compensation system.
Example 2: IBM
Past:
* Annual objectives
* One appraisal
* 1 or 2 appraisal discussions
* Annual documentation of
appraisal results
Future
* More short term objectives
* More performance appraisals * Ongoing feedback
* Regular meetings regarding
milestones and results
Old performance management
-Process is perceived as complex, rigid, and administratively burdensome
-Objective-setting and performance appraisals are conducted once a year
-Goals are kept confidential with a focus on individual performance
-Feedback is collected and given by the manager at the end of the year
-Feedback focussed on performance evalution, weeknesses, and therefore on the past
-A leader evaluates each individual in a qualitative, opinion- based process
-Employees are evaluated on a quantitative normalized scale (Forced Ranking / Forced Distribution)
-Individual bonus is linked to performance rating
New performance management
-The process is agile, faster, continuous, lighter and technology based
-Regular objective-setting in an open, collaborative process, check-ins quarterly or more frequently
-Goals are made public and transparent, with a focus on team performance
-Timely and regular feedback, continuously captured and easily reviewed at the end of the year (often via apps and mobile tools)
-Feedback focussed on strengths, coaching and personal development of employees, and therefore on the future
-Many contribute to an individual’s performance evaluation; evaluation relies heavily on data
-Employees are evaluated on a qualitative scale; ratings are considered, not enforced
-Decoupling of performance assessment and bonus or removal of (individual) bonuses, possibly company and team success-driven distribution of variable compensation
Challenges that persist
− Aligning individual and company goals
− Rewarding performance
− Identifying poor performers
− Avoiding legal troubles
− Managing the feedback firehose
–> And inspiring versus measuring performance!
