Human Capital Balance Sheet

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Human Capital Balance Sheet Powered By Docstoc
                       PERFORMANCE MANAGEMENT

Author                 Tony Palmer, Managing Partner, The Marple Partnership
Description            In spite of all the talk recently about Human C apital and how to measure it,
                       employees are still resources, not items on the balance sheet. Line and HR
                       Managers don’t “manage” people, they manage people performance. So getting
                       your Performance Management processes right is a priority.

                        A lot of the pain and paperwork disappears if you use your computer to support
                       the processes. Tony Palmer of The Marple Partnership explains how.

Main Content           For further information, please click on the link below to download the remainder
                       of this article

In spite of all the talk recently about Human Capital and how to measure it, employees are still
resources, not items on the balance sheet. Line and HR Managers don’t “manage” people,
they manage people performance. So getting your Performance Management processes right is
a priority.

A lot of the pain and paperwork disappears if you use your computer to support the processes.
Tony Palmer of The Marple Partnership explains how.

        People Management is Performance Management

It doesn’t matter whether you’re running 10 or 10000 people in your organisation, what
they do and how well they do it affects your business. In Commerce and Industry, it’s
about customers and profits. In the public sector, it’s about service levels and
effectiveness. You want to get the best out of your people – and most of them want to
improve as well. Better performance is in everybody’s best interests.

So feedback on performance and how to improve it should be a high priority for every
manager. But in so many companies it’s an unwelcome chore, an interruption to the
business, unappreciated by “the staff”, inconsistent, mishandled, bureaucratic.
Fixing this, and making it easy for managers to improve their employees’ performance,
should be correspondingly high on the list for HR managers and others responsible for
the organisation’s performance management processes. But how?

It takes some well thought-out policies tailored to fit your organisation, a little training,
and an efficient computer system to provide a simple, welcome and effective
Performance Management - and Improvement – Process. We’re going to focus on how
the computer can make life easier for you here, but we won’t ignore a few other well -
tested features of the process along the way.

And the first of these is: don’t call the process “Appraisal”. People don’t like to be
“appraised”. In fact it’s better not to call it Performance Management: “Performance
Improvement”, or “Performance Development” sound at least to the employees that it
might be designed in their interests at least as much as for managers. Which it is.

You may be starting from scratch, or already have a basic assessment process, or even
have a comprehensive process, Competency-based, integrated with Objective Setting,
Career Development, Talent Management, Succession Planning and Reward. Whatever
you have, it can always be improved on. This paper is intended to cover at least in
outline the full range of performance–related processes that the computer can support,
and give you some ideas on how to upgrade those processes with maximum utilisation
of and support from your computer software. It can of course do your admin for you:
telling managers and staff when assessment interviews are due, without your
intervention. And it can get you into the boardroom, when you identify from your
software the most suitable successors to key executive posts, having used that same
software to analyse what preparation and development they needed.
Computers can do more than Admin

If your existing “Appraisal” process predates your computer system, there’s a chance
you’re using the computer only to record scores and remind you when appraisals are
due. Chasing the paperwork is the least attractive element of Performance
Management. So let’s get rid of as much paper as we can. Maybe you want or need
paper records as hard copy confirmation or as aides memoire for development plans
and objectives. But these are optional extras. You can get the computer to manage the
rest, and bring your process up-to-date, if you follow the Ten Commandments:

                       THE TEN COMMANDMENTS

   1           Get software with internet/intranet facility

   2           Use Competency-based assessment

   3           Show all staff with PC access how to self-assess

   4           Put your Process and Competency Guides online

   5           Include “functional” competencies

   6           Analyse results for Training Needs

   7           Integrate Objective-Setting with Competency Assessment

   8           Integrate Career Development with both

   9           Feed High performers to Talent Management and Succession Plans

  10           Drive pay and reward through Competencies and Objective Scores

We’ll take you through these in summary. If you’d like more detail on any aspect or
customised help with your processes, do contact us – details at the end of this paper.

Your objective is to help managers give their employees constructive feedback on their
performance so that they can improve it. Not to do it for them. They need to be able to
interact with the computer in following the process. Which means individual employees,
and the employee’s manager, able to access their own record. So the software needs to
be available to all who participate in the process. Individual passwords will protect
confidentiality, and are part of the package from all reputable HR software suppliers.

And if you as the guardian of the process want to use the computer to do more than
keep performance records, you need a software package that accommodates other HR
processes. Performance Assessment data is not an end in itself: only a means to an
end. It will help you determine Training Needs, identify High-potentials, predict your
bonus payments, choose Successors to key jobs. Ideally you’ll manage these and other
HR functions through the same package. And we’re not talking vast expenditure here. A
basic system with internet access, covering all these features, is still less than £20 000.
Or less than the recruitment fees to replace two managers who quit because you show
no interest in their career development.


By Competencies we mean the Abilities, Knowledge, Skills and Behaviours required by
employees to perform their current jobs. Some companies, particularly those with a
heavy sales emphasis, measure performance against objectives. And rightly so, where
achieving objectives brings in Company profit and earns employee incentives. But
measuring performance through objectives begs the question: do your employees have
the Competencies they need to meet/exceed objectives? Can Salespeople meet their
Sales targets if they don’t know how to sell?

Many companies now have Competency frameworks spelling out what they’re looking
for in their employees. They vary depending on the business, and on the values and
standards of its leaders. Here’s an example of a Core Competency framework from a
1000-employee multinational:
PERSONAL                                                 expected of all employees

1.    Customer Focus
2.    Getting Things Done (Right)
3.    Teamwork
4.    Communications
5.    Adaptability
6.    Ethics/Integrity

PROFESSIONAL                                     expected of those who self-assess

7.    Initiative/Innovation
8.    Prioritising, Planning and Organising
9.    Problem Solving and Analysis*

MANAGEMENT/ LEADERSHIP                     expected of those who make decisions on
                                            other employees’ work and development

10.   Monitoring and Measurement
11.   Building Winning Teams
12.   Business Acumen and Strategic Thinking

Typically each Competency is defined in terms of activities which demonstrate level of
proficiency in that competency. In leading companies, these are structured: we expect
higher standards from senior management than from our newly-hired trainees.

Whatever standards you expect from your employees, let them know it, preferably long
before their first assessment interview


Getting staff to self-assess their performance takes all the form-filling bureaucracy away
from the Managers. Instead of paperwork they can focus on what they should be doing
– giving feedback on their staff’s performance. What’s good, what needs improvement,
and how to develop anyway.

And guess what? Staff actually want the opportunity to say how well they think they’re
doing, and even what help they need to improve. Giving them the task of analysing
their own performance is itself positive motivation. As usual, giving them the
responsibility for analysing their own performance gives them “ownershi p” of plans for
improvement – and therefore more impetus to see them through.
One more surprise: their self-assessment is more accurate in than their Managers
assessment of their performance. There will of course always be a few employees who
are too modest in their self-perception, and a few more who think they walk on water,
but the vast majority not only know what they’re doing and how well they’re doing it
better than the boss, but they are also more objective in scoring.

In the live example above of the 1000-employee company, around 500 employees are
in manual occupations with no access to a computer: their Assessment is carried out by
Supervisors in the traditional way. But more is expected of the other 500, typically
office-based professional staff and managers with access to PCs and the ability to use
them. They know how to self-assess against the Competencies needed for their job.
They’ve had a three-hour training session. That’s all it takes.


This one shouldn’t need much explanation. You will of course by now have developed
both a Guide to your Performance Improvement Process, and a Guide to the
Competencies against which your staff self-assess. Rather than republish these every
time you refine a competency or change a date, it’s much easier to put them on your
intranet (or website).

This in itself encourages your employees to use online forms etc as they prepare their
self-assessment. They can start by updating their Job Descriptions online.


So far we’ve covered only the basics. Basic competency-based self-assessment online.
But now we’re getting to some genuine enhancements to the norm. The use of
functional competencies for example is still not widespread. While Core Competencies,
as in the example above, are expected of all employees, or all managers, Functional
Competencies are required only of those employees in particular functions. So
Salespeople need Negotiation skills. Accountants need to know Financial Reporting. HR
Managers    need   to    know   Resourcing,   Compensation        &   Benefits,   Training   &
Development, Employee Relations, Industrial Relations, Health & Safety etc etc.
When you think about it, it’s surprising that even major organisations don’t pay more
attention to analysing the functional competencies they need from their professionals. If
you’re interviewing candidates for a Chief Accountant post, or selecting internally, you
are of course interested in the extent to which they practise Core Competencies like
Teamwork, or Getting Things Done Right. But you’re at least as interested in what they
know about General Ledger, Balance Sheets and the difference between Financial and
Management Reporting. You’d better be, if you want the books to balance at the end of
the year.

So figuring out the activities you expect from staff in different functions is well worth
while, particularly if you want your Performance Management Process to produce a full
profile of the competencies, Core and Functional, of all key employees. Put another
way, you can forget about linking competency assessment with Objective-Setting,
Career Development, Talent Management, Succession Planning and Reward unless your
assessment includes functional as well as generic competencies.


This is where the computer starts to pay dividends. Not just record keeping, but
analysing results, on an individual, department and organisation wide basis. Showing
trends both positive and negative. Analysing the results of Performance Assessment
tells you what Competencies are weak across the organisation, and what Development
needs should be addressed. This enables you to focus your training on where it’s really
needed. Not all managers need Management Training Programs: the results will tell you
who does. And specifically it will tell you who and how many need Negotiation skills
training, or Recruitment Interview training. Training becomes a rifle, not a shotgun.
This doesn’t only save you money. It means employees who need the training get it,
and those who don’t, don’t.

As we said earlier, some organisations assess performance on whether objectives, like
Sales targets, are met or exceeded. Maybe everyone should have objectives. Certainly
everyone subject to competency-based assessment should have development plans
through which to improve their performance. Whether a separate process is necessary
through which objectives are set and monitored depends on your organisation and its
business needs. But if applied, Objective-setting should be integrated with Competency
Assessment at least so that the latter seeks to develop the skills needed to achieve the


Those employees who regularly meet or exceed performance expectations can
reasonably expect their organisation to pay some attention to their longer-term Career
Development needs. If it doesn’t, they’ll go somewhere else

Career Development is the responsibility of the individual. But forward thinking
organisations create an environment and processes in which the employee is
encouraged to seek advancement if they want it. (And not all employees do want
significant advancement, which is just as well.) Discussions with the boss or HR
management on what they can aspire to if they achieve/improve/develop should be
planned, to include analysis of the Competencies they need to acquire or improve on if
they are to realise their personal ambitions – and help the organisation achieve its goals
at the same time.

We need to distinguish between the improvement needs of employees in their current
positions (you’ll need to learn how to clinch more deals if you want to make this year’s
target – and bonus!), and development needs for future jobs (you’ll need some
management training if you want to be a manager). The latter is key to Career
Development: it looks beyond the current job. And paying attention to your employees’
future is the most effective way of keeping the ones you want to keep.
It helps not to raise expectations too high if this part of the process is labelled Personal
Development, rather than Career Development.

Again the computer is invaluable. Capturing the outcome of these discussions alongside
Competency and Objective scores means we now know what employees are good at,
what they need to develop in their current jobs, what development activities they are to
follow to improve, what they want to achieve in future and how to get there. And we
know have the basis for the more strategic aspects of Performance Management:
Talent Management and Succession Planning.


We are now looking at the comparatively high performers in your organisation, whether
already managers or earmarked for greater things. If you know the competencies in
your organisation which are critical to advancement, you can get the computer to do
the earmarking for you. Just as we can use Competencies in Job Descriptions to define
the activities required from candidates to do a job competently, we can define what
makes senior executives successful, and select/prepare from our emerging talent

Once again, Talent Management can be effective only if it accommodates what the
employees want as well as what the organisation needs. So those Personal
Development discussions become very important. Don’t put your High-potentials’ line
managers in a conflict situation by asking them to adjudicate on whether those Hi -Pots
should be developed by moves to other departments. Use either Mentors or senior HR
executives to keep the process objective and in everyone’s interests. And of course use
the computer to match potential with opportunity, and ability with expectation.


If you hold your Performance Assessment Interview with employees immediately before
their salary review is due, you can forgive them for ignoring much of the discussion and
focussing on the “bottom line”: how much? At that moment in time how they can
improve is of less interest to them than how they can justify what they do and how well
they do it sufficiently to argue you up a percent or two in term of pay increase.

Ideally Assessment interviews take place a few months before Salary Review. Yes,
everyone knows there’s a link, but we want the focus in the Performance discussion to
be on improving performance. Pay level is a consequence of performance, and
occasionally a motivator, but it is often the case that good performance has to be
rewarded in non-financial ways. Too much of a connection between pay and
performance can make you vulnerable to perceptions of inequity if you deviate from
your strict adherence to the link for any reason. Like a downturn in business conditions
which means you can’t give everyone as big an increase as they deserve.

However taking the line that there is no link between pay and performance is even
more counterproductive. If I’m not going to get greater reward for greater effort, why
bother? The organisations which tread this tightrope most effectively are those who let
Competency improvement drive base salary improvement (employees are capable of
more and are therefore worth more) while improved Objective scores determine bonus
levels (employees have achieved more).

Implications for Human Capital Reporting and Measurement

Talking of worth and achievement brings us back to where we started, with Human
Capital.   Whether you need to report on it or measure it, Performance Management
processes will help. Shareholders of publicly-owned companies want answers to three
basic questions on employees in their annual report: To what extent do your
    employees have the competencies needed to achieve company goals?
    management formulate and apply excellence in people management /
                                                                 leadership practices?
   employees have sufficient motivation and commitment to deliver success?
So whether or not your organisation is publicly-owned, or public or private sector, what
its stakeholders want to know about its Human Capital falls into three categories:
                               employee competency
                               management practices
                               employee engagement

What have you done to improve all three this year? Well-managed Performance
Management processes are good management practice. They do improve employee
competency, aligned to organisation goals. And they do motivate employees to do their
jobs better.

Most HR software packages available today can accommodate most if not all of the
processes outlined above. They range from generic HR database s, supporting the full
range of HR functions from Absence Reporting to Reward, to specialist software for
specific processes such as Succession Planning. Most can be tailored to meet your
specific needs. Pros and cons of each depend on your situation and plans, and advice
here is outside the scope of this paper, but if you want help in choosing or specifying,
do let us know.

You should now have a picture of what your process can look like with the help of
state-of-the-art HR software. If your Chief Executives have any doubt whether the
investment in Performance Management processes and computerisation is worthwhile
based on internal business needs, they might want to take into account what their
customers and stakeholders want: make sure they know.

And if you need any help with your processes, with integrating them, with
computerising them, or with linking to Human Capital reporting or measurement, make
sure we know.

Tony Palmer                                                                  May 2005
Managing Partner                                          The Marple Partnership
Phone 07711 454 117              

Description: Human Capital Balance Sheet document sample