Human Resources: Executive Summary: Performance Management

Few functions better illustrate the conundrum of how to quantify the "people" side of business than performance management. Leaders across the U.S. are challenged with defining desirable employee behaviors and refining systems that truly shape good outcomes - for individual workers and for the organizations that employ them.

Although companies don't agree on a consistent approach to performance management, nearly every organization nationwide has some kind of system in place to evaluate workers' performance, along with a process to address related problems. Typically, appraisals either compare an employee's work with that of colleagues or gauge performance against established goals. Companies use performance reviews to determine employees' pay raises and drive career development.

Critics of performance management point to flaws in companies' systems: lack of support from senior leadership, bias on the part of evaluators, complex ratings systems that neither employees nor managers understand, and organizations' failures to train managers to use performance systems correctly and to deliver feedback consistently and effectively.

Forced distribution systems, in particular, have generated skepticism and objections. Dubbed "rank-and-yank" by detractors, forced ratings create a sort of bell curve that places small percentages of workers at the highest and lowest performance levels and the majority of employees in the middle. Companies have come under fire for using these systems to downsize their workforces.

Taking another approach, 360-degree appraisals involve not only supervisors, but also peers, subordinates and, in some cases, customers in evaluating employees' work. Although this method can provide a broad perspective, some participants are uncomfortable rating another's performance. Others may avoid criticizing a peer with whom they must work on a daily basis. When raises or promotions depend on a 360-degree review, concerns may be heightened.

Despite misgivings about forced ranking, peer reviews and other appraisal systems, organizations remain obliged to keep productivity levels up and to make the most of the resources at their disposal. Effectively managing the performance of a firm's workforce lies at the very heart of those capabilities.

Experts note several strategies to help leaders improve performance. Shifting performance programs from a once-a-year-review focus to one that embraces ongoing dialogues about performance between managers and employees is a frequent recommendation. Training managers to accurately assess performance and to conduct those continuous conversations with workers is another suggested tactic for strengthening appraisal systems. Ensuring that all employees understand what's expected of them and how their work will be rated is important, too.

As it does in many business functions, technology plays a role in performance management. Automation has enabled organizations to shift from paper-based appraisal systems to electronic formats that facilitate more efficient capture and exchange of information. Many systems interface with existing HR information applications, creating linkages with training programs, leadership development initiatives, succession planning pipelines and the like.

While organizations nationwide continue to struggle with the challenge of assessing and shaping employee behavior, leaders who model a high standard of performance themselves - and who hold their workers responsible for the same - position their companies to best leverage their human capital. It is that human element that holds the key to the business world's most prized commodity - competitive advantage.

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The Institute for Corporate Productivity (i4cp, inc.) improves corporate productivity through a combination of research, community, tools and technology focused on the management of human capital. With more than 100 leading organizations as members, including many of the best-known companies in the world, i4cp draws upon one of the industry’s largest and most-experienced research teams and Executives-in-Residence to produce more than 10,000 pages annually of rapid, reliable and respected research and analysis surrounding all facets of the management of people in organizations. Additionally, i4cp identifies and analyzes the upcoming major issues and future trends that are expected to influence workforce productivity and provides member clients with tools and technology to execute leading-edge strategies and "next" practices on these issues and trends. i4cp is a for-profit company with offices in St. Petersburg, Florida.