Performance evaluation is broken, and several companies like Deloitte, Accenture and Microsoft have now moved away from the old models of employee motivation driven by rewards and fear and focused on money, as opposed to intrinsic motivation, such as mastery of work and a sense of purpose:
In his 2009 book, Drive: The Surprising Truth About What Motivates Us, Daniel Pink wrote “The problem with making an extrinsic reward the only destination that matters is that some people will choose the quickest route there, even if it means taking the low road”. “Indeed, most of the scandals and misbehavior that have seemed endemic to modern life involve shortcuts. … Goals may cause systematic problems for organizations due to narrowed focus, unethical behavior, increased risk taking, decreased cooperation, and decreased intrinsic motivation. Use care when applying goals in your organization.” *
IMPLEMENTING A PERFORMANCE EVALUATION FRAMEWORK
When thinking about implementing a Performance Evaluation or Pay-by-Performance framework, a company needs to asked itself few questions:
Why do we need a Performance Evaluation framework and what are the expected outcomes?
What are the existing models in place? How does that fit to our objectives and our company culture?
How much time/ money are we ready to invest on Performance Management?
Do we currently have Performance issues?
These questions will help identify if a Performance Evaluation framework is needed, what type of models are the best suited and how to monitor the outcomes and efficiency.
Also, before setting up a Performance Evaluation framework, a company needs to already have developed
A conscious and consistent Company Culture
A Competency and Compensation framework
A clear Bonus policy (if relevant)
A Recognition programme
OBJECTIVES OF PERFORMANCE EVALUATION FRAMEWORKS
The most common reasons companies implement Performance Evaluation Frameworks are to MONITOR, MOTIVATE, GROW and AWARD their employees.
Based on this, the most commonly used Performance Frameworks (such as cascading objectives, annual reviews, and 360-degree-feedback, etc.) unfortunately fail to meet these objectives, and end up being time consuming, frustrating, confusing and not constructive.
From an employee perspective, they inquire for more VISIBILITY and DIRECTION around promotion, salary increment or annual bonus:
How they are assessed in their roles?
How can they move into the next level in terms of promotion, salary, etc. ?
PERFORMANCE MANAGEMENT ELEMENTS
Let’s have a look at the 4 main reasons to have a Performance Evaluation framework from the company’s perspective and see what elements can be used in order to address them, beside Performance Evaluation:
MONITOR: The monitoring of employee performance needs to be on-going. It does not make any sense to wait one year to review an employee’s performance. KPIs should therefore be sufficient to keep everyone on track with the overall performance objectives. As KPIs are benchmark indicators, they are set at a team level and allow monitoring at an individual level to identify red flags and anticipate potential performance issues.
MOTIVATE: To feel motivated, employees need to be empowered and challenged. Frameworks like the Objectives and Key Results (OKRs) model enable individual to set up ambitious goal and decide on their contribution to the main company objectives. To be effective and drive both performance and motivation, this model is also based on on-going guidance and feedback from the managers.
GROW: Employee development is yet again an on-going process. The implementation of Personal Development Plans (PDP) at the initiative of the employees will allow them to develop new skills. This model is also based on on-going guidance and feedback from the managers.
AWARD: Recognition too needs to be on-going. In order to recognise the work of the employees, a set of recognition programmes can be developed in order to best adapt to each situation with customized and creative awards. -- See Carrots Are For Horses
Now let’s have a look at the employees’ need for VISIBILITY and DIRECTION around promotion, salary increment or annual bonus:
The promotion decisions are to be based on the job ladder (Competency model)
The salary increment are based on the Compensation model
The Annual Bonus is based on the Bonus policy (which is a component of the Compensation model) and is usually based on Company performance, Team performance or individual… or a mixt of the 3.
For the 3 above, a decision has to be made by the management team for each employee. And this is usually when an Performance Evaluation framework is needed to assess each individual accordingly. Based on this, the company needs to agree on a cycle (annual or bi-annual) and develop a process workflow (as simple as can be!) to allow efficient, objective and consistent assessment.
… But there could also be an option where there is no need for promotion, no need for salary increment and no need for annual bonus processes! This is a pretty radical option but it exist ;-) -- See Insanity That Works
FACTORS AND WEIGHTAGE FOR THE ANNUAL PERFORMANCE EVALUATION
A Performance Evaluation framework does not have to be complicated, it needs to help the Management team to assess if employees are entitled to get a salary increase, a promotion or a bonus.
This assessment needs to be
EFFICIENT: Time and cost effective and provides positive ROI on performance and engagement
CONSISTENT: All employees are assessed the same way (Calibration sessions)
OBJECTIVE: As much as can be! (Competency, Compensation and Bonus frameworks)
Now as much as I love data, there will always be a level of subjectivity in the assessment of individuals. This is a fact and no matter how much we try to bring it to a scientific data-driven formula, it will still be subjective. There are too many factors to take into considerations and everyone will have their own perspective on things.
“Neuroscience research shows that conversations about compensation provoke an almost primordial “fight or flight” reaction among employees, which obviously inhibits the coaching process. Rather than directly linking ratings and salary increases or bonuses, compensation decisions should be based on the critical nature of an employee’s skills, the cost of replacing them, their value to customers, and the external labor market.” -- See Performance management is broken
This is why I advise for the most simple model as much as possible, and the model developed by Deloitte based on 4 unique questions is just great -- See Reinventing Performance Management.
1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus [measures overall performance and unique value to the organization on a five-point scale from “strongly agree” to “strongly disagree”].
2. Given what I know of this person’s performance, I would always want him or her on my team [measures ability to work well with others on the same five-point scale].
3. This person is at risk for low performance [identifies problems that might harm the customer or the team on a yes-or-no basis].
4. This person is ready for promotion today [measures potential on a yes-or-no basis].
These questions can be customised in some way, as long as it does not alter the philosophy of it: Simplicity, Consistency, “Objectivity”.
Finally, the annual performance discussion should be considered more like an announcement than a conversation. At this stage, the decisions on salary increment, bonuses or promotion have already been made and there is nothing an employees can do about it. The real conversations (feedback/ coaching) should be ongoing and during the OKR or PDP reviews.