Making Performance Management Work - 10 Keys to Success

Copyright © 2015 Deloitte Development LLC. All rights reserved.1 Global Human Capital Trends 2015 Copyright © 2015 Deloitte Development LLC. All rights reserved.
The Ten Keys to Success
Is Your Performance
Management
Healthy?
Josh Bersin
Principal and Founder
Bersin by Deloitte
October, 2015

Copyright © 2015 Deloitte Development LLC. All rights reserved.2 Global Human Capital Trends 2015
• The changing world of work
• Why performance management matters
• What we’ve learned
• 9 Keys to making your program healthy
Agenda

Copyright © 2015 Deloitte Development LLC. All rights reserved.3 Global Human Capital Trends 2015 Copyright © 2015 Deloitte Development LLC. All rights reserved.3 Global Human Capital Trends 2015
Barriers
between
work
and life
dissolve
Talent
in high
demand
Millennials
make up
50% of
workforce
Global
transparency
in job
market

Culture and engagement
Leadership gaps
Learning and development
HR Skills and capability
87%
86%
86%
80%
% V E R Y I M P O R T A N T
50%
51%
40%
39%
35%
34%
29%
26%
20%
14%
Top Talent Issues Globally
Percent Rating Trend Important
Workforce capability
Performance management
HR and people analytics
Simplifying work
Machines as talent
People data everywhere
71%
57%
52%
80%
75%
75%

Engagement Is A Global Challenge
Glassdoor Ratings of Employer (Recommended to friends), 20,000+ respondents
Average 3.1
What are these
companies doing?

Copyright © 2015 Deloitte Development LLC. All rights reserved.6 Global Human Capital Trends 2015 6
Careers Have Changed and So Have People
“Our candidates today
are not looking for a career…”
“They’re looking for an Experience.”

Millennials Also …
80% Want to give
performance
appraisals to the
boss
60% think 7
months of
work means
they’re “loyal”
2/3 Want to be
“creative” at
work in their job
Their “team
mates” are the
most important
people at work
Expect feedback
weekly and
progression
annually

Companies with “soul” had a
1026%
return from 1996 through 2006,
8x higher
than S&P 400 firms
Companies with “soul”
experience:
• Much higher engagement and
retention
• Better customer service
• Long-term profitability
Source: Simply Irresistible: Engaging the 21st Century Workforce, Bersin by Deloitte, 2014
Importance of mission and purpose

• The average tenure at work is <4 years, so “lifetime
employment” strategies are out of date
• 55 Million people (32%) in the US work part-time,
contingent, or as contractors
• 30% of Tech workers believe they could get a better
job within 60 days if they looked (Dice)
• 50% of Millennials will change jobs within two years
• If you don’t have a facilitated talent mobility strategy
good people will leave
New Models for Talent: No Longer for Life

Historic Perspective on Performance and Management
The Evolution of Management Thinking
We are Here
The Industrial
Corporation
Hierarchical
Leadership
Collaborative
Management
Networks
of Teams
<1950s 1960s-80s Today1990s
Andrew Carnegie
Henry Ford
Netflix, Google,
Facebook, Amazon
Jack Welch
Peter Drucker
Howard Schulz
Steve Jobs
Profit, Growth,
Financial Engineering
Customer Service,
Employees as Leaders
Mission, Purpose,
Sustainability
Operational
Efficiency
2020
Purpose,Meaning,
andEmpowerment?
Industrial Age
People as Workers
Management by
Objective
Servant Leadership
Work Together
Empower the
Team
The Corporation
is King
The Executives
are King
The Teams and
Team Leaders are Kings
The People are
King(s)

• The changing world of work
• Why performance management matters
• What we’ve learned
• 9 Keys to making your program healthy
Agenda

Historic Perspective
• The process defines and communicates your culture, your expectations,
and how managers will behave
• The process establishes fair and transparent rules for compensation,
bonuses, promotions, and other types of reward
• The process should teach leaders how to coach and develop people,
driving ever-higher levels of performance from everyone
• But… in many cases PM is there to create control, mitigate risk, and give executives
insights into people – not to “improve performance.”
Why PM is So Important

Traditionally
the process includes:
1. Goal Setting and Management
2. Cascading or Aligning Goals
3. Self-Assessment
4. Manager Assessment
5. 360 Assessment
6. Skills and Competency Assessment
7. Development Plan
Traditional Thinking Circa 1970s-1990s
And Integration with:
• Learning Management
• Succession Planning
• Leadership Development
• Compensation
• Compliance
• Recruiting
• Analytics
Resulting in:
• Performance Appraisal
• A development plan
• Succession plans
• Performance Rating
• Competency Rating
• Forced Ranking
Traditional Old-Fashioned Performance Management

Performance Management
Only 12% of companies believe their
existing performance management
process is “worth the time put into it.”
- Deloitte Human Capital Trends 2015
The Process is Broken

The Big Shift: From Annual to Continuous
The Big Shift is Happening
Source: Bersin by Deloitte research, 2014.
Top-Down Annual
Performance Process
Top-Down Approach
Cascading Goals
Annual Event
Big Bureaucracy Involved
Lots of Forms and
Automation Needed
Focused on Rating and
Forced Ranking
Compensation Tied
Directly to Rating
Continuous Management
and Feedback
Team Centric
Aligned but Local Goals
Ongoing
Weekly/Monthly Check-ins
Simple Tools, Agile,
Mobile, Easy to Use
Focused on Continuous
Development, No Ranking
Compensation Based on
Many Factors
HR-Driven and HR-Centric
Process
Management-Driven
Driver of Culture

Where we are today
1. Philosophy, purpose, and culture
2. Make goal setting agile, local, and meaningful
3. Use check-ins instead of annual review
4. Reduce impact of ratings (or eliminate)
5. Focus on coaching and development
6. Redesign compensation process
7. Create a culture of recognition
8. Eliminate steps and simplify
9. Use metrics and measurement aggressively
10. Train and develop managers carefully
Ten Factors in a Modern Healthy Process

1. Start with Philosophy and Culture
The rise of “Distributed Leadership”
“Distributed Leadership” means…
• Encouraging dialogue among employees
around work priorities
• Pushing accountability for results farther
down in the organization
• Encouraging innovation and promoting
reasonable risk-taking

Copyright © 2015 Deloitte Development LLC. All rights reserved.19 Global Human Capital Trends 2015 Copyright © 2015 Deloitte Development LLC. All rights reserved.19 Global Human Capital Trends 2015
It all started
with a disruptive
innovation

An Aligned Brand System

Talent Principles & Practices

Behavior is derived from our thinking

2. Shift Goal Setting to Local and Aligned
Board of Directors / CEO
Executive Team / Senior Leaders
Business Leaders
Team Managers
Team Leaders
Individual Contributors
The Industrial Age Process: Top Down Cascading Goals

From Cascading Goals to Aligned Goals
The New Model: Local Goals, but Aligned

Goal Management
Organizations that have
employees revise or
review their goals
quarterly or more
frequently were 3.5 X
more likely to score in
the top quartile of
business performance.
Frequent Goal Reviews
Note: Based on our employee recognition survey, we created a business performance index (BPI1) that averages scores on employee engagement and three business-related outcomes (customer
satisfaction, cost structure compared to competitors, and market leadership position). It then ranks organizations on the scale. Organizations that scored in the top 25 percent of the BPI are
considered to have “strong” business outcomes.
16%
44%
21%
10%
9%
3%
24%
26%
31%
50%
No Goal Revision
Once Per Year
Twice Per Year
Quarterly
Monthly
Top Quartile on Total…
Source: “High-Impact Performance Management Using Goals to Focus the 21st-Century Workforce,” Stacia Sherman Garr / Bersin by Deloitte, December 2014.

From Annual to Continuous
3. Implement Regular Check-Ins

Performance Matters!

1. Have a formal, more regular discussion on
employees’ progress on goals (minimum of twice
per year)
2. Ensure goal alignment and make any adjustments
3. Have a two-way discussion on strengths and
opportunities
4. Identify learning opportunities in the short-term
5. Gain insight on greater career goals
The Purpose of Check-In
Source: “High-Impact Performance Management Using Goals to Focus the 21st-Century Workforce,” Stacia Sherman Garr / Bersin by Deloitte, December 2014.
Electronic Arts

The Problem with Ratings
4. Reduce or Eliminate Ratings
Applying
Neuroscience to
Drive Innovation
Source: David Rock

1. High Performers are Disappointed
2. Mid-level Performers can Sit Back
3. Low Performers can Hide
4. Manager ratings are unreliable
5. Bell curve pushes against
management philosophy
The Myth of the Bell Curve

Expanded model of evaluation and comp
Juniper Model of Evaluation
Talent
Architecture

Coaching is Key
5. Focus on Coaching and Development
Competitive Assessment Coaching & Development

Coaching and Development Model
Data Proves Coaching Pays Off
# Top 22 Best Practices Impact Area
1 Coaching: formal or well established coaching programs for employees. 48% Performance Management
2 Consolidating staffing requirements across the organization 42% Sourcing & Recruiting
3 Ability of current workforce planning process to identify current and future talent gaps 38% Workforce Planning
4 Competencies maintained through annual maintenance process 34% Competency Management
5 Staffing metrics: measuring time to hire, cost to hire, and quality of hire 33% Sourcing & Recruiting
6 Cascading goals: aligning goals to manager or corporate goals 33% Performance Management
7 Development planning: creating consistent development plans across the organization 33% Performance Management
8 Establishing goals: establishing clear and measurable goals for all employees in organization 32% Performance Management
9 Job functional competencies well established and used throughout the organization 32% Competency Management
10 Competencies used in recruiting process for assessment and interviewing 32% Competency Management
11 Managed recruiting process: carefully monitoring and tracking interview process 31% Sourcing & Recruiting
12 Assessing performance: delivering an annual performance appraisal and evaluation 30% Performance Management
13 Internal sourcing: internal job postings, career planning, and promotion to recruit from within 29% Sourcing & Recruiting
14 Leadership competencies well established and used across the organization 29% Competency Management
15 Performance based compensation: consistently linking compensation to performance ratings 27% Performance Management
16 Competencies used in performance management for assessment, review, and development 27% Performance Management
17 Developmental training: training tied to developmental goals of individuals & organization 27% Learning & Development
18 Competencies used in leadership development programs for training 24% Competency Management
19 Pre-hire assessment: assessing candidates against competencies for a position 23% Competency Management
20 Employer brand: using web, collateral, and marketing to position well for recruiting 22% Sourcing & Recruiting
21 University recruiting: working with educational institutions to obtain qualified candidates 22% Sourcing & Recruiting
22 Maturity level of leadership development: Strategic Leadership Development (level 4) 21% Leadership Development
Bersin & Associates
High-Impact Talent Management, 2007
Coaching is the process most highly correlated
with impact.

Development Planning
Help Managers w Development Planning
Education

The Real Talent Equation
Development Plans are Critical
DESIRED
COMPETENCIES
(KNOWLEDGE,
BEHAVIOR,
SKILLS)
OPEN POSITIONS
&
OPPORTUNITIES
INDIVIDUAL
NEEDS/DESIRES
INDIVIDUAL
DEVELOPMENT
PLAN (IDP)
VISION
STRATEGIC
INITIATIVES
DESIRED
BUSINESS
OUTCOMES
VALUES
MISSION
ORGANIZATION
NEEDS
MOBILITY
STRENGTHS
DEVELOPMENT
NEEDS
CAREER
ASPIRATIONS
ANNUAL
GOALS
Succession
Management
Career
Development
Individual
Development
Plan (IDP)
Strategic
Competencies
Workforce
Planning
Performance
Management
Development
Planning

What Millennials Want (and Need)
• Companies are desperately looking for ways to build
leaders from Millennials
• Mentors and mentor programs are among the
hottest programs to build new leadership
• When asked “how would you like to learn to lead,”
more than 60% of Millennials say “I’d like a mentor.”
The Mentor Next Door

Expand beyond “rating” as key
6. Redesign Compensation Process
Spotlight:
Compensation
allocation
Four criteria are considered
when determining short
term incentive and merit
increase awards for
employees:

Factors to consider in making reward decisions

Expand Compensation Decision Matrix
Adobe Model is Common
Current performance
Market demand
Peer relationships
Leadership or technical potential
Collaborative values
Followership
Customer relationships
Special skills

Recognizing Organizations Have Lower Voluntary Turnover
10.5%
8.7%
7.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Poor (1-2) Fair (3-4) Excellent (5)
VoluntaryTurnoverRate
7. Create Culture of Recognition
31% reduction in
voluntary turnover
Source: “High-Impact Performance Management: Making Recognition & Rewards Matter,” Stacia Sherman Garr / Bersin & Associates, 2011.
Effectiveness of Recognition Program at Improving Engagement

“How supportive
is your organization’s
recognition culture?”
Supportive;
34%Somewhat
supportive;
40%
Extremely
supportive;
17%
Source: “High-Impact Performance Management: Making Recognition & Rewards Matter,” Stacia Sherman Garr / Bersin & Associates, 2011.
Building Recognition Into the Culture
Unfortunately Recognition is Not Prevalent
Not or Not at all; 10%

Simplify The Process!
8. Simplify
Adobe:
80,000 hours
per year
Deloitte:
>150,000 hours
per year
Only 12% of
companies
believe the
performance
management
process is worth
the time they put
into it
see need to
simplify work;
25% say
need is very
important
75%

Simplify the Process
Kelly Services Kelly Services
Source: “Getting Away from the Score:
Creating Better Ongoing Performance
Feedback,” Bersin & Associates, 2012.
Coaching for
Development
Talent
Decisions
Performance
Improvement
Legal
Documents
Employee
Motivation
Compensation
Performance
Feedback
PERFORMANCE
MANAGEMENT
Coaching for
Development
Talent
Decisions
Performance
Improvement
Legal
Documents
Employee
Motivation
Compensation
Performance
Feedback
PERFORMANCE
MANAGEMENT

Are We Part of the Problem? Often yes.
De-Cluttering HR

Many Forms of Measurement
9. Measure Performance
Core
Performance
Snapshots
Confidential Performance Snapshots will allow leaders to provide reliable performance data
on every employee
Pulse
Surveys
Targeted Pulse Survey questions, validated by research, will allow employees to provide
leaders valuable insights
Quarterly Talent
Reviews
Leadership selects prioritized segments of the population to review quarterly to increasing
development support
Additions
Replace Engagement
with Pulse Survey
Pulse Survey results can be aggregated and leveraged in place of Talent Engagement
Surveys
Manager Assessment
An assessment of managerial effectiveness as a leaders of others based on Pulse Survey
results
Eliminations
Link Between
Competencies &
Performance
Assessing employees against competencies does not fuel performance. However,
competencies are great for development, shaping a role, aligning on what a role means, and
understanding and skills needed to make job changes
Ratings on Unreliable
Data
Ratings serve as a proxy for performance but when based on unreliable data or forced bell
curves, compromise real understanding of performance and consequent decisions
360° Feedback for
Performance
Evaluations
Accurate evaluations come from those working directly with an individual and are frequent
enough to provide timely feedback; 360° evaluations are not effective for measuring
performance but can be useful when focused on employee development

Bersin Leadership Development Maturity Model
10. Invest in Management Training
Inconsistent Management Training
Content Available • No Development Process • Benefit to Employees
Level 1
Structured Leadership Training
Core Competencies • Well-Defined Curriculum • Developing Individuals
Level 2
Focused Leadership Development
Culture-Setting • Future-Focused • Developing Organization
Level 3
Strategic Leadership Development
Championed by Executives • Talent Management Integration
Level 4
BersinbyDeloitte
25%
38%
28%
10%

Leadership Development Pays Off
The Leadership Equity Premium
+15.7%
Equity premium
on organizations
perceived to
have effective
leadership
-19.8%
Equity discount
on organizations
perceived to
have ineffective
leadership
$2.4 billion
Premium as 15.7% of Company
Market capitalization
$3.0 billion
Discount as 19.8% of Company
Market capitalization
consider their leadership development
programs very effective, and…4.3% 2%
And yet, companies aren’t getting the investment right…
Believe that their succession
management is where it needs to be
* Source = Talent Edge 2020

Where we are today
1. Philosophy, purpose, and culture
2. Make goal setting agile, local, and meaningful
3. Use check-ins instead of annual review
4. Reduce impact of ratings (or eliminate)
5. Focus on coaching and development
6. Redesign compensation process
7. Create a culture of recognition
8. Eliminate steps and simplify
9. Use metrics and measurement aggressively
10. Train and develop managers carefully
Ten Factors in a Modern Healthy Process

Performance data reveals
accurate insights
Managers have effective
coaching skills
Employees receive
meaningful feedback
frequently
Leaders understand team
dynamics and actively improve
them
Employees receive
targeted development
attention
Compensation
is informed by data
Employees leverage their
strengths every day
Processes take less time and
add more value
Imagine a world where…

Making Performance Management Work - 10 Keys to Success

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