Download pdf - A guide to successfully managing employee performance: Linking performance management, reward systems, and management training

A GUIDE TO SUCCESSFULLY MANAGING EMPLOYEE PERFORMANCE: LINKING

SYSTEMS, AND MANAGEMENT TRAINING PERFORMANCE MANAGEMENT, REWARD

J o h n A. R u b i n o

John A. Rubino is president of Rubino Consulting Services (RCS) based in Pound Ridge, New York. His areas of expertise are in the design and implementation of corporate valuedobjectives and their linkage to human resources strategies, performance-driven incentive plans, sales compensation programs, performance management systems, management training programs, team dynamics, leadership skills, motivational training, and human resources communication programs. Prior to forming RCS, he was senior manager of human resources consulting services for Emst & Young LL P and director of executive compensation for The Equitable Life Insurance Company. He is recognized for expertise in compensation and serves as a course developer and leader for programs offered by the American Compensation Association and the American Management Association. He is the author of two books- Developing Compensation Programs: Job Analysis, Evaluation and Classification and Communicating Compensation Programs: An Approach to Providing Information to Employees-and several articles on human resources.

n contemplating ways to install incentive plans, many senior executives may conclude that the process is straightforward I and merely requires developing the mechanics of the plan,

introducing it to the employees, and then going ”live.” This approach, however, does not work. To be successful, incentive programs must be fully integrated with a sound performance management system as well as a comprehensive management training program. Managing performance successfully truly requires a holistic approach that encompasses reward systems, performance management, and management training, and links all three components to each other and to the organization’s overall strategic direction. This article examines the performance management components and provides checklists for key strategies and effective implementation.

CULTURAL CONSIDERATIONS Before any work is begun on designing incentive plans or other

reward systems, the business objectives of the organization must be clarified. This requires specifically defining the mission, vision, values, culture, external influences, business strategies, and key success factors of the organization. These words sound all warm and fuzzy, and, like most things, they are easier said than done, but it is important to articulate these issues. The next step is to interpret the implications of the defined business objectives in regard to organizational capabilities, human resources strategies, and compensation policies and programs. Only after these two important steps are completed can an organization begin to develop performance programs that have a strategic orientation and are truly integrated with one another. To develop performance management, management training, and reward programs ”in a vacuum” is an exercise in futility and a huge waste of time and money.

It is extremely important to be aware of the culture and man-

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John A. Rubino

Performance management is the process through which the organization sets individual and team direction, evaluates performance, defines developmental needs, and provides feedback.

agement style of an organization and whether the performance programs need to support the current culture or support a cultural change. One of the major reasons why performance programs fail is that they are not in sync with company culture, or the business case for cultural change has not been internalized by the workforce. Moreover, in order for performance to be managed successfully, the culture and management style of an organization must support to some extent an environment of employee empowerment.

PERFORMANCE MANAGEMENT Performance management is the process through which the

organization sets individual and team direction, evaluates performance, defines developmental needs, and provides feedback. There are a variety of performance management processes that can be used, such as one-on-one (manager/employee), multirater (360-degree feedback; see articles on this topic in the Spring 1997 issue of Employee Relations Today), peer review, etc. Each process has its merits and drawbacks. However, it is important to note that the process chosen must be in sync with the strategic orientation as well as the culture and management style of the organization. Regardless of what approach is taken, all performance management systems and approaches should include the following:

D Defined expectations for individual and team performance in support of organizational goals and initiatives.

CI Emphasis on measurable results that integrate efforts throughout the company toward common strategies.

0 Key performance goals and initiatives that can translate into specific process, business, and customer satisfaction measures.

0 A system that identifies and reinforces desired competen- cies by focusing on critical success factors.

REWARD SYSTEMS Reward systems are any type of compensation/incentive pro-

grams that are used to support the accomplishment of specific objectives. The following are key features of successful reward systems:

0 Compensation strategies and programs are specifically designed to directly support key business goals, success factors, and organizational initiatives.

D Plan objectives are aligned with strategic company goals and are clearly communicated.

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A Guide to Successfully Managing Employee Performance

CI Pay strategies and programs have a strategic “line-of- sight” framework regarding objectives and performance measures at different levels of the organization.

CI Employees are compensated on defined organizational performance measures/ factors over which they have vary- ing degrees of direct or indirect control.

If reward systems are successful, they will provide the following results:

CI A greater focus on key organizational goals; 0 A better understanding of the factors that lead to organiza-

tional success; CI An integrated framework for achieving increased value

from compensation dollars expended; A coordinated effort at all company levels to develop and implement alignment of compensation policies and programs; and

CI More effective communications and employee involvement.

Ten Criteria for Successful Reward Systems In my experience in working with a variety of organizations, I

have identified ten criteria that must be satisfied in order that reward systems are developed and implemented successfully:

1. A successful system fits its environment. A successful system fits its environment.

CI Company culture needs to support a ”sales mentality” for the entire workforce; that is, all employees will be rewarded based on the achievement of specific performance goals-an approach traditionally applied primarily to the sales force.

CI Senior management must allow the reward system to work by keeping exceptions and bypasses to the system at a minimum.

0 It should have “pay by example” at the top levels of the organization, creating an environment that says that we are all in this together.

2. A successful system is fair to employees.

0 It must be internally equitable and externally competitive. 0 Performance measures must be discernible, valid, and

understandable. 0 The program must deliver what is promised, on time and

equitably.

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John A. Rubino

3. A successful system is fair to the company.

0 It should work toward self-funding. Most reward systems require an initial investment by the company but should begin to pay for themselves over a reasonable period through increased productivity and efficiencies.

Q The company should be relatively profitable when the program is initiated.

0 The plan design should guard against “windfall” payments. This can be accomplished by instituting payout caps.” N

4. A successful system sets total compensation (all elements).

0 Company pay policy (reward mix) must link with business strategic objectives.

CI Rewards should be directly tied to performance criteria achievements.

0 Consider removing performance requirements from base salary and tying them into the incentive plan. Base-salary increases then become pure market adjustments.

5. A successful system yields financial returns to employees.

0 Reward opportunities must be perceived as ”substantial”

tl Timing of reward payments should be as close as possible

CI If designed properly, reward payments to employees will

enough to motivate performance.

to the quallfymg event.

yield “slices from an expanding financial pie.”

6. A successful system yields financial returns to the company.

CI A well-designed and executed reward program can improve the company’s bottom line.

0 Measurable benefits can include improved morale, productivity, quality, on-time performance, work methods, etc.

7. A successful system involves employees and managers.

0 The system must get buy-in from employees and, espe- cially, managers.

0 It should involve employees and managers in reward system design, including identification of performance criteria.

A successful system involves employees and managers.



I t is important to note that the most elegantly designed reward systems will not achieve their desired results unless employees and managers understand and, ultimately, buy into the system.

CI Most importantly, the reward system must be designed and implemented with the goal of building trust throughout the organization. This requires everyone to not only ”talk the talk” but also “walk the walk.”

8. A successful system uses internal and external data.

Cl Accurate and valid competitive data must be collected and

Cl Internal historical pay information must be analyzed. CI The reward program should be built from a ”strong” base-

pay foundation. Incentive plans must be built on top of a thoroughly analyzed, logical, and well-understood base- salary approach.

analyzed.

9. A successful system sets forth clear performance goals.

CI Performance criteria in successful systems are simple to understand, supported by good data, and monitored through strong controls.

A clear (and clearly perceived) relationship between pay and performance; Predictable measures of performance; Visible benefits to the employee and to the company; and Regular formal and informal performance feedback.

CI Tying rewards to performance requires:

10. A successful system achieves clarity through communication.

CI All reward systems must be communicated fully and effec- tively to the entire workforce. The communication objectives should be to ensure understanding, to change percep- tions (to get buy-in), and to motivate behavior.

It is important to note that the most elegantly designed reward systems will not achieve their desired results unless employees and managers understand and, ultimately, buy into the system.

MANAGEMENT TRAINING Out of the three primary components for managing perfor-

mance successfully, management training gets the short end of the stick. This is unfortunate because effective managers are the key to any successful performance program. Through their daily


John A. Rubino

Management training must be fully integrated within the performance process, and ewery effotf must be made to win over the management team.

interactions with employees, they will either make or break any performance system. Management training must be fully integrated within the performance process, and every effort must be made to win over the management team. This can be accomplished by using the following approaches:

0 Engage the managers early on and often. Ongoing communication and involvement in the entire performance process, both development and implementation, is essential.

CI Win the support and buy-in of key managers-the ones that are the opinion leaders and have earned the respect and cooperation of the workforce.

Cl Create excitement and commitment by emphasizing the benefits to them of amore cohesive and motivated workforce.

0 Integrate effective management techniques within the process training sessions by using case study exercises and role playing. Through this approach, managers learn to first analyze their own management styles and then begin to incorporate other effective management techniques into their own approaches. After all, effective management is a learned skill. Some managers are instinctively better than others, but all managers can hone their skills through comprehensive training.

Mangers play two distinct roles in any organization: (1) coach or counselor and (2) judge. In either role, managers must analyze and assess employee performance relative to job requirements, work plans, and employee advancement or promotion potential.

Keys to accomplishing effective performance management discussions with employees include the following:

Cl Emphasize the positive. People resist punishing information but will improve performance based on frequent positive reinforcement.

CI Involve the employee. The employee should be strongly involved in the process through self-evaluation and feedback regarding the present job and career aspirations. You cannot assume that people will be challenged by goals and objectives that were set without their involvement.

0 Provide continuous and immediate feedback. The employee cannot correct performance now if he or she hears about a concern six months later. Day-to-day informal coaching and counseling sessions are imperative!

Cl Be candid and realistic. False expectations are a disservice,



S e t mutual manager/emplo yee expectations that cascade from corporate level goals, values, and key operating initiatives.

and overly conservative statements can unnecessarily dis- courage an employee. Rely on personal judgment and find a middle ground with each employee.

Cl Plan the discussion. Allow for sufficient time, and be prepared by reviewing past appraisals as well as speaking with managers, employees, clients, and /or customers that have significant contact with the employee being assessed.

0 Avoid generalizations. Be as specific as possible and use documented incidents to illustrate points.

CI Focus on the goals. Emphasis should be on guidance and counseling.

Cl Avoid certainty. Judgments about people, their motiva- tions, capabilities, and potential are impossible to make with 100 percent certainty. Avoid making statements to the employee that imply absolute certainty.

LINKING THE COMPONENTS Performance management, reward systems, and management

training can be integrated successfully by instituting the following performance implementation process:

1. Set mutual manager/employee expectations that cascade from corporate level goals, values, and key operating initiatives.

2. Establish clear quantitative and qualitative measures that relate individual/ team job responsibilities and incumbent skills to department/division and corporate business objectives. All employees can be rewarded using the same three "mega" performance criteria, that is: CI Corporate (quantitative): net income, revenues, ROE, com-

petitive index, etc. Cl Department/division (quantitative/qualitative): budgets,

specific performance factors, project completion, intradepartmental performance, employee development, etc.

Cl Individual/team (primarily qualitative): customer satisfaction, task timelines, specific projects, skill acquisition and development, etc.

Each criterion is specifically defined and targeted, and then weighted so that every employee and job classification are primarily rewarded on the measures over which he or she has the most control. This creates an esprit de corps within the organization while at the same time develops a direct line-of-sight between performance and rewards for each


John A. Rubino

employee. 3. Provide technical and process training to managers and

employees to ensure effective use of the performance management process in such areas as:

system mechanics; effective management techniques; interpersonal communication skills; performance planning and coaching; and performance management.

4. Ensure that performance-related information is readily available and utilized through:

continuous communication between manager and employee ("no surprises"); sharing of quantitative and qualitative performance data; and publication of team and individual performance achievements and their impact on overall business operations.

5. Require periodic formal and informal feedback at least quarterly; soon after milestone events; and after corrective counseling.

6. Require annual performance reviews to discuss assessment, analysis, and annual rating and to bring closure to a par- ticular cycle and to allow full-cycle review of strengths and weaknesses.

7. Identify developmental needs and opportunities and link them to job improvement, enhancement, or advancement opportunities.

8. Create a direct link to compensation and rewards based on individual, team, unit, division, and/or company performance.

HOW TO AVOID SUCCESS One of the many advantages of being a human resources

consultant and working with a wide range of organizations is that you eventually learn how to develop methodologies and ap-

create a direct link to compensation and rewards based on individual, team, unit, division, and/or company performance.

proaches that truly motivate the workforce and contribute to improved company finances and operations. You also learn what to do to create the opposite outcomes! As an example, the following are sure to create an unmotivated workforce and destroy any possibility of creating an effective performance system:

0 Be sure no one quite knows what his or her job is. 0 Keep selection/promotion criteria vague. 0 Do not tie managers and employees to tangible goals.



CI Be vague about who measures performance and how. CI Keep salary ranges, pay increases, the performance pro-

CI Surprise employees with a bigger paycheck. CI Be defensive when asked to defend performance manage-

ment and compensation actions. CI Let it be known that management training and employee

communications are not high on the list of priorities. +

cess, and incentive guidelines secret.
