The many uses of performance ratings

As we are in the middle of the busy performance review season, I’d like to get back to basics as to why so many companies give performance ratings to their employees. Performance reviews can serve as a good developmental and retention discussion, but that aside, the rating itself has many purposes. Some managers think that just by giving a rating, they can motivate someone to improve their behavior. That is false. However, having clear visibility to talent has many indirect ways to impact organizational performance.

The most common purpose for performance ratings is to create a consistent way to implement a pay for performance philosophy. The company can differentiate rewards based on performance levels using company-wide guidelines. As an increase in compensation has a significant impact on retention, the organization is essentially investing in retention of its best performers. Pay for performance is a retention strategy.

However, performance ratings can be used for many other purposes as well, if the organization has an effective talent management function. When high performers can be tracked, it is easy to place them into succession planning and accelerated development plans. Various performance levels can receive the most suitable developmental investment. Low performers can be tracked to ensure that their managers actively coach them or put them on performance improvement plans.

If the company decides to go through restructuring, performance ratings can be helpful data points in addition to other considerations in moving or eliminating positions. Organizations often spend extra effort to maintain their top talent, while low performers are most at risk of getting removed.

When organizations develop assessments and business impact studies, many of them analyze the top performer profile to create guidelines for selection, training and other areas of business. Performance ratings make identifying this group very easy.

For all these reasons, it is critical that managers assess the true performance of their employees. The performance ratings should reflect how they stand against their organization’s performance standards, and also how they compare against the rest of the population. Calibration sessions where managers meet to discuss and compare the performance ratings they have given to each others’ direct reports can be helpful in creating more consistent standards and reducing rater bias.

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Best Friend at Work?!

One of the popular questions to ask in employee engagement surveys is “Do you have a best friend at work?” This is one of the Gallup 12 questions, researched more than 30 years with over 17 million employees. The question is downright dorky. Employees are puzzled. Executives are suspicious. However, it is such a strong predictor of employee engagement and high performance that Gallup can’t get rid of it.

Gallup has tried to ask the question in different ways, removing the word “best” or the word “friend”. When they did, it lost its predictive nature. So let’s look at it this way. What if your best friend really worked with you – wouldn’t work be different? Wouldn’t you be more excited to go to work? Or, what if you loved your company so much that you wanted all your best friends to work there because you thought it would be unfair of you not to try to give them the same chance you have.

Employees who report having a best friend at work are twice as engaged as their coworkers without a BFF at work. The same ratio shows in retention, loyalty, and recommending the company and its products.

I’m convinced, you say. But how can we get more Best Friends at Work?

The bottom line is to create an environment conducive to relationship building. Is your new employee orientation welcoming? Do you have places for your employees and teams to gather to socialize during breaks? Do your team members know each other beyond the title and job description? Does your company organize social events? Are you utilizing the social media to connect with the Millenials?

Don’t be shy – your Best Friend is out there!

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Why does change take so long?

Organizational change has two main stages: 1) Building the momentum and 2) Making the change sustainable. You can have day-long debates which one is more important or more difficult: The answer is both. Can’t have one without the other. But when the frustration is with the speed of change, the problem usually lies with the first stage. The organization is failing to build momentum.

John Kotter has a beautiful 8-step change framework:

  1. Create a sense of urgency
  2. Build a guiding team
  3. Create the change vision and strategy
  4. Communicate to build understanding and buy-in
  5. Empower people to act
  6. Create short term wins
  7. Don’t let up
  8. Make it stick

The first six deal with building momentum. In a nutshell, you have to have a crystal clear vision of what you want to achieve with your change and then describe it vividly to everyone involved until there is no one left who has doubts. You have to make it concrete, practical and easy.  If there is a concern, ambiguity or concern, your job is to remove it or mitigate it. You will replace doubt with hope, and eventually hope with conviction and excitement.

Change is slow, when you don’t have a critical mass of people trying the new thing. Driving change is very much like marketing. You create awareness by communication. You penetrate the consciousness by using as many channels as possible. You create interest by influencing opinion leaders. You persuade people to try it the first time and ensure that the first experience is positive. You make it easy, so they do it again. You want to make it a habit. You facilitate positive word-of-mouth feedback. You want them to tell their friends that it was OK.

Change is slow if nobody knows about it. It’s slow if it’s hard to try the new way of doing things, or if the old way is easier. Change will be slow, if everyone around you is sticking to old habits.

Sometimes change can be utterly contagious: Just watch this youtube by Derek Sivers.

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Can you PAY people to get them motivated?

We have this interesting term called pay for performance. It might make you think that you could pay people to motivate them to perform better. Research after research (28 total) have been completed that show that extrinsic rewards decrease intrinsic motivation. Rewards do not directly increase performance. Rewards have a distinct role in talent management; however, we should understand what their purpose is to be able to get the most out of the investment.

NO – You can’t motivate people with money.

A well known motivation theory by Herzberg categorizes motivational factors into two categories: Motivators and dissatisfiers, also known as hygiene factors. Motivators such as career development and meaningful work can increase the employees’ motivation. Hygiene factors can only reach a neutral level of satisfaction. If they are good, nobody thinks about them. If they are lacking, they cause dissatisfaction. Compensation falls into this category.

YES – You can motivate people with money

You could say that it is possible to increase motivation with money, if you are in the area of dissatisfaction – if they are underpaid. You can improve the compensation, until you reach the neutral level. After that, pay becomes a non-issue.

There is also one exception to the pay-reward connection. Some research suggests that in work that is repetitive and doesn’t require much thinking or judgment, pay actually has a direct link to performance. How many of today’s employees have jobs like that?

What’s the point of pay for performance then?

We pay our best performers because we want to KEEP them. Increase in compensation significantly increases the intent to stay. When the organization is dishing out rewards, the operative question should be: Who do we want to keep? Pay for performance is often expected by employees as well. They feel that it is fair that those who contribute the most should be rewarded the most. It is essential that what is perceived as good performance by management is perceived as good performance by the employee base. Clear performance standards are one of the strongest drivers of performance.

If you can’t motivate people with money, then what?

That’s another story, read here.

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Selecting a training provider

When you have gone through your make vs. buy decision process and chosen to search for an external training provider, there are certain factors you should consider. This is not an all inclusive list, but it will save you some headaches along the way, when you are looking for the best candidate to meet your training needs.

If you are looking for expertise, your investment will be higher, but so should the ROI. Look for a strategic partner who wants to understand your business situation and the results you want to achieve. If you are just looking for extra bandwidth, you will most likely have a lower cost, but you will be the one driving the process and bringing in most of the ideas.

Training providers have solutions on the continuum from off-the-shelf products to totally customized projects. In between, it is also possible to start with a standard package that is tailored to your organization’s needs. A training solution can be standardized to drive lower costs; or due to a highly successful and strictly protected formula. Conversely, customized doesn’t always equal the highest quality, but it does mean that it will be made to your specifications. What you need to determine is how unique are the training needs of your target audience.

When you look for a training partner, you want them to be able to grow with you. If you set up offices in other states, or other countries, will they be able to scale their operations to follow you there? Does their business model allow certifying internal trainers within your own organization; if that’s the way you want to do it? Do they have the language capabilities and the cultural competence to serve you in your international locations? Don’t overlook your local vendors – you want to be a good citizen in your community.

Does your training provider have experience with your type of organization? Do they know the industry terminology? Have they dealt with your size of company before? The implementation of projects in small businesses is different than in large corporations.

My most value-add solution providers were selected through a rigorous RFP process. You may not need to do it for every little workshop, but when you look for long term strategic relationships, set clear criteria and don’t jump into contracts before you have done your due diligence. The on-going business results will be worth it.

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Assessing performance and potential

A typical tool for organizations to assess talent is the 9-box grid. One axis is performance, and the other axis is potential, choices being low-medium-high. It allows for a simple framework for categorizing talent so that differentiated actions and investment is possible. What is more difficult is to have a balanced and objective discussion to truly slot the existing talent into the right categories.

The performance axis is often based on the organization’s annual performance management process, and the low-medium-high categories align with the performance rating scale. To make investments in talent more meaningful, the expectation is that managers are challenged to use consistent performance standards, so that not every employee falls into one category. Another consideration is to make sure that performance is not only evaluated based on pure results, but also on behaviors: How the results were achieved. Otherwise the organization runs the risk that people who leave behind dead bodies to reach their goals are viewed as top performers – a recipe for becoming a morgue.

The Corporate Leadership Council has developed a simple model for assessing potential. It has three elements that need to be evaluated: Ability, engagement and aspiration.

Ability encompasses the inherent talent and the skills acquired in the employee. When assessing leaders, these often include business acumen, technical and functional expertise, and leadership skills. When assessing potential as part of ability it means looking at the learning agility of the employee: How fast can they grasp new and complex concepts? Are they able to take on stretch assignments and unfamiliar responsibilities? How far can they reach?

Engagement is another component of potential. Does this employee LOVE this organization? How dedicated are they? How high is the emotional attachment? We are looking for passion. Lukewarm employees will not go as far as champions.

The last element is aspiration. You cannot push a rope. The employee’s drive and ambition is a key determinant of where their career will take them. They will be asked for personal sacrifices from time to time. Relocation is often part of the career path. High potentials actively manage their own careers.

Based on trusted dialogues with employees and objective discussions among the leadership team, the 9-box exercise can give a good snapshot of the talent pool of the organization. The next step is to act on that information.

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