What a performance!

Performance management is an integral part of the modern HR function. Lynnette Hoffman looks at how a number of market leaders approach the area, and examines future trends for HR professionals and how to take a more holistic approach to performance management

This year’s IBM Global Human Capital study has confirmed what most HR managers already knew: effective performance management is integral to healthy organisations.

Providing opportunities for promotion and performance feedback is closely linked to lower levels of organisational turnover – and plays a key role in talent management, organisational productivity and, ultimately, profitability.

Yet the study found that less than half of the 300 organisations included had used business impact or ROI to measure the effectiveness of their human capital programmes and initiatives. And in nearly 70 per cent of organisations HR performance was not closely linked to the rewards received by employees. In addition, the vast majority of those reviewed the results achieved and technical competence far more than any other factor. Less than 40 per cent of organisations also included people issues in their assessments. The study found “since people metrics are often not built into senior leaders’ compensation plans, people issues may not be receiving sufficient time and attention”.

But as the benefits of a more holistic and strategic approach become clearer, that’s starting to change.

More than just profitability matters

Cendant Car Rental Group’s management incentive programme has been in place for more than a decade. For years the organisation, which owns the Avis and Budget car rental companies, had three components to the programme: company profitability, revenue and quality assurance, which are enforced by surprise visits. But Cendant has since added a fourth component, accounting for 10 per cent of the incentive: employee loyalty.

Every18 months the company distributes an employee opinion survey that asks key driver questions such as ‘How do you rate the company as a place to work?’ and ‘Would you recommend the company as a great place to work?’

After the results of the survey are published, the Managing Director and HR director hold feedback sessions with all employees, visiting each location around the country, presenting the survey results and speaking with the employees to determine what the issues are and how they can best be resolved. Jeannette Kruk, Cendant HR director, Australia/New Zealand, explains: “Location and department managers are responsible for creating an action plan to address issues raised. The management incentive plan is annual, and the survey is not, so in the off years managers are evaluated as to what progress they have made in addressing the issues raised in the employee opinion survey via their action plans.”

Cendant also established a dedicated organisational development function to address the issue of attraction and retention. “A large part of the retention piece is making sure we’re doing something with survey results, because there’s nothing that saps employee motivation more than asking for input and then disregarding it,”Kruk says. “The majority of our employees have confidence that we will use the results of the survey constructively, which is evidenced by the positive score achieved on that survey question.”

So far Cendant has been happy with the results of its management incentive programme. “Revenue and profit are easier for people to understand, because both companies are so operationally and results-focused and many of our managers have been with the companies for a long time. People know what the numbers are and they know what they need to do to get there,” Kruk says.

“Employee loyalty is measurable, but not easily on a short term basis. In some of our larger locations the QA manager can show up twice in the same month, and profitability is measured monthly at least, but it’s been a challenge to figure out how we manage employee loyalty in the interim and keep our eye on the ball.”

Because employee loyalty is not as tangible, there’s a tendency for managers to let it fall by the wayside. “Managers realise the value, but they’re so busy doing operational things that it slips from the priority list because if they’re not doing it, it’s not immediately noticeable,” she says.

“That’s why senior management commitment to the process is crucial and constant communication has been the key.”

Simplifying things with IT solutions

When the HR team at Daimler Chrysler decided to review its process of performance management last November, they found the paper based system they were using was “not hitting the mark”, Senior Manager, Organisational Development, Danielle Entwistle says.

“It was basically an admin function and nothing more,” she says. “It was time consuming – each performance review required eight pieces of paper so a manager with 10 staff would have 80 pieces of paper floating around.”

After teaming with IXP3, Daimler Chrysler replaced its archaic hard-copy system with an online system available over the company’s intranet within a matter of eight weeks. Goal agreements, performance reviews and even an online CV builder to assist employees with applying for internal positions are all available with the click of a mouse. “It’s the easiest IT solution we’ve ever had,” Entwistle says.

And the results have been more than just cosmetic. “It’s enabled us to get a true handle on compliance –we can easily see who’s been doing what. We had 98 per cent compliance on mid year performance reviews,”she says. That’s up from an estimated 40 to 60 per cent compliance with the paper-based system. “The main reason is ease of use. We’ve gone from eight pieces of paper for each review to one screen.”

Among the advantages of the online system is the ability to extract specific information and run reports on it. “We’ve also been able to focus more on learning and development, we can extract what the development objectives are and track performance distribution through bell curves that can be used to help with talent identification,” Entwistle says.

The new system has also improved consistency and transparency because of the reporting – now managers can see all of their staff, and compliance and performance are tracked.

“If one manager rates all their staff outstanding, we’ll see that.” So they can’t just rate people a certain way because they have a good relationship with them, she says.

And performance reviews are no longer just filed away and forgotten: “Now you have to do it to be eligible for a bonus. We wanted to drive a performance-oriented culture, and this allows us to measure and build on it. It gives us something to strive for and a tool to measure performance by – it’s a starting point. Our next step is to increase the focus on learning and development.”

Aside from educating staff about the importance and benefits of the programme, Entwistle says, challenges have been few.

“We built the business case around employee opinion surveys where staff said they were not getting the performance feedback they would like, and that the system was outdated – so the business case was really built by staff,” she says. “It’s cost effective – a 2 per cent increase in performance from staff within 18 months pays for the system and we’re already seeing that.”

A more holistic approach

Melbourne Water’s HR manager Leigh Keath calls his organisation’s decision to not only measure results, but also behaviours, as part of the performance plans all 500 employees create, “a significant step for us”.

“Performance plans not only include what the employee will deliver, but 50 per cent of the plan is how they will deliver it. We’ve begun measuring how they do what they do. That has been a big shift for us because we’re a technical organisation,” he says. Keath says the addition of measuring behaviours came as a result of “an expectation at the corporate level that the way we deal with stakeholders is as critical as what we do”. The key to making it work, he says, is that staff receive very clear feedback about whether they have met or exceeded targets, and a financial reward is attached.

Melbourne Water has also introduced team-based KPIs that, again, are linked to salary. Teams develop their own plans based on three areas –safety improvement, efficiencies and activities to support business priorities – and are rated on how well the team achieves its goals. Senior managers and executives receive bonuses based not just on their own individual performance, but on the organisational performance as well. Keath says the key to making the new programmes work has been a strong focus on feedback and developing staff. “Before we rolled out our 360 degree feedback programme with Caliper we put 90 per cent of our staff through training in giving and receiving feedback,”he says.

Staff are encouraged to put their name to the feedback they’re providing, rather than giving it anonymously, and about 50 per cent do. “When a person doesn’t put their name to it you don’t have permission to go talk about it. This way you can take the discussion a whole lot further.”

Melbourne Water also focuses much of its learning and development on people skills. “We have two training actions a year and this year they focused on relationships, things like managing and negotiating and influencing – about half of the training we provide is on how to deal with people,”Keath says.

“The biggest challenge is delivering consistently to the widest possible group,” he adds.

The organisation spends “a significant amount of money” on development planning in an effort to equip managers to “make the most of the performance management tools we offer – such as leadership training, coaching, role modelling.”

If Melbourne Water’s financial results, employee engagement and dedication to the organisation are anything to go by, Keath says the return on investment has been significant. He says Melbourne Water’s regularly held Open Days illustrate that point. “Staff volunteer their time on the weekends with no pay to host tours of the sites. We’re never at all short of people volunteering their time.”