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Performance Management October 2009 Best Practice Report All organizations want to improve their overall performance. Performance management processes attempt to do this starting with each individual employee. Most organizations want a performance management system that will help improve individual performance to support organizational goals. Employees want to know what they are expected to do and receive feedback on performance related to those expectations. However, achieving these goals can prove difficult to achieve in reality. This report will identify ways to create and implement a successful performance management system, suggest aspects best practice organizations include in their performance management processes, and briefly overview current products available in the marketplace to meet these needs. Creating a Successful Performance Management System Mercer’s 2008 Performance Management Practices Survey (completed by 350 leading U.S. companies) shows that success with performance management initiatives is driven by four main factors. First, senior leaders must be committed to the process and participate themselves. If senior leaders do not follow and support the new performance management process, managers will not feel the need to follow the process either, and the new initiative will fail. However, if senior leaders follow the process with their direct reports, directors and managers will see the added value created by the new process and feel pressure and/or accountability to also follow the process. Another potential pitfall of performance management systems, regardless of it is technology-based or paper-based, is maintaining a way to fairly evaluate performance across the organization. No doubt there are managers at your organization who are harder evaluators than others. One way to combat this issue is to hold calibration meetings. While only 22% of Mercer survey participants hold informal meetings and 11% mandate them, this option is gaining popularity as a way to maintain fairness across departments. These meetings ensure managers use the same “yardstick” to evaluate performance. Having a way to calibrate ratings within and across departments and functions will ensure employees are rated consistently and fairly across the organization. Some Farm Credit organizations hold formal meetings to roll up performance ratings. This might start at a department level; ensuring all managers and supervisors are consistent in their rating use. Department heads then meet to ensure consistency across departments. This process flows up the organizational chart and ends with senior leaders reviewing the ratings and/or merit increases for all employees across the organization. Another option to help maintain fairness in ratings across the organization is for the next-level manager to review all performance reviews. This provides consistency within departments. The Mercer survey found that 57% of companies conduct a next-level manager review as part of their performance review process. Establishing strong management skills is the third element of a successful performance management process. Providing managers with the knowledge and skills to understand what is expected for performance across the organization will create alignment and credibility to managing performance. The primary purpose of performance management systems is to provide meaningful feedback to employees. 51% of companies in the Mercer survey state that their managers are only “marginally skilled” at linking performance to actionable development planning. Likewise, 67% indicate managers are “marginally skilled” at providing career development coaching. The fourth driver of performance management success is technology. 40% of survey respondents currently have a performance management technology solution in place. Of the other 60% who do not have technology in place, 65% plan to purchase an external system and 14% plan to build their own program within the next two years. (Mercer, 2008) It is important to note that automating a process does not make it effective. Kevin Oakes, CEO of the Institute for Corporate Policy (formerly known as the Human Resource Institute) states, “Performance management technology is increasing in popularity, but without a solid process already in place, it’s not going to make a significant difference.” What to Include in Your Performance Management Process Many organizations face big challenges to improve the effectiveness of their performance management process. Mark Vickers, a Senior Analyst with Institute for Corporate Policy said, “…There is no single performance management practice that can transform an ineffective system into a good one. Performance management systems are just that – systems. They require the coordination of multiple key practices. The more of these practices that are in place, the more likely a performance management system is to be seen as effective.” An analysis of survey results conducted by HR.com and the Institute for Corporate Policy in 2006 found correlations between performance management processes and overall perceived effectiveness in the following nine practices: Plans for helping employees develop after the appraisal is complete Ongoing goal review and feedback from managers Training for managers on how to conduct a performance appraisal meeting Metrics of the quality of performance appraisal Ways of addressing and resolving poor performance Appraisal information that is not limited to the judgment of supervisors A system that is consistent across the whole organization Some type of multi-rater feedback Employees can expect performance feedback more than once per year (www.i4cp.com) The most common design elements of performance management systems in the Mercer survey were: Individual goals (91%) Formal year-end review discussions (91%) Overall performance ratings (90%) Competencies/behaviors (83%) Formal performance planning discussions (82%) Many companies struggle with how to integrate performance and development planning with compensation, succession management and/or talent management practices. (Mercer) According to a 2007 research study conducted by Ventana Research, more than half of participating organizations do not have access to the workforce metrics for which they are responsible. Mark Smith, CEO & EVP of Research at Ventana Research says, “…This research shows that over two-thirds of organizations lack information technology to measure and improve workforce performance, and surprisingly, many are not making it a priority.” (www.ventanaresearch.com) Options Available There are many performance management vendors and products available in the marketplace. Below is a small sample of options available to you. Softscape: Medica, a healthcare provider in the upper Midwest with 1, 150+ employees, was using spreadsheets to track individual performance, which required many hours to maintain and was not effective across the organization. They wanted a way to integrate their existing HRIS with the new workforce performance management system. They used three modules from Softscape to meet their needs. By purchasing and implementing the Learning Management, Succession Planning, and Workforce Performance modules, they were able to tie individual performance, goals, competencies and job duties to leverage their workforce. By integrating the learning management and succession planning with the performance management system, they were able to reduce re-work and leverage existing information to create a strong understanding of the workforce today and project for years to come. (www.Softscape.com) SuccessFactors: SuccessFactors can link employee information from Ceridian and create efficiencies for your organization. This system allows you to map competencies to positions and individuals to ensure that employees are in jobs that fit their natural skills and promotes success for individuals and the organization. You may utilize cascading goals so employees are held accountable for aligning their efforts with that of the organization. In turn, employees stay focused and meet corporate objectives. By providing clear performance metrics, growth paths and compensation for performance, your companies will retain top performers. SuccessFactors Professional Edition is a fully-supported solution designed specifically to help businesses with their employee performance and talent management. Built on a single platform, this automated and configurable web-based solution includes four core modules: Goal Management Performance Management Employee Central Analytics & Reporting In addition, you may purchase additional modules such as 360 feedback, business performance accelerators, compensation management, execution survey, learning and development, metrics navigator and stack ranker. For more information on this product, please contact Teresa Heath-Alva at 651-282-8442 or email: Teresa.Heath-Alva@FarmCreditFoundations.com. TOPS: TOPS is a web-based performance management system supported by the Workforce Management team. Six Farm Credit Foundations employers are currently using TOPS. This system has six main areas: Goals/Objectives Job Duties/Responsibilities Competencies Training/Learning Planning & Tracking Tool Recognition Overall Summary TOPS is a customizable solution that can be modified to meet your organization’s unique needs. For more information on this product, please contact Heather Binger at 651-282-8807 or email: Heather.Binger@FarmCreditFoundations.com. Implementation Suggestions Often, managers and leaders think that changing the performance management process will automatically improve performance management practices and results at organizations. However, this is not always the case; unless core practices change, updating to a new system or technology for performance management will lead you to the same results you have always seen in your organization. Patricia Zingheim and Jay Schuster recommend seven ways to help improve performance management. 1. Define “performance” at your organization clearly. Understand what behaviors you want to evaluate and what you want to do with the results of that evaluation of performance (is it tied to compensation decisions, promotions, development opportunities, etc.). 2. Evaluate current practices. What is working well in your current performance management process and what needs improvement? Why are you thinking of changing processes/systems? 3. Explore “Best”, Not Prevailing, Practices. Too often organizations call other organizations to get copies of their forms and select their favorite to implement at their organization. Remember that if you have a solid performance management process, all the form does is document it. The actual goal setting, feedback, coaching, discussion and exchange of performance information make for effective performance management. More importantly, find out what others do, but ask them why they do it and what it does to benefit the organization. 4. Customize to your Organization. Performance management is not a one-size-fits all situation and you need to match the solution to where you are currently, where you want to go and how managers and employees feel about performance management. The solution needs to be ‘owned’ by your organization. 5. Train Raters and Ratees. The tools of performance management are only as good as those who apply them. Teach managers how to give effective feedback and coach employees. Likewise, it’s helpful to teach employees how to receive feedback, since it might be a new experience for them as well. 6. Provide Role Models. Performance management must be practiced by everyone in the organization, starting with the CEO and Board of Directors. When key individuals champion the process, others follow suit and the performance management initiative is much more successful. 7. Communicate and Coach. Continually communicate to managers and employees why this process is used and how it adds value. Summary Creating an effective way to manage performance is not a simple solution. It takes well thought out processes, effective coaching/feedback training and time to get everyone on board. By taking time to first examine your current processes to determine what you like and want to change, you will be better able to implement an updated performance management system/process that will truly have an impact to your organization. Sources: www.i4cp.com (December 2006) “Nine Key Practices Are Critical In Effective Performance Management”. Mercer (October 10, 2008) “GO FIGURE: New Study Highlights Current Performance Management Practices”. www.mercer.com. Softscape “Midwest Healthcare Provider Achieves Efficiency Boost and Cost Reduction” (Medica case study) www.softscape.com. Softscape (May 2009) “5 Tips for Getting the Most out of your Workforce Performance Management System” www.softscape.com. Ventana Research (May 2007) “Research Finds Widening Gap in Workforce Performance Management” www.ventanaresearch.com. Zingheim, P. & Schuster, J. (July 2008) “Performance Management “Challenging Times” Style”. The SZA Total Rewards Bulletin.
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