Performace Management Framework

 Introduction

Gone are the days when HR department was considered a task oriented function responsible for getting all the paperwork in place and making sure that the employees are paid on time.   In today’s economy, HR plays a critical role in the success of business operations. Human Capital is a vital investment for any organization and people driven metrics are considered so important that it has been provided its own category on the Balance Score Card[i]. According to a survey conducted by Korn/Ferry Institute, 72% of 765 executives indicated that the influence of HR on board has significantly/slightly increased[ii]. Historically line managers, with the assistance of HR business partners, used to take all decisions regarding an employee life cycle from onboarding to separation but now companies are rapidly disconnecting the strategy and implementation. One such area that is quickly gaining ground is performance evaluation.

Performance Evaluation

Performance evaluation is the process through which employees’ performance and alignment to business objectives is measured by certain authorized individuals. In simplest form the process can just exist between the manager and employee with a verbal feedback of the performance at the end of a year or after every assignment[iii]. This process is subject to abuse as managers and employees can be in complete disparity on the achievable goals at the beginning of the process or managers’ evaluation can be clouded by the latest events and not long term valuation. In both these cases an employee is left out frustrated, not aptly valued and in risk of flight. The organization also suffers as it cannot identify its star performers and loose time and money in employees’ effort that was counter to the organization strategy. In an elaborate form HR plays an active role in performance evaluation. HR leadership team sits with the executive team and understands the long term vision of the organization. Then HR business partners work along with the Business unit leaders to break the vision down into strategic thrusts and critical success factors. HR business partners will then work with line managers to further break this down into individual goals, responsibilities and competencies that are then assigned and evaluated for each employee. This will ensure goal congruence across the organization. Employees have a much better understanding of what their responsibilities are and the organization is developing current and future capabilities to wither any future disruption[iv]. This is the model that organizations are aggressively moving towards with the availability of automated performance management tools. As countries develop further and demand for high capability jobs rises, human capital becomes the most important asset and in a competitive job market no company can risk losing its high performers[v]. Hence, companies need to move towards Total Performance and Total Reward mindset where employee performance measures can predict business performance, long term outlook and capability gaps. Personalized assessment for employees on these measures will identify key components of total rewards that can be customized to each employees preference (N=1). Some concepts that are proposed as part of this research are:

Total Performance Framework (TPF)

Performance measures, though utilized across the organization (people performance, financial or non-financial performance, production efficiency), are rarely tied into each other. Historically reason had been the sheer size of the data that need to be collected, analyzed and then transformed to establish cause effect relationship. Also, each of these departments worked in siloes and rarely shared best practices with each other. With the advent of Enterprise Resource planning (ERP) and big data software, companies can now integrate the data across different functions[vi]. This allows companies to use Integrated Performance Measures (IPM) that establishes cause within one function and effect within other[vii]. An example of siloed measure would be range penetration, companies utilize range penetration to assess what % of employees are paid at what % of market range. This measure provides organizational compensation effectiveness but it does not translate into business risk measure or employee effectiveness. An IPM, measuring alignment/performance of employees at different penetration levels can be developed and tested for incremental change and associated correlation. This measure now correlates between compensation and effect on financial performance, and help in predicting effect before it actually takes place. It also forces different silos to work together. Above stated concept leads to formation of Total Performance Framework (TPF) that can be used as a platform by companies to identify and setup direct/indirect correlated IPMs. The platform provides building blocks and guidelines to create and maintain IPMs.  An initial structure of the framework in provided in Image 1.

Continuous Performance Improvement (CPI)[viii]

Performance management process as described above provides a means for various participants to evaluate an associate’s performance. A 360 degree review allows multi participant review as well feedback from direct reports[ix]. These are leading practices in terms of identification of the high and bottom performers but the looming question remain of what to do after the review is done? Supervisors don’t have a structured approach to bring an employee up to the desired performance level and employee find themselves lost without the guidance. I4cp conducted a study in 2010 to compare performance of high and low performing organizations under five different categories[x]. In all the categories High performers outclassed low performers by 2 to 1. Many organizations will let go of low performers which along with regular turnover can cost between 12% and 40% of the pre-tax income[xi]. This is where HR should step in to make sure that the employee moral stay high, their actions stay aligned to the overall business objective and company maximizes on the ROI from its human capital. Companies can do this by adapting to Continuous Performance Improvement process. Under this process, multiple participants will be involved in an employee evaluation throughout the review period. HR will provide decision making information on employees’ career path, competencies required, responsibilities desired and learning available to the final reviewer so he/she can continuously track and correct employee performance. As organizational objectives change, HR can quickly identify impact on the above stated factors and can adjust them in real time to make sure that the employee stays on the optimum path.

When Total Performance Framework is integrated with Continuous Performance improvement, it allows integrating business strategies with individual employee objective and making sure that employee/supervisors have all the necessary resources and guidelines required to deliver on or above expectation. These measures can then be fed back to the balance scorecard and predictive analytics[xii] to create real time analysis and modeling for future. Performance evaluation and development in these scenarios is more personalized and transparent. Continuous Performance Improvement and 360 degree review also allows HR to get critical feedback on employees’ motivational drivers and needs. These can then be innovatively used to create a Total Reward package for employee that lower the overall cost but better meets employee needs.

Integrated Performance Analytics (IPA)

In today’s world, data is driving business and any function within business that is not harnessing data optimized decision engine is holding back the business from optimization. HR can no more be context driven. More and more companies are adopting a data driven approach to employee life cycle management and Performance management is no exception. Performance management systems are not only integrating with the scorecards and business objectives but they are also integrating with other functions to pull in information critical for assessment. Information from customer relationship management (CRM) or Supply chain management (SCM) are feeding into CPI systems to provide up to date information on employees behavior, acumen, potential and status on goal achievement[xiii]. Managers don’t have to scramble through emails, sales order, customer feedback, Human Resource and Finance systems to understand holistic picture of the employee performance. They can simply point and click an employee to get the Integrated Performance Analytics (IPA) and see multidisciplinary performance. The decision and development engine also integrate backwards where a manager can create development plans, create stretch sales goals, promote/demote employee or provide reward. This reduces time and effort considerably and provides a real-time, robust and transparent process.

Total Reward[xiv]

One of the primary responsibilities of HR is to build a company of high performers. This requires an acquisition and retention strategy. Acquisition strategies generally circle around compensation but retention/engagement strategies require strategies on a broader scale. In 2011, Aon Hewitt, a global Human Resource outsourcing and consulting company, warned that employers will have difficulty attract and retain critical talent to grow their business[xv]. Historically performance management systems were tied into compensation systems where an employee was monetarily rewarded for their work performance. Now as HR has better understanding of the engagement model (Image 2) they need to push the performance management system even further. 360 degree/social performance management systems can provide valuable information on what and what not motivated the employee, why there is a decline in the performance over time and what is the flight risk of a high performer?  This information can then be translated into personalized total reward package offerings that are proactive and not reactive. HR can now tradeoff large amount of compensation increases with career development opportunities or flexible schedule. They can provide time and resources for creative work to tradeoff strenuous hours. This will keep HR on track to meet the objective of creating a high performance culture but at the same time find cost saving opportunities.

Conclusion

Performance Review/Management systems are part of HR initiatives that are moving HR from being task oriented to strategic. Performance management system can act as an early detection and correction system to larger financial impact. They should also integrate to the overall enterprise performance management system to align employee objectives to business objectives and integrate with other enterprise systems to provide integrated analytics on multidisciplinary performance. As employers find it more and more difficult to acquire and retain high performers, an effective Performance and Reward system can provide them a competitive advantage to grow/place talent from within and hence will earn HR a chair at the board meeting.