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Fifth Generation
Performance Management
Presented to the Institute of Human Resources
June 9, 2011
Jim Sillery
Principal
(312) 846-3415
James.sillery@buckconsultants.com
Introduction
• To understand where we are going, we have to
understand where we have been
• This presentation looks back at the path that we have
traveled in evaluating and managing employee
performance
• It also looks at where we are going and introduces a new
generation of tools to take us there
First Generation
Character Measurement
• The first formal employee “merit rating” plan in industry is
credited to Robert Owen, a Scottish cotton-mill owner,
who started a set of “character books” at the beginning
of the 19th century
• Each employee had a book in which his daily reports
were recorded
• Each also had a character “block” with different colored
sides to represent an evaluation ranging from bad to
excellent
• The blocks were displayed on each worker’s bench
First Department Store Plan
• Almost 100 years later, a break though occurred
• In 1915, Lord & Taylor’s NY department store
introduced a “rating sheet for sales people”
• The rating system included such factors health,
appearance, manner, initiative, industry,
accuracy, loyalty, cooperation, responsibility and
knowledge
• The plan was considered to be very successful
in rating employees
Influence of World War I
• In 1917, Dr. Walter Scott was chosen by the US Army to
select a group of psychologists and army officers to
prepare a testing and rating system that would enable
army officers to judge and rate draftees for proper
placement
• The army rating scale came into being
• After World War I, psychologists, as well as former
enlisted men and army officers introduced the army
rating scale into commerce and industry
• This was the birth of the modern performance appraisal
Second Generation
Performance Appraisal
• Formal appraisal plans were designed to meet three
needs:
– Provide systematic judgments to back up salary
increases, promotions and sometimes demotions and
terminations
– Tell a subordinate how he is doing and suggest
needed changes in behavior, attitudes, skills or job
knowledge; let him know where he stands with the
boss
– Serve as a basis for coaching and counseling of the
individual by the superior
Harvard Business Review, 1957
Performance Appraisal
• Performance refers to an employee’s
accomplishment of assigned tasks
• Appraisal refers to a systematic description of an
employee’s job related strengths and
weaknesses
• Process is gathering information to prepare a
final report of performance for the period
performance was observed
Performance Appraisal
The systematic, formal
process of evaluating and
documenting an employee’s
job performance and
potential for future
development
But more often...
Performance Appraisal is a once a year box
checking exercise designed to arrive at an
already decided upon conclusion.
This is followed by a “diagnostic
consultation” between the appraising
manager and the employee in which both
parties suffer great discomfort and
frustration
Characteristics of Performance Appraisal
• Focus on individual performance
• Focus on past performance
• Focus on form
• Manager as judge and employee as listener who
defends past performance
• Focus on manager satisfaction
• Change through reward systems
What went wrong?
• Problems with
– Reliance on form
– Measurement
– Use of Judgment
– Accountability
– Role of the Manager
Which form to choose?
PERFORMANCEREVIEWMETHODS
Graphic Paired Forced Perfor-
Rating Forced Critical Weighted Compar- Distri- mance Field
Evaluative Base Scales Choice MBO Essay Incidents Checklist BARS Ranking isons butions test Review
Developmental Cost Moderate High Moderate Low Moderate Moderate High Low Low Low High Moderate
UsageCosts Low Low High High High Low Low Low Low High High High
Easeofusebyevaluators Easy Moderate Moderate Difficult Difficult Easy Easy Easy Easy Easy Moderate Easy
Easeofunderstandingby Easy Difficult Moderate Easy Easy Easy Moderate Easy Easy Easy Easy Easy
thoseevaluated
Useful inpromotion Yes Yes Yes Not Easily Not Easily Yes Moderate Yes Yes Yes Yes Yes
decisions
Useful incompensation Yes Moderate Yes Not Easily Yes Moderate Yes Not Easily Not Easily Yes Yes Yes
andrewarddecisions
Useful incounselingand Moderate Moderate Yes Yes Yes Moderate Yes No No No Moderate Yes
development ofemployee
Measurement
• No clear statement of overall objectives of individual,
teams, units or organization
• Measures are often subjective and with results that are
out of the control of the employee
• As a result, no line of sight and assessments seem
random
Judgment
• The best systems are still
subjective in arriving at a
conclusion since they rely on a
determination made by the
manager
• Typical outcomes include
disagreements, “silent
sabotage”, revised ratings,
accusations of bias,
discrimination
Accountability
• Top management fail to reward managers who
excel in performance management
• As a result, managers are not accountable for
the outcomes of the performance process
Role of the Manager
The system is perceived to
belong to the designers, not
the users
Human Resources take
“enforcer” rather than
“advisor” role
Managers do not feel ownership
in the process and therefore,
do not view themselves as
partners
What GE Discovered
• The GE studies in the early 1960’s found that:
– Criticism has a negative effect on goal achievement
– Praise has little effect one way or another
– Performance improves most when specific goals are set
– Defensiveness resulting from critical appraisal produces inferior
performance
– Coaching should be day-to-day, not once a year
– Mutual goal setting, not criticism improves performance
– Performance should be separate from salary discussions
– Participation by the employee in goal setting helps produce
favorable results
Third Generation
Performance Management
A systematic process that defines both
employee behaviors and performance
expectations and - through coaching,
feedback, reward systems (financial and
non-financial) and a shared commitment
between manager and employee -
consistently improves employee
performance
Why is it important?
Performance management is a
management tool that is
dynamically linked to the working
environment and the management
culture.
It is a tool designed to improve
quality, productivity and employee
- supervisory satisfaction
Characteristics of Performance
Management
• Focus on individual and team
• Focus on future performance
• Focus on improving performance through self-
leaning and coaching
• Manager as coach and employee actively
involved in charting future job performance.
A shift in focus…
Characteristics Performance Appraisal… Performance Management…
Time Orientation Review past performance Prepare for future
performance
Objective Improve performance
through reward system
Improve performance through
process improvement and
personal growth
Method Rating scales, comparisons
and frequency distributions
Counseling, mutual trust, goal
setting and career planning
Reviewer’s role A judge who appraises A supportive counselor who
listens, helps and assesses
Employee’s role Passive listener,. Reacts and
attempts to defend past
performance
Actively involved in charting
future performance through
planning and mutual
commitment
Performance Management and Motivation
Since workers tend to contribute to the
organization's objectives to the extent that
they believe in it's reward structure
(Intrinsic/Extrinsic), all rewards should be
closely tied to performance, sufficient to
motivate employees to exert extra effort, and
be tailored to the needs and aspirations of
the individual employee
Performance Planning
• The performance
management model
will foster
performance
improvement
• Because it takes
time to complete the
full cycle, company’s
can normally expect
full implementation
and integration to
take two to three
years
Planning
Systems
Reward & Recognition
Systems
Coaching and
Feedback Systems
Motivating Climate
for Performance
Motivating Climate
for Performance
Performance Cycle
• Define Roles and
Responsibilities
– What does the
employee do?
• Negotiate
Expectations
– What results
should employee
be accountable
for?
• Coach Performance
• Review Results
Define Roles &
Responsibilities
Negotiate
Expectations
Coach
Performance
Review
Results
Tools for Performance Management
• Self Appraisal
• Performance Interview
• MBO/Goal Setting
Gaps in Process
• Focus still on
Individual(s)
• Focus is internal
• Reliance on form
• Reliance on
Ranking
• Accountability
Four Generation
Business Processes
• TQM/Six Sigma
• Behavioral Competencies
• Business Process Re-engineering
TQM/Six Sigma tells us that
• We must do the right things the right way - first
time/every time
• Performance must be continuously improved
• The customers voice drives all actions of the
organization
• Higher quality results in lower costs
Deming’s view
• Work is produced by processes
• Work is dependent on system capability
• Work is done in groups
• Performance Appraisals are destructive
• Appraisal ratings
– create winners and losers
– conflict with teamwork
– create fear
Behavioral Competencies
• Personal characteristics of superior performers
• The process of identifying competencies that
differentiate superior from average performers
so that they can be modeled and spread
throughout the organization to enhance overall
effectiveness
Behavioral Competencies
Business Process Re-engineering
• Broader job definitions
• More matrix management
• More process - and less hierarchical -
orientation
• New roles for managers and contributors
Fifth Generation
Performance Engineering
• Performance Engineering is a system of designing,
managing and integrating all processes related to
customer, people and process.
• Through this system, managers and employees enter
into a partnership that is focused on defining customer
expectations and closing gaps between desired and
actual performance
Performance Engineering
Focus on
Customers
Focus on
People
Focus on Processes
Characteristics of
Performance Engineering
• Joint accountability
• Focus on customer satisfaction
• Team/peer feedback
• Process orientation
• Focus on continuous improvement
• Focus on system performance
Tools of Process
• Manager-Employee Performance Contacts
• 360 Degree feedback/not appraisal
• De-bundled HR programs
• Gap analysis Process Improvement
Performance Contracts
• Planning Tools
• Focus on controllable performance
– Employees
• Skills, knowledge, competencies
– Managers
• Processes, resources
360 Degree Feedback
• Peer Feedback
• Customer (internal/external) feedback
• Effectiveness Model
Processes will be De-bundled
• Reward Systems
• Career Development
• Succession Planning
• Disciplinary process
Performance is an input into
de-bundled systems
Career
Development
Personal
Development
Non-financial
Rewards
Financial
Rewards
Selection
Succession
Planning
Performance
Process
Performance Engineering
Customer
Inputs
Feed
back
Employees
Manager
Performance
Contract
Improvement Plan:
• Skills
• Competencies
• Experience
Improvement Plan:
• Processes
• Resources
• Information
What about ...
• Links to pay?
• Ratings?
• Forms?
Jim Sillery
Principal, National Compensation Consulting Practice
312.846.3145
James.sillery@buckconsultants.com
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Fifth Generation Performance Management 09june2011

  • 1. Fifth Generation Performance Management Presented to the Institute of Human Resources June 9, 2011 Jim Sillery Principal (312) 846-3415 James.sillery@buckconsultants.com
  • 2. Introduction • To understand where we are going, we have to understand where we have been • This presentation looks back at the path that we have traveled in evaluating and managing employee performance • It also looks at where we are going and introduces a new generation of tools to take us there
  • 3. First Generation Character Measurement • The first formal employee “merit rating” plan in industry is credited to Robert Owen, a Scottish cotton-mill owner, who started a set of “character books” at the beginning of the 19th century • Each employee had a book in which his daily reports were recorded • Each also had a character “block” with different colored sides to represent an evaluation ranging from bad to excellent • The blocks were displayed on each worker’s bench
  • 4. First Department Store Plan • Almost 100 years later, a break though occurred • In 1915, Lord & Taylor’s NY department store introduced a “rating sheet for sales people” • The rating system included such factors health, appearance, manner, initiative, industry, accuracy, loyalty, cooperation, responsibility and knowledge • The plan was considered to be very successful in rating employees
  • 5. Influence of World War I • In 1917, Dr. Walter Scott was chosen by the US Army to select a group of psychologists and army officers to prepare a testing and rating system that would enable army officers to judge and rate draftees for proper placement • The army rating scale came into being • After World War I, psychologists, as well as former enlisted men and army officers introduced the army rating scale into commerce and industry • This was the birth of the modern performance appraisal
  • 6. Second Generation Performance Appraisal • Formal appraisal plans were designed to meet three needs: – Provide systematic judgments to back up salary increases, promotions and sometimes demotions and terminations – Tell a subordinate how he is doing and suggest needed changes in behavior, attitudes, skills or job knowledge; let him know where he stands with the boss – Serve as a basis for coaching and counseling of the individual by the superior Harvard Business Review, 1957
  • 7. Performance Appraisal • Performance refers to an employee’s accomplishment of assigned tasks • Appraisal refers to a systematic description of an employee’s job related strengths and weaknesses • Process is gathering information to prepare a final report of performance for the period performance was observed
  • 8. Performance Appraisal The systematic, formal process of evaluating and documenting an employee’s job performance and potential for future development
  • 9. But more often... Performance Appraisal is a once a year box checking exercise designed to arrive at an already decided upon conclusion. This is followed by a “diagnostic consultation” between the appraising manager and the employee in which both parties suffer great discomfort and frustration
  • 10. Characteristics of Performance Appraisal • Focus on individual performance • Focus on past performance • Focus on form • Manager as judge and employee as listener who defends past performance • Focus on manager satisfaction • Change through reward systems
  • 11. What went wrong? • Problems with – Reliance on form – Measurement – Use of Judgment – Accountability – Role of the Manager
  • 12. Which form to choose? PERFORMANCEREVIEWMETHODS Graphic Paired Forced Perfor- Rating Forced Critical Weighted Compar- Distri- mance Field Evaluative Base Scales Choice MBO Essay Incidents Checklist BARS Ranking isons butions test Review Developmental Cost Moderate High Moderate Low Moderate Moderate High Low Low Low High Moderate UsageCosts Low Low High High High Low Low Low Low High High High Easeofusebyevaluators Easy Moderate Moderate Difficult Difficult Easy Easy Easy Easy Easy Moderate Easy Easeofunderstandingby Easy Difficult Moderate Easy Easy Easy Moderate Easy Easy Easy Easy Easy thoseevaluated Useful inpromotion Yes Yes Yes Not Easily Not Easily Yes Moderate Yes Yes Yes Yes Yes decisions Useful incompensation Yes Moderate Yes Not Easily Yes Moderate Yes Not Easily Not Easily Yes Yes Yes andrewarddecisions Useful incounselingand Moderate Moderate Yes Yes Yes Moderate Yes No No No Moderate Yes development ofemployee
  • 13. Measurement • No clear statement of overall objectives of individual, teams, units or organization • Measures are often subjective and with results that are out of the control of the employee • As a result, no line of sight and assessments seem random
  • 14. Judgment • The best systems are still subjective in arriving at a conclusion since they rely on a determination made by the manager • Typical outcomes include disagreements, “silent sabotage”, revised ratings, accusations of bias, discrimination
  • 15. Accountability • Top management fail to reward managers who excel in performance management • As a result, managers are not accountable for the outcomes of the performance process
  • 16. Role of the Manager The system is perceived to belong to the designers, not the users Human Resources take “enforcer” rather than “advisor” role Managers do not feel ownership in the process and therefore, do not view themselves as partners
  • 17. What GE Discovered • The GE studies in the early 1960’s found that: – Criticism has a negative effect on goal achievement – Praise has little effect one way or another – Performance improves most when specific goals are set – Defensiveness resulting from critical appraisal produces inferior performance – Coaching should be day-to-day, not once a year – Mutual goal setting, not criticism improves performance – Performance should be separate from salary discussions – Participation by the employee in goal setting helps produce favorable results
  • 18. Third Generation Performance Management A systematic process that defines both employee behaviors and performance expectations and - through coaching, feedback, reward systems (financial and non-financial) and a shared commitment between manager and employee - consistently improves employee performance
  • 19. Why is it important? Performance management is a management tool that is dynamically linked to the working environment and the management culture. It is a tool designed to improve quality, productivity and employee - supervisory satisfaction
  • 20. Characteristics of Performance Management • Focus on individual and team • Focus on future performance • Focus on improving performance through self- leaning and coaching • Manager as coach and employee actively involved in charting future job performance.
  • 21. A shift in focus… Characteristics Performance Appraisal… Performance Management… Time Orientation Review past performance Prepare for future performance Objective Improve performance through reward system Improve performance through process improvement and personal growth Method Rating scales, comparisons and frequency distributions Counseling, mutual trust, goal setting and career planning Reviewer’s role A judge who appraises A supportive counselor who listens, helps and assesses Employee’s role Passive listener,. Reacts and attempts to defend past performance Actively involved in charting future performance through planning and mutual commitment
  • 22. Performance Management and Motivation Since workers tend to contribute to the organization's objectives to the extent that they believe in it's reward structure (Intrinsic/Extrinsic), all rewards should be closely tied to performance, sufficient to motivate employees to exert extra effort, and be tailored to the needs and aspirations of the individual employee
  • 23. Performance Planning • The performance management model will foster performance improvement • Because it takes time to complete the full cycle, company’s can normally expect full implementation and integration to take two to three years Planning Systems Reward & Recognition Systems Coaching and Feedback Systems Motivating Climate for Performance Motivating Climate for Performance
  • 24. Performance Cycle • Define Roles and Responsibilities – What does the employee do? • Negotiate Expectations – What results should employee be accountable for? • Coach Performance • Review Results Define Roles & Responsibilities Negotiate Expectations Coach Performance Review Results
  • 25. Tools for Performance Management • Self Appraisal • Performance Interview • MBO/Goal Setting
  • 26. Gaps in Process • Focus still on Individual(s) • Focus is internal • Reliance on form • Reliance on Ranking • Accountability
  • 27. Four Generation Business Processes • TQM/Six Sigma • Behavioral Competencies • Business Process Re-engineering
  • 28. TQM/Six Sigma tells us that • We must do the right things the right way - first time/every time • Performance must be continuously improved • The customers voice drives all actions of the organization • Higher quality results in lower costs
  • 29. Deming’s view • Work is produced by processes • Work is dependent on system capability • Work is done in groups • Performance Appraisals are destructive • Appraisal ratings – create winners and losers – conflict with teamwork – create fear
  • 30. Behavioral Competencies • Personal characteristics of superior performers • The process of identifying competencies that differentiate superior from average performers so that they can be modeled and spread throughout the organization to enhance overall effectiveness
  • 32. Business Process Re-engineering • Broader job definitions • More matrix management • More process - and less hierarchical - orientation • New roles for managers and contributors
  • 33. Fifth Generation Performance Engineering • Performance Engineering is a system of designing, managing and integrating all processes related to customer, people and process. • Through this system, managers and employees enter into a partnership that is focused on defining customer expectations and closing gaps between desired and actual performance
  • 34. Performance Engineering Focus on Customers Focus on People Focus on Processes
  • 35. Characteristics of Performance Engineering • Joint accountability • Focus on customer satisfaction • Team/peer feedback • Process orientation • Focus on continuous improvement • Focus on system performance
  • 36. Tools of Process • Manager-Employee Performance Contacts • 360 Degree feedback/not appraisal • De-bundled HR programs • Gap analysis Process Improvement
  • 37. Performance Contracts • Planning Tools • Focus on controllable performance – Employees • Skills, knowledge, competencies – Managers • Processes, resources
  • 38. 360 Degree Feedback • Peer Feedback • Customer (internal/external) feedback • Effectiveness Model
  • 39. Processes will be De-bundled • Reward Systems • Career Development • Succession Planning • Disciplinary process
  • 40. Performance is an input into de-bundled systems Career Development Personal Development Non-financial Rewards Financial Rewards Selection Succession Planning Performance Process
  • 41. Performance Engineering Customer Inputs Feed back Employees Manager Performance Contract Improvement Plan: • Skills • Competencies • Experience Improvement Plan: • Processes • Resources • Information
  • 42. What about ... • Links to pay? • Ratings? • Forms?
  • 43. Jim Sillery Principal, National Compensation Consulting Practice 312.846.3145 James.sillery@buckconsultants.com Questions