A revolving door of top talent or a stagnant pool of poor talent is a major impediment to sustainable growth and company valuation. As a company scales, a comprehensive performance management approach, which is fully aligned with Core Values, Corporate Strategy, and Strategic Plan, is absolutely critical to ensure that the right talent is in place and motivated to execute.
Even small- and mid-sized companies have Human Resources staff and can point to some spreadsheets and performance related meetings as evidence for performance management. However, fact is that many scaling companies, especially in less mature industries such as Technology, don’t have an adequate performance management approach in place. Without one, none of the other components of the Growth Framework will be effective because employees are not appropriately managed.
What counts as an adequate performance management approach? Simplistically, the statement to the right from an account manager at a mid-sized beverage manufacturing company reflects how every employee should feel. Employees should always know where they stand with the company and what their future at the company holds.
Self-Assessment For Effective Performance Management
Performance management doesn’t drive employee happiness; it provides clarity for employees at all times. A few questions can help assess whether the performance management approach at a company is effective. More ‘Yes’ answers to the questions below imply greater ineffectiveness of the performance management approach that is in place.
- Would employees agree with the following statement: “I don’t know where I stand with the company”?
- Do majority of employees feel that they are top performers? i.e. would more than half the employees say that they are top 10% performers?
- Are reasons for promotions and internal job changes obscure or not measurable?
- Do involuntary terminations create anxiety among other employees about their future?
- Are employees asked to meet goals without a clear articulation of the day-to-day behaviors that will help them achieve those goals?
- Do top performers leave too often, especially when mid-level and low performers stay?
Components Of An Effective Performance Management Approach
It doesn’t take a genius to ask others to get things done; but it takes significant forethought and planning to guide others to follow a set of behaviors and activities that allow them to achieve goals. A strong performance management approach focuses on setting expectations and behaviors to achieve them; not on retroactively dissecting accomplishments or failures.
A Performance Management Approach can be split into two halves: The first is expectation setting and the second is evaluation against expectations
1: Expectation setting
At small- and mid-sized companies, expectation setting should hold much more weight than evaluation. Expectations have two components: A) Goals that an employee is expected to achieve, and B) Competencies that employees should learn and demonstrate in order to achieve the goals. Competencies help employees achieve goals.
A: Goals – Supervisors (anyone with employees reporting to them) must assign specific strategic initiatives, which drive towards achieving company strategy, to Overhead ‘Fixed’ Resources and align Frontline ‘Variable’ Resources to operational processes that drive towards operational and financial goals. Goals set for every employee must align with the company’s Strategic Planning outcomes, especially resource mapping to strategic initiatives and leading indicator targets developed for financial forecasting.
Assignment of goals to employees should be thoroughly vetted and a clear picture of the desired end-state should be painted for the employee by the supervisor. If an employee is not clear on the goals, it is a supervisory failure.
B: Competencies – The company and the supervisor should define a set of competencies and an articulation for each competency that is tailored for the employee’s function and seniority level. Competencies are tangible, controllable, and easily learnable behaviors that are designed well-enough to enable employees to effectively execute on strategic initiatives or operational processes.
The first layer of accountability for employees is competencies as they are traits an employee has full control of learning and executing. Achieving goals set for them should be possible, if employees live by the spirit of the expected competencies. Conversely, if employees are unable to meet their goals after executing on the competencies at the expected level, it is a supervisory failure to develop the right competencies.
For example: a common competency that is relevant for many companies, functions, and seniority levels is communication. However, telling employees that communication should be better is not enough. The type of communication that is important to master is different between a frontline sales role and a centralized analyst role. Similarly, expectations should be significantly different between a junior sales representative and a senior sales representative. The company has to define the specific expectations for each role to ensure that it aligns with goals set for that role.
2: Evaluation against expectations
The tail-end of the performance assessment approach is to assess employees on their performance in relation to (and only in relation to) expectations set for them. However, by this stage in the process, employees should not be surprised by the company’s evaluation because ongoing employee-supervisor discussions and interim assessments would have created clarity on how well employees are tracking against the expectations.
C: Accomplishments – The supervisor has to evaluate each employee on specific goals set in an objective manner and provide detailed documented feedback on what worked well and what didn’t. However, an effective performance management approach will focus less on accomplishments and more on competencies because many aspects of success and failure are not in an individual employee’s control.
D: Competency Scores – Independently, each employee should be evaluated on each competency and, preferably, these assessments are quantified. It is absolutely important that this assessment isn’t retroactive based on accomplishments. Competency scores, along with detailed narratives of employee adherence to expected behaviors, provide constructive and actionable feedback.
The most critical aspect of performance management is that employees should NOT be punished for missing goals IF their objectively evaluated competency scores are high. Why? No employee works in a vacuum and there are many dependencies for each employee’s accomplishments. It is the job of the supervisor and owner of the performance management approach to define the correct and detailed competencies necessary for every employee to achieve goals set for them. Supervisors should be held accountable for cases where employees miss goals, while their objectively-assessed competency scores are high.
Organizations claiming a results-driven culture without mapping employee competencies to goals and accomplishments are not holding supervisors accountable to identify what it takes for their employees to achieve goals. Placing the onus of success or failure only on the employee’s shoulder is suboptimal.
Note: Avoid short-cuts
- Finding off-the-shelf performance or feedback management tools and rolling it out does not constitute a performance management approach. Technology should always follow process definitions.
- Attempting to take an approach used at other successful companies – example: OKRs at Google / Alphabet – without aligning any of the other aspects of that successful company’s culture will not work. Rinsing-and-repeating tactics is not a good growth philosophy.
Properties Of An Effective Performance Management Approach
Let’s go one step further and frame properties of the approach that will drive towards optimal company-level results.
1: Competencies are tailored for all seniority levels and functions
The most important aspect of developing a comprehensive performance management approach is the definition of competencies and the articulation of the spirit of each competency for each employee’s functional role and seniority level. i.e. an effective approach would imply that the organization has as many evaluation criteria sets as there are combinations of functions and seniority levels.
If this sounds like a tall order, it’s not because significant time commitment to pen the details to successfully execute strategic initiatives and operational processes implies lack of clarity on expectations from employees. Companies are better off not hiring and staffing employees that it cannot set clear expectations for.
2: Performance evaluation approach is clear to everyone in the organization
Every aspect of the performance management approach should be clear to everyone in the organization without ambiguity. Every step in the approach should have a significance and that significance should be clear to employees and supervisors.
3: Maniacal focus on goal-setting as opposed to subjective evaluation of accomplishments
Goals should be predefined and have adequate detail to ensure that the communication of expectations between the organization (represented by the supervisor) and the employee has no interpretation gaps. Employees should never be surprised during the evaluation phase about the spirit of the goals set during the expectation setting phase.
4: Goals align with Strategic Plan
5: Employees should know where they stand among their peers
Performance evaluations in a vacuum where employees cannot be compared to each other is practically meaningless. Some supervisors are more demanding and harder graders than others. A performance evaluation approach should be designed to put all employees on a curve where they can be compared to each other using normalized scores.
6: Performance evaluation results must reflect career progression
Performance evaluations must be meaningfully used to reward employees monetarily, with organizational recognition, and with promotions. Such tangible rewards must correlate with the documented performance results. If this is not the case, employees will lose faith in the approach and possibly, the senior executives as well.
In sum, performance management is one of the key tools in a company’s repertoire to nudge employees closer to behaviors necessary for each employee, and thus the company, to succeed. Trying to manage a company without an effective performance management approach is a non-starter; so, investing time and effort to get this right is critical to success.