Quick Reminder on Performance Management Effectiveness

I recently ran into a study on effective performance management practices that I want to share with you. Not because it says anything really new, but because it does a great job on focus and insight, attributes we can all use when it comes to performance management.

The study's conclusion -- procedural fairness is the goal to set for your program.  Procedural fairness is defined as, ". .  . whether employees perceive that central elements of performance management are designed well and function fairly." Procedural fairness because it can be measured, yet so few companies can pull that sword out of the stone right now. Procedural fairness because the concept can be transformed into three primary practices.

Before I share the three factors that stand out as affecting employee perception of procedural fairness, I want to point out that global executives provided this data to McKinsey & Company -- a company that is not typically tied to Human Resource consulting. Why is the company interested now? Because, 'organizations are demanding a lot more from their employees: they expect them to respond quickly to changes in a volatile competitive environment and to "always be on," agile and collaborative.' Sound familiar to you?

The research suggests that a performance management system has a much better chance of being perceived as fair when it does these three things:

1. Transparently links employees' goals to business priorities and maintains a strong element of flexibility in response to business volatility. (A clear line of sight is both a business strategy and a people strategy that gives employees a sense of meaning and purpose.)

2. Invests in the coaching skills of managers to help them become better arbiters of day-to-day fairness. (These italics are mine, chosen to highlight how innovative and focused manager training design could be if it honed in on those skills.)

3. Rewards standout performance for some roles, while effectively managing "converging performance" for most. (They use the term, "converging performance," to point out that the definition of performance is particularly difficult today when, " . . . roles are interdependent, collaboration is critical, and results can't easily be traced to individual performance.")

When it comes to this last, compensation-related item, the report states, "With middle-of-the-pack performers working in collaborative team environments, it's risky for companies to have sizable differences in compensation among team members, because some of them may see this as unfair and unwarranted." This is the best logic I've ever heard on the rationale for this "one size pretty much fits most" pay practice -- to which the McKinsey writers add encouragement for spot bonuses that are calculated as a percent of base pay rather than a negligible amount.

But is there a bottom line? Since McKinsey reports input received from executives, they recommend asking employees, who we all know are more than willing to help you see what they think is fair. McKinsey data shows that a perception of fairness will strongly correlate with a perception of effective performance management.

Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.

Comments

[Nancy Rodriguez]

Thanks for sharing the study of effective performance management practices. Employees perception of fairness is important when conducting a performance review. Often if they do not perceive it is fair the level of job satisfaction can affect the bottom-line. Looking forward to your next post

[Margaret O'Hanlon]

Nancy, thanks for your thoughts. We love to hear from our readers!