Successful performance management programs include several key components - setting clear performance expectations, tying pay to performance, and providing constructive feedback to employees. However, just having these components is not enough. They need to be well-designed and well-implemented, and if one component is not working, the performance management program needs improvement. So what are the indicators that can help determine if improvement is needed?
- Employees Aren’t Performing Some Aspects of Their Jobs. When employees aren’t performing some aspects of their jobs, there is most likely a breakdown in the pay for performance component of the performance management program. Employees will focus on what you’re tying their pay to, so if bonuses, raises or other rewards are only tied to some aspects of the job, you can expect those other areas to be largely ignored by the employee. The best way to resolve this issue is to use comprehensive performance measures that capture all aspects of the job. However, employees are still more likely to spend time on measures they perceive as easiest to achieve and that lead to the greatest rewards. In this situation, if some aspects of the job are still not being performed, then the weight given to each goal may need to be adjusted. If your employees believe that some targets are unrealistic and that they’re unlikely to achieve them, they’re more likely to focus on achieving the targets they can hit rather than focusing their efforts on targets that seem like a lost cause. Targets should be challenging but still attainable. They should be in areas where the employee can have direct control. And you’re more likely to get employee buy-in if you involve them in developing their own targets.
- Employee Performance is Lackluster. If you have a number of poorly performing employees, the problem could lie in a number of areas, including poor management skills or a merit pay system that is not having the motivational impact you intended. Merit pay systems, when coupled with an effective performance appraisal program, can go a long way to motivate employees. However, problems in the performance appraisal program can arise that impact the motivational factors of a merit pay system. Questions to ask of your program include: Does the performance appraisal program clearly distinguish between good, average and poor performers? Is the company able to give substantially higher raises to the best performers? Are the raises large enough to have a motivational effect on employees? An ineffective merit pay system is worse than not having one at all since the company is incurring greater costs with little return. Management issues come into play when you have managers giving all employees the same inflated ratings, not providing any developmental feedback, and devoting little time to the performance appraisal process or ignoring it altogether. Manager training and holding managers accountable for the accuracy of their ratings by measuring their own performance on the quality of their performance management of their employees can help address these issues. Adding multiple raters to the process and conducting a collective review of the ratings assigned by all managers can help ensure that ratings better reflect actual performance. This in turn provides you with better performance measures to which to tie merit raises.
- You Are Losing Your Top Performers. Not paying properly for performance can mean the loss of key employees. When poor performers earn as much as good performers, with everything else being equal, the system will be viewed as inequitable and unfair, especially by the good performers. This can lead your highly valuable performers to start seeking opportunities elsewhere. And because high performers are always marketable, even in a difficult economic environment, they will find jobs in organizations that will reward them for their high performance. And your poor performers are the ones most likely to remain, because you’re not penalizing poor performance. So not paying for performance leads to unhappy high performers and satisfied poor performers, which is the exact opposite of what you want. What you want instead is to keep the talented performers happy and motivated, and if in the process, your poor performers leave of their own accord, this would be considered “positive turnover.” It is critical that companies properly define high and poor performers so that clear distinctions can be made. A good performance appraisal program with precise rating scales will accomplish this.
By using these indicators to identify and address problems, companies will be in a better position to get what they pay for, and employees will be better compensated for their efforts. The more indicators you find that match the situation at your company, the quicker you should take action.
