Sack the performance process at your peril

One of the topics currently doing the rounds in HR circles is performance management—and why it’s time to get rid of performance reviews. But, asks Philippa Youngman, has anyone thought about what this means for determining remuneration levels?

Although we encourage regular, open and honest conversations regarding performance, these are often not occurring because we have created an event-based process (goal setting, perhaps a formal interim assessment of performance and then a major event at the end of a year to discuss outcomes and overall rating).

Some suggest that to remove the angst we should eliminate the concept of scoring people. Some of New Zealand’s biggest companies have gone so far as to completely remove any formal performance process.

So let’s fix the problem by totally removing the process that is causing it! Not! What I find disturbing is that because it is large organisations considering this, others are following, thinking this must be the new ‘best practice’. But has anyone given any thought to what this means for determining remuneration levels? What do we do with our three percent salary budget this year in the absence of any guidance on the value of these employees to the organisation?

You can be absolutely sure that, as a business owner, I’m going to consider the value of each employee to my business, as well as market rates of pay and what we can afford, when determining remuneration levels. I fear that in organisations where there is no documented evidence of performance, there will simply be no clear organisational policy on remuneration and any strategic leverage will be lost.

In a large number of organisations, the salary bill is one of the biggest costs. We say our people are our greatest asset—if we really believe this then we need to have processes around maintaining
the health and efficiency of that asset, making sure it continues to perform the tasks we expect in order to deliver the outputs we need. Is this not performance management?

Let’s imagine a world where there is no formal performance process. I believe good leaders will still have discussions with their people about expectations and will regularly catch up on progress. Some will document this. Everything about this is great. Poor leaders, however, will avoid any difficult conversations— good luck managing out poor
performance.

Changing roles or leaders are common in today’s world, so how can we be sure the knowledge of past interactions is passed on without some sort of process? This will put more pressure on our good leaders to have to catch up each time they have a change in their team. How long will they put up with this before they decide it’s all too hard?

So how does this play out at remuneration review time? What will the organisational policy be on pay decisions in the absence of any meaningful information regarding the individual’s delivery of the tasks expected of him or her? Where does that leave all of our bonus policies?

Imagine a scenario where a manager is provided with a budget to “apply their discretion” for remuneration increases. What will form the basis of their decisions in the absence of organisational  policy? In the absence of policy, managers will make their own. The possibilities take us back in time:

• Everyone gets the same increase regardless of internal relativity;
• We focus only on a market comparison (which relies on the quality and relevance of data); and
• We inadvertently apply personal bias and prejudice.

There is also hard evidence from AON in their 2014 Trends in Global Employee Engagement and Inside the Employee Mindset research that connects employee engagement and overall organisational performance.

Seventy-one percent of staff within AON Hewitt Best Employers strongly agree with the statement: “In this organisation, employees gain a clear benefit if they are a high performer”. Only 40 percent of employees in other organisations agree. Also 62 percent of staff within Best Employers strongly agreed that “My performance has a significant and direct impact on my pay”, against 38 percent at other organisations.

The Employee Mindset research shows employees are looking for an organisation that recognises strong achievement or performance and where “My manager provides relevant and valuable input to improve my performance and/or work experience”. Feedback on job performance is still expected.

So what are we back to? It appears employees still want the opportunity to have honest conversations about their performance. And managers must have clear expectations about what should be delivered and how someone is going against those expectations.

This sounds like performance discussions (or whatever the buzz word might be for now), so how about we champion a process of:

• Setting clear expectations and goals;
• Regularly (or as often as is appropriate) provide feedback on progress;
• Summarise that feedback, for example: ”You delivered what I asked you to, well done” or “We didn’t quite make it with a couple of things so this is what we will do to help” or “You did more than I asked and I appreciate it”.

This is beginning to look like a rating scale that we can use for our remuneration policy and it might just keep everyone happy. Let’s not throw the baby out with the bath water. Rather, let’s get back to basics with a process that makes sense rather than the over-engineered and complicated versions that have become prevalent.

* This article was originally published in Employment Today magazine (Issue 190), New Zealand's leading publication on HR Management and employment law.

** Original images by Scott Adams, www.dilbert.com