Abstract
This issue of the CBR carries an important article summarizing research by Edward Lawler and two colleagues on the policies and practices that contribute to effective performance management systems. I consider Ed to be the foremost authority on the management of pay and performance. He was publishing books on these subjects while I was still in graduate school—and that was years ago.
The article is important for two reasons. First, it focuses on what has been for decades the most controversial HR practice, and second, the research leads to recommendations that promise to improve performance systems. Their conclusions are consistent with my experience as a consultant.
To highlight two key findings from the research:
Effective performance management does not ride on the “system” design or on the use of technology, it depends on leadership by senior management and on the ownership and accountability of managers.
A periodic audit of the system and the way it is used provides a basis for identifying needed improvements.
The audit idea has not been discussed previously in the literature. I see that as a key to improving our performance management systems. A periodic audit should be a standard practice to identify problems or weaknesses. To flesh it out, I developed a list of possible steps in the audit (see Textbox 1). I see using the audit in this way as consistent with a strategy of continuous improvement. From a broader perspective, audits of HR systems and practices should be a basic strategy to improve the way the function is viewed.
I’ve worked as both a consultant and manager of compensation. Working as a consultant provides a limited exposure to how these issues are managed and perceived across many organizations. My experience as a manager provides a different perspective. I well remember a situation years ago when I tried to explain to a corporate officer, who may have been 20 years my senior, a new policy that changed the status of his direct reports. He tried to call my boss, the VP HR, but the phone went unanswered. At that point he picked it up and threw it across the room. It left an impression—yes, pay and performance can be an emotional issue. That’s not something that happens to consultants.
That experience convinced me Ed Lawler is correct. I’ve consulted on performance issues, read performance reviews, played a role in analyzing survey responses, and read email messages from hundreds of people. When the performance management system is “owned” by line managers, the level of effectiveness is significantly higher. There is a shared recognition that it is part of a manager’s responsibilities.
Realistically, there is little that HR can do to influence the way managers handle this responsibility. HR is rarely involved in the meetings when managers discuss an employee’s performance. Too many managers chose to minimize or even avoid those discussions.
As a consultant, I have also seen small employers that do not have a formal review process but are able to maintain high performance levels and solid employee commitment. It’s the managers, not the completion of a form.
The system and its components are important of course. It’s best understood as a tool for managers. That makes it important that it satisfy their needs. In hindsight, it’s been a mistake for HR offices to take the lead in selecting new performance systems. HR would never, for example, play a role in selecting a new accounting system. A small group of the better managers can, with minimal guidance, sort though the alternatives and make certain they have the best system.
The system is also important to employees. Employees need and want feedback on their strengths and weaknesses, they want to know what’s expected and what they can expect, they want to understand their career prospects, they want to be challenged and have the autonomy to demonstrate their capabilities. And of course they want to be treated fairly.
It is important to the organization as well. Every employer needs to be able to identify its star performers as well as those whose performance is unacceptable. The debate about ratings misses an important point—that information is essential to talent management. If for no other reason, employers need to be able to defend salary increase decisions. When performance ratings have little credibility, it translates into unfair decisions and affects morale across an organization. Only a performance management system can satisfy those requirements.
Gallup’s research on employee engagement and its Q12 survey questions focus on day-to-day performance management. Their first question is, “Do I know what is expected of me at work?” Of the 12 questions, 9 or 10, depending on how they are read, relate to the way managers handle performance issues. Gallup’s research provides solid evidence that effective performance management contributes to higher levels of engagement—and better performance.
That can only happen when managers are effective in managing performance. The system should support and enhance their handling of this responsibility. At the core, effective performance management is about the discussions and feedback on performance issues. The system should facilitate those discussions.
The importance of those discussions led me to conclude some time ago that it would be decidedly advantageous to rely on competencies that are specific to the job level and occupation. Then the discussion can focus on specific job issues and competency requirements. That goes along with goals that are always job specific. Realistically, no one understands performance issues better than job incumbents. Lawler and his coauthors suggest agreement on this point in a comment about developing a system for the accounting function. Relying on generic or abstract competencies is clearly part of the problem.
Looking back, when complaints about a performance system grew too numerous to ignore, the standard response has been to scrap the appraisal form and initiate a search for a new one. That kept consultants happy, but with the time invested in an existing system, it would have been prudent to determine why the problems surfaced. I can say that I never heard that possibility discussed until I read the Lawler article.
Ed and his colleagues make a compelling argument for why performance management is important. Their survey uncovered no evidence companies are considering the elimination of the practice. We—those who are involved in planning or managing performance systems—need to develop strategies for addressing problems and building support. The audit should be part of any action plan.
In case this is a subject of interest, I published an article last fall in this journal, “Getting Performance Management on Track,” Compensation & Benefits Review, 2011, 43(5), 273-281. It was one of the most frequently downloaded over the past year.
Possible Steps to Audit the Effectiveness of a Performance Management System