Author: Shari Dunn

Early in each calendar year, employers' thoughts turn to enterprise goal setting. Aspirations for future results include such areas as revenue, profit and cost management targets, as well as such social imperatives as diversity. For HR professionals, the beginning of a new year often raises questions about employee performance management and career wellbeing.

The top two HR priorities identified by Gallagher's 2020 National Benchmarking survey included attracting and retaining a competitive workforce (80%) and increasing workforce engagement and productivity (41%). While 88% of respondents said they conduct performance reviews, only 45% said they define clear performance goals. And, only 34% said they leverage performance-based employee recognition to support engagement.

Employers use varying approaches to measure employee performance, many of which leave much to be desired. In some cases, the organization's whole process consists of data entry into a software package, requiring little more thought than filling in the blanks and checking the boxes. Or, performance measurement may fall simply to a general supervisory responsibility, requiring occasional reminders about due dates for submitting brief reports documenting one-on-one meetings with employees to discuss their work. Sometimes, the process involves ratings on a numeric scale associated with a minor impact on salary increase percentages.

Occasionally, a manager will raise the idea of setting employee performance goals, only to face objections about the time, effort and futility surrounding such goals, which prove meaningless in the face of unanticipated changes.

Why is this an especially thorny issue for HR? Performance management is widely acknowledged as playing a significant role in nurturing, retaining and rewarding employees. In spite of general agreement on its importance, the immense perceived difficulty of doing it well has precluded noticeable progress as we enter the third decade of the 21st century.

Let's look for a moment at some of the common performance management practices:

  • Annual "review" process, often on anniversary date
  • Tool is paper or electronic form that requires rating, usually on a scale of 1 to 5
  • Ratings are based on a mix of behaviors, competencies, and sometimes goal achievement, which may or may not be weighted
  • Some processes solicit input from peers and others in the organization (360 degree); others include "self-appraisals"
  • Ratings may or may not affect pay increases or bonuses

Programs to implement tools and processes in support of performance management generally fail to demonstrate effectiveness. Multiple surveys of employers and employees alike show that these groups perceive annual performance reviews as marginally effective, and in many cases, detrimental to employee morale. Subjectivity, inconsistency and interpersonal dynamics, along with unclear objectives and inadequate communication, all contribute to lack of success.

Related research findings include:

  • Sixty percent of HR executives grade their own performance management systems at "C" or below.1
  • Two-thirds of appraisals result in zero or negative effects on performance.2
  • Eighty-seven percent of employees and managers felt that performance reviews were neither useful nor effective.3
  • At least 30 percent of performance reviews decreased employee performance.4

The traditional model of performance appraisal relies on one person, the manager, judging another, the employee. No one likes to be judged, especially when it could affect an employee's livelihood. Further, the manager who does the judging usually finds the process onerous because performance appraisals can lead to unpleasant consequences. The process puts both parties in an uncomfortable and sometimes threatening position that puts pressure on the day-to-day working relationship.

As a consequence, supervisors often choose to ignore poor performance behaviors, rating employees as "fully competent" or even "excellent" as a way to avoid conducting difficult and sometimes disastrous conversations.

Is there a solution? Consider first a list of what "performance management" attempts to do:

  • Give feedback to the employee
  • Input to promotion decisions
  • Facilitate performance improvement
  • Provide a tool for coaching/mentoring
  • Counsel problem performers
  • Assess development/training needs
  • Support career advancement
  • Set and measure goals
  • Motivate/provide recognition
  • Provide input to layoff/downsizing decisions
  • Serve as a basis of pay increases
  • Measure individual performance
  • Provide legal documentation

Should any organization attempt to design a single program to achieve all of these objectives, they would find it impossible. No wonder managers struggle to make performance management work. 

Why not eliminate ratings, as many employers have done, and focus separately but equally on:

  1. Providing positive guidance to employees on how to improve technical and behavioral competences, and
  2. Quantitatively measuring actual work outcomes in terms of quantity, quality and/or timeliness based on goal achievement measurements? In this way, employers and employees benefit from both processes while maintaining and improving interpersonal business relationships. 

So, the performance review isn't a singular process. Rather, it is comprised of two key parts: competency development and results measurement. Each brings a clear, specific purpose.

Competency development

Most performance management systems and tools focus on supporting the improvement of employees' job-related behavioral and technical skills and abilities. Often, these involve training, mentoring and other forms of learning and development, including classroom instruction. Managers often address behavioral issues through coaching and counseling, or even through team-building activities. A common assessment tool for identifying behavioral improvement needs is the 360 degree approach of asking co-workers to provide anonymous input about a particular individual.

Another dimension of competency development includes career planning. Leaders may identify high-potential individuals as candidates for special training targeted to preparing them for future promotions and steps along a desired career path.

Competency development goals involve participating in particular classes or programs during the upcoming year. In these cases, the "goals" are simply to learn skills that will offer future utility.

Results Measurement

Goals set in this context differ from those set for purposes of competency development. For this part of performance management, goals closely link to the employee's role and the associated business or organizational goals in support of the enterprise goals. These purposes include:

  • Provision of guidance for everyday work activities, including setting priorities, time allocation and interactions with colleagues
  • Facilitation of communication among teams, to support clear direction and clarify accountabilities
  • Establishment of accomplishment milestones to assure actual goal achievement (the very existence of goals greatly increases the likelihood of their achievement)
  • Ability to determine at the end of the performance period to what extent an employee has met goals and can understand how he or she performed
  • Quantitative, objective measurement of results that can help managers to determine systematically and fairly determine performance-related salaries, bonuses and/or equity grants

Establishing Outcomes Goals

How does goal setting work, and what should employers remember as they embark on the process? Goal achievement is measured quantitatively based on individual and/or team results relative to pre-established outcomes, usually based on: quantity, quality and timeliness of the result. Remember that goals are not the same as activities. A goal is defined as a desired result. Activities are what we do to achieve the goal. Therefore, each goal states the desired outcome, not the activity itself, and should be weighted to indicate relative importance.

It is helpful to identify whether project and/or process goals are appropriate. Outcomes goals should be impactful and exclude personal developmental goals. Multi-incumbent jobs should consider goal content uniformity. If the employee is a supervisor, one goal should relate to how well his/her staff does. Avoid using "back-burner" projects as goals.

Once they understand the overall organization's goals, employees should start the process by setting their own goals, subject to modifications by their managers. This is a best practice because employees are more likely to take ownership of goals if they created them. Employees also know more about their own jobs than anyone else and often create excellent ways to measure the most relevant and critical outcomes they produce.

To determine goals, the employee should start with regular job functions as described in the job description, and select applicable categories of results.

Together the employee and manager review the employee's goals, conditions and dependencies. At the end of the defined performance period, the manager measures outcomes relative to targets and expresses the result as a percentage of goal achievement. Then the manager computes an overall goal achievement score.

Consider these key considerations for successful goal setting:

  • Include at least one collaborative goal for each employee, meaning that the employee and one or more colleagues will be mutually accountable for the outcome
  • Supervisors of other employees should include one goal that measures the goal achievement scores of their employees in the aggregate
  • Conditions under which goals may be changed during the performance period should be identified in the goal measurement tool. Goals should be reviewed periodically during that period, and changed if circumstances beyond the control of the accountable employees adversely impact the employee's ability to achieve the goals. All goals should be relevant and achievable.

As 2021 continues to unfold, employers may want to consider the many ways effective goal setting and goal achievement measurement can contribute to better ways to manage employee performance, as well as to improve overall business and organizational wellbeing results. Gallagher's Human Resources & Compensation Consulting team can help to guide the process of crafting a goal-setting and measurement framework to help employers face the future with confidence. 

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© 2021 Arthur J. Gallagher & Co.

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