One of my coaching clients has engaged me in discussion about performance management over the past weeks. As always, I refresh myself on a topic by reading the latest online articles and look into my personal library for new insights. So I thought I would share with you a summary of how I see this topic.

It is understandable that leaders are looking to break the practice of rewarding longevity rather than performance. Many companies are staggering under the weight of 20-year employees who are pulling down the biggest salaries and sometimes providing the least added value.

The first thing which strikes me is that people often say “performance management” when their focus is on just one part of it, performance appraisal. Let’s define the elements which make up performance management:

Planning work and setting expectations
Continually monitoring performance
Developing the capacity to perform (through training and coaching, for example)
Periodically rating performance (here is our friend, performance appraisal)
Rewarding good performance

And of course the whole process is a circle. Planning the next work cycle follows rewarding for the last one. And if any element is left out, the process suffers.

You might notice that monitoring (step 2) and rating (step 4) have a certain connection. Keep in mind that monitoring is a continuous and ongoing process while rating is a periodic scheduled event. Diligent monitoring is a prerequisite for meaningful rating.

Let’s have a brief look at each of the steps:

In many organizations, generic goals are rubber-stamped from one year to the next. Here we need managers to set specific targets to be met throughout the next reporting period. The discussion should quantify goals, clarify priorities and establish standards for the quality levels expected.
A strong criticism aimed at leaders is that they are “seagull bosses”, swooping down, dumping on the workers and then are seldom seen. Great leaders keep a finger on the pulse of employee performance. Without it, steps three and four and very difficult to achieve.
Development requires a keen understanding of the capabilities and areas of improvement for each employee. Coaching or training administered early puts a staff member back on track before the reporting period becomes a lost cause. Your job is not to play gotcha when someone fails, but to lend a hand early to see that they don’t fail.
Since performance is a measure of the employee and the boss, the best ratings are ones involving 360 feedback. The leader has as much to learn to as staff member does when an employee fails to meet goals.
There are many kinds of rewards beyond money. Recognition is a powerful one. So is the atmosphere of belonging which makes a person proud to be part of a team.

Now let’s talk about how and where it works ... and doesn't.

Case 1 – my investment portfolio. Don’t get excited. I have a modest portfolio, but I like to see it grow as much as possible. I recently switched management of that portfolio from a bank which charged me for every transaction (buy or sell) to a broken who charges a percentage when the profit exceeds a certain minimum level. That is rewarding him for performance. Of course I had to agree to give him complete control of when and what to buy and sell.

Case 2 – a bit more complex. I have a son who is a physician at the leading edge research hospital, Mayo Clinic. He is spearheading an effort to switch the billing for medical services to a performance basis. Right now I suppose your doctor charges you for visits and for procedures performed (lab tests, x-rays, etc.) Presumably he or she does that because it will allow the doctor to better diagnose and treat your illnesses and conditions. But we all have a suspicion that the doctor who buys expensive new equipment for his office is going to look for opportunities to use it and get a return on investment. But how much does that put pressure on the insurance system which has to pay those bills for such tests.

At Mayo, my son is looking for how to charge for making you healthy rather than for testing and prescribing. Of course there are a few complications: what if Mayo wants me to follow a specific regimen of treatment (charge of diet, taking certain meds, etc.) but I don’t. The desired performance (my becoming healthier) has not been achieved but through no fault of the medical practitioners involved.

That’s no different from going to the garage where you have your car serviced and saying that instead of paying for oil changes, brake jobs, etc., I’ll pay $2,000 a year and you keep my car running. Do whatever you need to so that I have the desired performance (99.9% reliability of my car).

In companies today, raises, promotions and especially bonuses or incentive programs are often geared toward rewarding performance. But we have to study those rewards carefully to insure that we are rewarding the right things.

In summary, I have seen self-actuated employees who know their work so well that they set their own goals, need little or no development support and find reward in the pride they have in their work. How wonderful if we had only those kinds of superstar employees. But if we use the tools of performance management we may be able to turn more of our people into superstars over time.

To learn more, you may want to read Harvard Business Essentials: Performance Management: Measure and Improve the Effectiveness of Your Employees, by The Harvard Business School Press. Click on the cover page at the right.

- Herb