Employees often find them subjective. Managers sometimes regard them as a nuisance in their already busy schedules. And both parties have been known to dread them and the endless form filling associated with them. Zilla Efrat reports.
Performance appraisals, while potentially a valuable tool for companies, have attracted much criticism, with some academics proclaiming that they nourish short-term performance, annihilate long-term planning, build fear, demolish teamwork and encourage rivalry and politics.
Alan Nankervis, an Associate Professor and Research Director at Curtin University of Technology’s School of Management, says: “There has been an enormous amount of research conducted on performance management, making it one of the most praised, criticised, and debated human resource management practices for decades. But despite all the research, countless texts, articles and conference papers, performance review remains a major source of frustration for managers.”
Yet, done effectively, the tool has the potential to boost the overall performance of a business and the individuals who work for it. Indeed, research has shown, companies that manage the performance of their people effectively are more likely to outperform than those that don’t.
Successful performance management can also help companies plan better, retain top performers and align individual goals with those of the organisation.
However, recent studies reveal that although performance management is widely embraced in Australia, its use remains problematic and companies struggle to implement it successfully.
The Hudson Report, which measures the hiring expectations of Australian employers, surveyed almost 7000 managers nationally and found that 45 per cent of Australian managers rate their organisation’s HR and people-management practices, including performance management, as average or below average.
The results, released at the end of April, also show that the key HR areas requiring the most attention include performance management systems, improved leadership capability and learning and development.
Another recent study – by Nankervis and Robert Compton, Senior Lecturer in HR Management at the Australian Catholic University, Sydney, in conjunction with the Australian Human Resources Institute – found that only 20 per cent of managers using performance management reported a high or very high satisfaction rate. Just over 30 per cent were less than satisfied while half were moderately satisfied.
Respondents cited the lack of links with organisational goals or with promotional and salary rewards as reasons for their dissatisfaction. Other factors included few participation or feedback opportunities, inadequate appraisal training, and implementation and administrative difficulties.
Nankervis says the use of performance management in Australia is becoming more widespread with 96 per cent of those polled in his latest study using it, compared to 85 – 86 per cent in studies done in 1990 and 1995.
Possible factors behind this rise include the need to bolster productivity in the face of greater competition, a rise in performance-based employment contracts and a more “strategic” approach to performance management.
However, despite this growth in usage, Nankervis says satisfaction levels with present systems have deteriorated since his earlier studies. Training has also declined and the involvement of employees in the review of their own and their team’s performance is not yet well implemented. Likewise, the message from management consultants is that there’s still much work to be done.
“If you do a general Internet search on performance management, what you will come up with are articles on how to avoid problems,” says Melbourne-based HR consultant, Derek Stockley, highlighting just how difficult performance management can be.
Dennis Finn, PricewaterhouseCoopers’ Head of Performance Improvement, notes: “People and organisations are getting better at doing performance management, but they still have a long way to go.”
And, Michelle Bourke, a Director within the Deloitte’s Consulting Division, adds: “While there is recognition of the value of performance management and its role in driving the business forward, many of the organisations we work with are struggling with their existing performance management systems and are looking for ways to improve them.”
So what goes wrong? In a 2002 Mercer Human Resource Consulting survey, managers listed inadequate manager skills in giving feedback, lack of follow up of agreed actions and inadequate ongoing feedback as the major barriers to successful performance management.
Not setting the right objectives can also ignite problems, says Finn. “What people find most frustrating about performance appraisals – when the appraisals are not working – is that they didn’t get any input or didn’t agree with the objectives set for them. They also say they had very little or no influence over those objectives or the objectives didn’t reflect what they do on a day-to-day basis.”
Stockley adds: “Companies are trying to relate the individual’s performance to the organisation’s performance – for example, their ability to achieve budget – but there are so many circumstances beyond an individual’s control which can interfere with this.
It’s important to set objectives that people can actually achieve and over which they have control.”
Finn says: “If the goals, measures and targets are too loose and subjective, with no time scale set for when they are to be delivered, it will be extremely frustrating for the person who has to figure it all out.”
He notes that once objectives are set, there must be consequences for those who over or underachieve. “The rewards given must be associated with whether that person is below target, on target, above target or even exceptional. Driving differentiation is crucial.”
Finn adds: “Performance appraisals work best where the content of the performance management system is tightly aligned to the organisation’s vision; and where this vision is broken up into goals, measures and targets that are then cascaded down through all areas of the organisation to those that can really influence them.”
Leaders have to spend time getting the key metrics right and then turn these into steps which are specific, measurable, time bound and objective. “What often happens is that the manager drives the business based on the latest bushfire which leaves the company reactive and driven by short-termism and this leaves the employee frustrated,” says Finn.
“However, even when we know what we have to do, it’s still hard to do. Most people gravitate towards the financial or numbers side, because these are easier to understand. Other aspects are harder to measure. But if you want to build up, say, leadership, you’ll need to set non-financial targets such as the number of people ready to fill higher roles or the training and development available in the organisation per person.”
Sydney-based management consultant Wendy Cooper believes that in addition to boosting individual performance, the process should also include team-based objectives that promote team work and cooperation. This can be done by encouraging the group to buy into a new initiative, such as installing a new software system, with shared rewards.
Cooper also cautions against putting too much emphasis on the negative during reviews. “You should look at how staff can be supported and coached so that they can achieve their goals, rather than how they could be punished if they don’t achieve them,” she says.
While the use of technology in performance management is growing, Stockley says nothing beats the value of a good face-to-face discussion. He acknowledges that most organisations need a more formal system, but says: “The best system is a blank piece of paper and a really good one or two-hour discussion.”
And, according to Finn, the more often it is done, the better. “The tip is not to make it a one-off thing. Having a monthly one-on-one “mini-review” would measurably reduce the anxiety created at the end of the year and eliminate the surprise that is sometimes experienced. You’d also correct what you need to earlier,” he says.
Being willing to put in the time, being honest and listening are among the key ingredients for successful performance management, according to Heather Miles, General Manager of People and Performance at Westpac Institutional Bank.
She should know. Westpac reviews the performance of its 26,000 employees twice a year and requires its managers to spend a reasonable amount of time with them.
“It’s rarely under an hour,” says Miles.
“The things that go wrong most often are when managers shy away from giving people honest feedback or when they rate people too highly and we land up with a consistently high rating,” she says.
Because the bank uses the Balanced Scorecard approach, the objectives set for staff take into account both financial and non-financial aspects of their jobs, depending on their level. “For more senior people, we will use the full gamut of measures,” says Miles. “It’s very targeted at what people are able to achieve and what’s in their control.”
The rule applied is “line of sight”, which means that someone must be able to see the impact they make by achieving their objectives. “We do spot audits to make sure that people are setting achievable measures,” says Miles.
Before she does her appraisal, Miles asks staff to send her dot points of what they have achieved over the review period. She then talks to other managers, the person’s colleagues and even customers which, she says, gives her valuable feedback and insights before she starts appraisal discussions.
The State of Performance Management
A recent study found that most Australian organisations still use performance management for traditional purposes with only “patchy” steps being taken towards strategic practices. Indeed, 89.2 per cent use it to determine training and development needs while 88.9 per cent use it to appraise performance. Only 27.5 per cent use it for retaining high-calibre staff while 28 per cent see it as a tool to change corporate culture.
The use of innovation techniques – such as the Balanced Scorecard, 360 degree/multi-rater feedback, upward appraisals and team appraisals – is still limited, but poised to grow. Forced rankings and the use of the bell curve don’t appear to have much support.
Those that use the Balanced Scorecard (25.5 per cent) report significantly higher levels of strategic alignment between individual and organisational performance objectives than those that don’t.