Compensation Focus

Performance Management: 5 Steps for Achieving Better Results
By Ravin Jesuthasan, Towers Watson

Consider the following statistics:

  • Managers spend 20% to 30% of their time on performance management, but only 51% of employees find these conversations accurate and effective. And only 30% of employees indicate that the performance management plan helps improve poor performance.
  • Just 36% of employees indicate that the performance management process is fairly used to promote deserving employees.
  • Nearly all companies that participated in an employee engagement study measured the effectiveness of the performance management process, but only 2% to 5% of those participants measured returns on the investment in performance management.

Based on these statistics from the “2012-2013 Global Talent Management and Rewards Study” and “2012 Global Workforce Study” by the author’s company, clearly performance management faces new challenges of late. But organizations that get it right understand that performance management is a key component of career advancement and a top driver of attraction and retention, and realize it must be reflected in the design and delivery of these programs.

In this article, we’ll explore the common goals and benefits of a good performance management system and five steps to improve the process to deliver the most value to managers and employees.

Performance Management Defined
A truly effective performance management system must accomplish four key goals:

  1. Increase the line of sight.
  2. Enable individual self-management and development.
  3. Provide tools for performance planning and control that will lead the organization to meet business goals and objectives.
  4. Identify high, solid and low performers to inform/feed other HR programs and decisions, including pay, succession planning, and learning and development.

Beyond meeting these goals, performance management encompasses several critical steps that include determining needed, achievable results and the exact ways to accomplish them, as well as providing coaching and feedback to continuously improve individual performance — all with a broader goal of achieving business objectives.

Improve Your Performance Management System
Organizations can improve existing performance management systems by considering five steps that will help them design and deliver effective processes:

  1. Measure using logic-driven analytics. Smart companies are making good use of analytics and metrics in performance management, important tools for establishing a baseline, regularly assessing results, and contributing to ongoing design and delivery decisions. Taking a more rigorous and customized approach to measurement will help organizations pinpoint areas of particular success or make adjustments when needed. Analytics also help ensure employees are focused on the most pivotal drivers of company performance. Using an airline as one example, there are unique and measurable performance standards for pilots, baggage handlers and flight attendants, all of which have a dramatic but very different impact on customer satisfaction and company performance.
  2. Segment the workforce. In performance management, one size clearly does not fit all. Best-practice organizations increasingly differentiate employees by type of role and other factors, as in the example above, and consider the associated implications for performance management. There are two aspects to segmentation: Supply-side segmentation is typically driven by a variety of employee factors such as generational differences, cultural distinctions or work-life challenges. Demand-side segmentation identifies the pivotal roles — roles where exceptional performance makes the biggest difference. It’s important to consider both. Key considerations include how segmentation should affect expectations for individual performance (what is the right degree of stretch) and how to leverage alternative rewards to enhance motivation.
  3. Leverage risk. When an organization has processes to assess risk and the confidence to distinguish between “good” and “bad” risks, informed risk choices can make the difference between stellar and mediocre results. For example, the risk tolerance associated with an oil rig worker’s performance differs dramatically from that of an accountant’s. As such, the degree of stretch associated with the goals set for each role should reflect this difference. Risk can carry a negative connotation, but careful assumption of reasonable risk can be important.
  4. Integrate and synergize across programs, functions and organizations. A truly effective performance management process will include key linkages to other HR programs, both in design and result measurement. This can be as simple (and necessary) as linking individual performance management results to pay decisions and understanding the implications for the employee value proposition, or as nuanced as ensuring that the performance management system gathers data from across HR programs to help determine whether and how well those programs are meeting employee career and developmental needs. Another example of how this can be important is in the differentiation of rewards for various segments, which is impossible to achieve without these linkages and the aforementioned metrics.
  5. Optimize the investment. Optimization of performance management can mean changes in investments in talent and, subsequently, the programs used to support that talent. Building on the work already done in the steps above, organizations looking to optimize their results can differentiate service levels by business model and roles, create greater rewards leverage for more pivotal roles and identify significant new investments that will help improve talent management. They can also ensure that the performance management process provides the tools, governance and decision rights to make these decisions. The tools of optimization (conjoint analysis and portfolio theory) enable measurement of the impact of talent management investments on business performance, create a differentiated focus on talent segments, and configure the deployment of investment dollars to make the biggest difference.

The Many Rewards of Good Performance Management
A good performance management system offers many rewards if done effectively and in a personalized, nuanced and evidence-based manner. As a baseline, it communicates the priorities of the business to employees and promotes information sharing, line of sight and involvement. Good performance management also clearly impacts employee engagement, which can have a measurable impact on employee productivity and the financial performance of an organization. Finally, it supports a number of critical linkage points between other HR programs, specifically pay differentiation, career management, succession management, workforce planning, and training and development. Organizations that improve the process using the steps outlined above can enjoy significantly greater results across the spectrum of performance management goals.

About the Author
Ravin Jesuthasan is the global leader of Towers Watson’s talent management practice in Chicago. He can be reached at

Read the December 2012 edition of Compensation Focus.

Contents © 2012 WorldatWork. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

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