There are so many articles and studies floating around Performance Management and the ideal system that an organization should adopt. The question is, “Is there an ideal PM system?” The short answer is “No”.
Like there is no ideal political system, there is no cookie-cutter performance management system process that all organizations can universally adopt. The idea is to create a system that meets the organizational objectives and enables an exceptional performance culture.
Nevertheless, the following 5 “commandments” are culture and context-agnostic which means if you are a PM practitioner, you could look at the following as “must-haves”:
Reward your top guys disproportionately
In the process of designing the ideal PM system, we often forget an important question. How do you reward your best employee? The basic tenet of any PM system is to enable superior performance and for that you need to reward and differentiate superior performers.
The dreaded “Bell Curve” did a poor job of rewarding the best as it assumed that the majority of the population is average and only about 10% of the employees were excellent performers. The percentage difference in rewards that an excellent employee and an average one would receive was rather minimal.
Companies should start embracing the “Pareto Principle” instead (80/20 rule) which states that 80% of the effects occur due to 20% of the causes. This means your top performers contribute a lot more than your average performers!
Bottom line: Reward your High Performers disproportionately!
Feedback, feedback and more feedback
Continuous and year-round feedback is the backbone of any performance management process. It comes as a surprise then that feedback is often the most overlooked aspect of the process.
In most firms, performance management has tended to be a yearly or bi-annual affair. Feedback given during these formal reviews tends to be past-oriented, compensation-focused and an exercise in futility as it usually revolves around justifying the rating given to the employee (which is dictated by the bell curve).
Bottom line: Feedback is the most important element of the process as it is year-round, real time and helps in course correction at the right time and not when it is too late!
Make it an employee-driven process
The real owner of the performance management process is the employee. The line managers play a crucial role too as they have real time insight into an employee’s performance.
HR’s role would be to enable a culture where employees can give and receive feedback throughout the year without a formalized process dictating them. A quick glance at Performance Management software available in the market shows that they are ahead of the curve here. Many of these integrated software platforms have individualized employee performance screens replacing the generic appraisal forms that everyone has to fill. The key words here are customization and personalization.
Bottom line: Make the employee the owner of the process to get more buy-in.
Don’t think about the money
While it is important to pay for performance, a good performance management system should focus on the feedback. Which means compensation must be decoupled from the performance conversations your employees are having.
But isn’t this out of sync with point 1 which talks about rewarding your top guys disproportionately? Not really. Compensation has always been the proverbial elephant in the room when managers and employees sit down for the performance review discussions. It is indeed important that performance should play a major role in deciding compensation. But decoupling compensation from performance feedback is essential to make the process more effective.
Bottom line: Bonuses and hikes will always have a finite budget- feedback though has no limits.
Keep it simple, stupid!
One of the reasons why Performance Management is disliked by all and sundry is because it is overly complex and does not serve the purpose. The first rule when designing a PM system is to keep it simple!
Make it simple by aligning the process to business objectives and by clearly communicating the objective of the PM system to all stakeholders. Is it to align employee goals? Or to inform compensation decisions?
There is a temptation to design complex appraisal forms and processes to ensure all the boxes are ticked. This checklist approach has made the PM process a convoluted affair making it one of the most dreaded HR processes.
Bottom line- Keep it simple and that will make the system effective.