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Are You Thinking About Your Performance Management System Too Narrowly?

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Wed Mar 23 2016

Are You Thinking About Your Performance Management System Too Narrowly?
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Performance management system failure most often comes down to a lack of clear purpose. It cannot be a garbage can of different objectives. However, a lack of alignment can also derail performance management systems.

Is Performance Management Aligned?

While the performance review or appraisal process is usually the key point in managing performance, it is only one element of the performance management system. Managers are usually on the hot seat for failures. But wait a minute! Think about the other factors involved:

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  • What if the bonus pool is so small that you cannot reward high performers differently from average or mediocre players? At the Metrus Institute, we find that it is not uncommon for managers to be given a pool of 2 to 3 percent pay bumps and then told to differentiate across performance. For many jobs, that translates into tens or hundreds of dollars, perhaps enough to buy venti instead of grande coffees for the year.

  • What if individual development plans are not supported? One employee recently told me, “When I applied to go to the training that was on my development plan, I was told this is not a good time—it is never a good time!”

  • What if goals are not discussed or agreed upon until March or April, and then the organization changes factors during the year that make attaining them nearly impossible?

All of these situations are connected to the broader performance management purpose and design. The alignment of many people and processes affects the success of the overall performance management system. Let’s take a look at these more closely.

Rewards must be meaningful to be effective incentives. For too long, we have had financially oriented compensation designers developing perfectly tuned reward systems. They will say, “Hey, it works in the spreadsheet—all the factors are weighed,” or “This fits market-based points.” Great, but all it takes is talking with high and low performers to see that the ideal weightings are often irrelevant. Psychologists use the term “just noticeable differences,” often referred to as JNDs. If someone does not perceive the difference to be meaningful, it will not influence behavior.

In his book Thinking, Fast & Slow, Daniel Kahneman shows that people are not perfectly rational in weighing information in their decisions. If your high performers do not perceive the reward to be meaningful, they may be less likely to stay with your firm, or they may decide that the extra effort they put in is not worth it. Rewards must be aligned with what motivates different individuals.

Development is another key failure point in many performance management systems. Think back to the employee who told me about not being able to sign up for training. Many performance dialogues focus most of the time on performance gaps, rather than on what the person can do to develop further. In this case, results are misaligned with capabilities. Without the right tools and training, we are unlikely to get better. Additionally, development can be misaligned with either the organization’s or individual’s needs. Training that is not going to increase value, personally or organizationally, is probably a waste of time.

Another major issue is treating goals as if they are set in stone. How many of us have had personal goals that change during the year? Yet rather than accept the reality that conditions change—whether caused by competitors, economics, or products—goals are somehow assumed to be perfectly predictable. The result is that employees begin treating goals as bogus factors to be submitted safely during planning so they won’t be held accountable for the real changes that are taking place throughout the year. Ultimately, goals must be aligned with shifting priorities.

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I discuss additional failure points in my performance management chapter in the ATD Talent Management Handbook. It’s time to view these failure points not as impossible barriers, but as elements to be managed more effectively. Many employees are driven by the work they do and the colleagues they work with. A misaligned reward system does more to damage trust than a perfectly designed one does to grow performance. Development is important. Period.

Most people want to grow, and if it is not with your firm, it will be elsewhere. Build adaptable but aligned goals that are not “gotchas” but instead guidelines for direction and development that lead to becoming better year over year. This is the essence of agile alignment.

After all, isn’t that what we all want—to become better and better each year?

Performance management is evolving as new talent enters and exits the workplace. If you are attending the ATD 2016 International Conference & Exposition, attend the Community Express: Human Capital Fast Track at Noon on Sunday, May 22 to hear from practitioners and consultants on trends and the future of performance management.

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