does your approach to performance management ‘sing’ or ‘sting’?

www.pivotsoftware.com

Does your approach to Performance Management

‘Sing’ or ‘Sting’?How to focus on practices that create meritocracies,

and avoid being seduced by the technology.

To Sing or to Sting?

Copyright © 2013 Pivot Software Page 1

Disclaimer This document is intended as a guide only. Readers are advised that before acting on any matter arising from this document, they should consult Pivot Software.

© 2013 Pivot Software Limited. All rights reserved.



Does your approach to Performance Management ‘Sing’ or ‘Sting’?

How to focus on practices that create meritocracies and avoid being

seduced by the technology

Contents

Are you ‘stinging’ or ‘singing’? ................................................................................................. 3

The 10 peak practices that create meritocracies ............................................................................ 5

Some performance management basics ....................................................................................... 8

The importance of underlying principles .................................................................................... 10

Transparency delivers engagement .......................................................................................... 12

Looks cool, but is it relevant? Evaluating new technology for performance management .......................... 17

To Sting or to Sing? ............................................................................................................. 20

About Pivot Software ........................................................................................................... 21

References ....................................................................................................................... 22



Are you ‘stinging’ or ‘singing’?

Let’s face it, performance management done badly ‘stings’. And we don’t like doing things that hurt,

right? At the same time, do performance management well, and it ‘sings’, in the form of higher

engagement, improved retention, higher individual performance and critically, better organisational

results.

That’s better organisational results with dollars attached too. A Boston Consulting Group (BCG) studyi of

Fortune’s best places to work showed companies regularly in the top 100 outperformed the S&P500 in share

price by 99% over 10 years. The highest performers had superior capability in three areas: Leadership

Development, Talent Management and Performance Management & Rewards. Superior capability in

Performance Management and Rewards contributed 2.1x Revenue Growth and 2.0x Profit Margin, when the

most capable organisations were compared to the least. That’s a gap your executive team, CFO or HR team

shouldn’t ignore.

Local research concurs. The 2012 Aon Hewitt Best Employers (‘BEs’ display excellence in HR practices) studyii

showed BEs achieve on average 9% more profit per employee. 71% of people at BEs strongly agreed with the

statement “this organisation’s employees gain a clear benefit if they are a high performer”, versus only 40% in

other organisations. 62% strongly agreed that, “my performance has a significant and direct impact on my

pay”, versus only 38% in other organisations.



There is clear evidence that building capability in

performance management and reward is effective

and profitable, but what does that actually look

like?

The BCG report describes high capability as being underpinned by the principle of a ‘meritocracy’. That fits

neatly with Pivot Software’s experience in terms of what organisations investing in improvements want.

In a meritocracy, employees feel they are promoted, recognised and rewarded on merit. This means that

they want to strengthen the link between reward (including pay and promotions) and performance, coupled

with practices perceived by staff as fair and transparent. This eBook argues the case for performance

management practices that have merit, i.e. that create a ‘meritocracy’ and work for both your employees and

your organisation’s ends.



The 10 peak practices that create

meritocracies

If you are going to do performance management you need to do it thoroughly and well, which may put more

hesitant organisations off, or see them just dabble a little. Committing half-heartedly can be worse than doing

nothing; you may well experience a lot more ‘sting’ than ‘sing’!

So what are the most capable organisations doing? What are the practices that have merit?

Each organisation tends to express their own culture through their approach to performance management, but

here is an outline of what Pivot commonly sees in the organisations serious about it:

The 10 peak practices alignment in action:

Key Factors Present Rationale

1. CLARITY

Performance matters and is clearly differentiated. It

supports a meritocracy where performance

expectations are clear, evaluation is robust and the

consequences are meaningful.

The aforementioned research covers this - there is a strong

link to superior organisational performance. In a

meritocracy, performance impacts all recognition and reward

decisions (promotions, development opportunities, pay

increases, incentives etc).

2. REGULAR FEEDBACK

Ongoing employee and manager communication and

feedback are at the heart of the process.

The year-end review is an element of performance

management. If you haven’t communicated well through the

year, you can’t expect the employee to see the process as

credible and relevant.



3. OWNED BY THE BUSINESS

It’s driven and valued by the business, not a side

activity driven by HR.

If the process is not owned and driven in the business it’s a

‘tick the box’ exercise that will not engage your people and

will not lead to better outcomes.

4. ENGAGING, COLLABORATIVE

The process is engaging and collaborative (rather than

one-way), staff are empowered to drive their

performance.

Participation drives engagement, especially for knowledge

workers.

5. MANAGER SUPPORT

Managers are supported with skills training/mentoring.

They are disciplined in their approach; there are strong

global performance standards, it’s led from the top,

and there are real consequences for those not engaged.

Great practices in setting objectives and delivering ongoing

feedback and difficult messages just don’t emerge by

themselves. Capable organisations ensure their people have

the skills and tools to communicate well. They use global

standards for performance including on approach,

assessment definitions, competencies and behaviours etc. A

strong framework creates a common language that gets

everyone ‘in the same boat rowing the same way’.

6. MODERATED RATINGS

Ratings are moderated for consistency and a rounded

perspective, ensuring performance levels are

differentiated.

Ensures consistency and fairness. Gives leaders a broader

view of talent across teams. Helps correct the tendency for

rating to skew to the right.

7. ALIGNMENT AND AGILITY

Objectives are set and aligned to company goals; the

approach is increasingly agile (e.g. 90 day reviews,

holistic measures).

Effective planning, feedback, review and reflection gives rise

to effective dialogue on performance – no surprises or

moving of the goal posts. Also, organisations and

environments are too dynamic to set everything in stone and

expect no change through the year.

8. REWARD BEHAVIOUR AND RESULTS Overall performance impact encompasses much more than an

individual task focus. Performance gains often lie in more



They reward behaviour as well as individual results.

And increasingly, contribution to the performance of

others (team and organisation).

effective collaboration with others and sharing of ideas in

the modern work environment.

9. CULTURE-LINKED

Their approach supports the culture they want to

develop (e.g. linked to values or desired

competencies).

The most capable organisations keep investing in increasing

their capability further and to align with and reinforce

organisational change (i.e. if they are developing a stronger

culture of innovation, this flows immediately into changes to

objectives and competencies etc).

10. PROCESS EFFICIENCY & MONITORING

They use state of the art systems and processes. And

monitor the effectiveness of the process as well as the

performance it’s measuring.

Given the importance of the process to organisational

performance it’s imperative that organisations do everything

they can to make the process easier and more effective.

They need to empower the business to get on with it but

retain overall visibility and control which is too hard using

just email and documents.



Some performance management basics

Pivot’s experience of best practice in performance management suggests connecting pay with performance is

the most effective approach. The reality is that unless everyone in a role is paid the same, there needs to be

some rational basis for exercising discretion in pay decisions.

You can pay for skills, but they may not be put to good use, so somewhere you are going to have to factor in

performance. If you haven’t got a robust process for doing that, there will be a lot of ‘sting’ to deal with in

terms of your people not understanding your decisions and perceiving them to be unfair or lacking

transparency; that’s not going to be good for engagement or organisational performance.

Getting performance management right is not simply about introducing new technology either. In fact

technology can just make the process go wrong faster! It is critical to have the foundations, the quality and

clarity of process, right first. The “10 peak practices” in the table are a good starting point, here are some

other key considerations.

• Terminology: If the term performance management has a negative connotation in your organisation,

change it. Some organisations may call it “performance and development”, “ASPIRE”, “GROW” or

“SUCCESS”, that way performance is implied and “management” is left out of it.

• Clean and simple process: Don’t shove everything into the process and make it too complicated. You

will want to use the output of performance to feed into remuneration, talent management, learning,

development plans, career and succession plans. That doesn’t mean you need to over-engineer your

approach or confuse things by lumping it all together. For example, you probably don’t need a

development plan linked to training options. Best practice organisations adopt a 70-20-10 approach

(70% of development from on the job actions, 20% manager/peer coaching etc and only 10% formal

courses) so suggesting courses as the solution for development is sending the wrong message.



• If you are going to use 360 degree reviews for performance, then be targeted. Do you really want

your whole organisation to grind to a halt while everyone reviews each other? And have the support

in place to ensure the 360 feedback is delivered and used well.

• Talent: make sure you do more than just ask managers to rate potential, as the research shows they

won’t get it right. You need a way to collect the information but keep it simple and flexible. Unless

you have 10,000 plus employees you probably don’t need to spend a fortune to get good reporting on

your top two or three tiers of leadership. Talent management is really about career planning for

those with potential within the organisation and succession planning is about deciding, who in the

talent pool, should be considered for key roles. These go well together, but talent identification that

feeds into this process can occur through the performance management system.



The importance of underlying principles

Getting agreement up front on what principles will underpin the design of the your performance management

framework pays dividends. Focus on engaging your executives and other key stakeholders in agreeing to these

principles. Get this right and it should be a lot easier to make decisions on the detail, without going around in

circles.

Adhering to the agreed principles should support a ‘meritocracy’ i.e. a system for identifying high

performance and rewarding it. If you don’t create this, your best people leave or disengage, lowering the bar

for everyone else.

Drawing from 10 peak practices you can quickly identify the principles that underlie performance

management at high performing organisations:

• Clear recognition and fair reward of individuals who perform to a high level.

• A commitment to performance management as a day-by-day process not an annual or bi-annual

review cycle. This is supported by regular and immediate feedback and coaching.

• A system of performance management that recognises individual’s strengths and builds on these.

• The process is ‘agile’, fast, efficient and responsive.

• Recognise that it’s not just the results people deliver (the what) but also the values and behaviours

(the how) that underpin those results.

• It is results that an individual produces that are assessed as part of the process, not the person’s

character.

• The assessment process is transparent, robust and consistent, with clear differentiation across the

workforce.



• Performance goals will align with company strategic goals so people focus on the right things and can

see how their daily work contributes to these goals.

Much of this is well understood but not translated into practice consistently. The use of software to automate

and streamline the process makes it much easier and more effective. It also means that performance

management can be measured, valued and people treated like the proper assets they are in an organisation.



Transparency delivers engagement

Levels of engagement should be a key metric for HR to judge the effectiveness of performance management.

So why is engagement dropping across many organisations? According to a recently released study on

engagement by Aon Hewitt, a global HR consultancy, only a third of firms surveyed achieved an improvement

in engagement in 2010.

Sometimes we think the nice, fluffy stuff will deliver engagement, but what staff typically want is a clear idea

of how they are doing, and confidence that a fair process of evaluation is in place. What you need to achieve

is an approach that forces alignment, so you can gauge what percentage of staff are working on what company

objectives, and what activity is consistent with company values.

Clarity around the process and the feedback mechanisms is what promotes engagement. That extends to being

clear about where the performance reviews reside i.e. a single source where performance information is held,

not Word documents floating around with various versions, open to disagreement around the latest versions.

As noted earlier, in the 2012 Aon Hewitt Best Employers study, 71% employees at the best performing

organisations strongly agreed with the statement, “In this organisation employees gain a clear benefit if they

are a high performer (e.g. recognition, financial and non-financial benefits, opportunities)”, and 62% with,

“My performance has a significant and direct impact on my pay”.

Does your performance management process achieve results at ‘best employer levels?’ If not, you have a

strong case for action.



Alignment in action:

An example of what can be achieved is Meridian Energy, one of New Zealand’s largest electricity generator,

supplying electricity to over 180,000 residential, business and rural customers throughout the country. The

company has more than 500 staff across four regional offices and is considered one of New Zealand’s leading

employers.

By moving to an aligned performance approach they have improved engagement significantly between 2009

and 2011. The change lifted overall results by between 10% and 30% across four key engagement metrics.

They are now getting close to the Best Workplaces Survey (BWPS) top 25% benchmarks, with improvements

across:

• Understanding of how performance is measured

• Acknowledgement they receive regular feedback on performance

• Perception that performance is fairly assessed

• Perception that poor performance is dealt with effectively



Achieving ‘agile’ performance management

As the word suggests, agile is all about trying to increase flexibility and responsiveness. Agile concepts were

pioneered in the software development sector, where people wanted to move from the slow and steady

“waterfall” approach of development, where projects followed a prescribed set of steps in linear fashion

towards an outcome.

Agile development takes a more iterative approach, doing small ‘sprints’ of development and constantly

reviewing progress. At the heart of this is an open, collaborative team approach amongst programmers, rather

than the more individually oriented traditional approach.

Performance management is traditionally managed using a waterfall-type approach. An annual process is run,

reviewing an individual’s performance in line with cascading organisational goals. It is linear, ordered and

relatively fixed.

It has become trendy to disdain this approach.

Traditional performance management is staid and

boring while agile performance management is

dynamic and engaging.



Businesses do need standards and policies around processes like performance management, and that can’t be

ignored in any changes to the model. However the business environment we work in is changing faster and

faster, so organisational goals are changing more quickly too – performance management needs to support

that.

Employees are getting feedback all the time from a wide range of sources, especially if they are working in an

agile type environment and the concept of a traditional manager is also being challenged. The team are self-

managing. Having a rigid feedback process doesn’t fit so well with that.

Today’s reality for HR teams is that performance management, no matter how agile, still needs to be aligned

with corporate goals, still needs to be documented, and you still need to provide the right kind of support to

both managers and their staff.

Technology has a role to play in confronting this challenge of getting more agile, while meeting the needs of

the enterprise. Agile processes need agile technology, so a monolithic HRIS will struggle to support the HR

team’s needs.

Make sure you know how agile your technology is in responding to change because that’s the game these days

and surprisingly some of the big players in the market are much more rigid than you would think. Don’t think

of a performance management process as a problem that you can solve and move on. It’s dynamic and needs

to respond to the environment, different CEOs and different market conditions. Your needs will change, so

choose an agile system that can respond to that and will support your organisation in making fast changes.



Software-as-a-Service (SaaS) is helping to drive agility.

It can be implemented relatively easily, is simple

for users to learn and use, and is constantly being

improved by innovative developers.

There is also the emergence of ‘social’ technology tools, where social media type approaches are being used

to support HR processes.

Some of this technology is in the ‘hype’ phase, and will take some time to mature and be ready for

widespread adoption, but it’s still worthy of evaluation by anyone interested in HR technology.



Looks cool, but is it relevant? Evaluating

new technology for performance

management

There are so many new features being built into performance management technology that you could be

forgiven for saying “Looks cool, but is it relevant?”

That is actually the right question to ask. How far do you want it to be about the technology rather than the

process? For example, is it really helpful to have a feature which drafts manager comments based on their

rating - how authentic is that?

Don’t let technology determine your approach. Avoid unnecessary distractions and options that only have

‘entertainment’ value. It’s important to achieve a solution which makes the core task at hand more

effective. Keeping the look clean and the process simple and intuitive is critical to success with new

technology.

Integrated options can look attractive but can be deceptive. In practice a lot of the theoretical benefits of

integration are never realised, the possibilities are elusive and organisations put up with inflexible systems

which never realise the potential they were sold on.

That’s partly because, whilst the vendor may have a suite of products, they are often from an amalgamation

of companies that they have acquired, giving only the appearance of integration. In reality you have the same

tasks to integrate the systems as if you would have had with multiple vendors, but you don’t have the

flexibility to choose the best-of-breed match for your needs and the flexibility to change components if your

needs change.



Don’t assume that one vendor can meet all your needs and it will be easier than dealing with multiple

vendors. It’s far better to deal with people who know their stuff than someone who has to refer every

question to an expert in another time zone.

Analytics are also critical, with the advent of data warehouses and the need to integrate data from HR,

Finance, Sales, Marketing, and Operations; why would you want to build your company dashboard or analytics

capability in a way that locks you into one vendor?

Talent management is important but the organisations that do this well are targeted with their effort. Some

companies are so large (10,000+ employees) they need technology to help them recognise who people actually

are. If your organisation is not that big, don’t go over the top.

Talent Assessment is one thing, but companies usually struggle with actually putting development strategies

together and putting them into action - so don’t forget that part of the equation. It’s not about gathering

information on everyone for the sake of it.

You need to get the balance right between a long term talent focus and the here and now. Understand that

assessing current performance is the foundation of recognising and developing talent. Don’t get too carried

away trying to predict the future without ensuring the foundations are in place!

Fundamentally, applying new technology to performance management should be driven by achieving

alignment.

From a CEO’s perspective, they want to know exactly what personal activity is being done to contribute to

overall company goals – that’s the real strategic value of performance management. This seems achievable

with an inspiring leader, who has a clear vision and a team small enough to relate with each person

individually every day. In large complex organisations the work needed to achieve the same alignment seems

nigh impossible. The disconnection between overall corporate goals and an individual’s delivery can be huge –

resulting in lost productivity and waste. Therefore, make sure your process can align quickly to changes in

strategy.



We often see the way an organisation “aligns”

individual performance objectives with

organisational strategy, is to “replicate or cascade”

a high level goal, such as “growth in net profit”.

The further away from the top of the organisation,

this is cascaded to, the more disconnected the

individual is from knowing the pathway to deliver.

How can customer service officers impact net profit? – they need to be shown the way. E.g.: “Effectively,

and without rework, resolve all customer queries within one day of receipt” – can then be connected to the

company goal –this way they are able to see the “value tree” from their role up to the organisational goal.



To Sting or to Sing?

Getting your performance management system to ‘sing’ rather than ‘sting’ is actually about the need to

simplify. To get away from our tendency to overcomplicate the process, to want to introduce fancy

technology that looks good but doesn’t really deliver what we need – a clear alignment of individual

performance with organisational outcomes.

Getting your performance management framework right is crucial, and then using technology to automate and

streamline those processes, making them visible to everyone involved.

Above all, it is ensuring the work of your people, the ‘assets’, is contributing to the organisation’s outcomes.

When that’s happening, as HR professionals we become as valuable as those measuring and developing other

assets.



About Pivot Software

Pivot Software helps organisations use technology to improve their control over complex and often emotional

human resource processes. Productivity, enhanced transparency of outcomes and improved employee

engagement are just some of the positive impacts of implementing our technology. As human resource

professionals, we understand how well managed remuneration and performance management policies bring

organisational values and principles to life. We enable HR interactions that are meaningful and beneficial.

Conversations between managers and staff are supported, and not replaced, using our solutions which are as

easy to use as a simple website.

Over 50 organisations across Australia and New Zealand use Pivot’s solutions, with the majority coming from

the energy, resources, financial services and professional services sectors. The HR policy and strategy needs of

our clients are met using a secure, internet-based, highly configurable software-as-a-service model that fits

within any corporate IT infrastructure. Our clients enjoy a time-saving solution designed for the task; not a

generic tool that is ‘made to fit’.

Pivot Software (New Zealand) Limited Pivot Software (Australia) Pty Ltd Phone: +64 3 359 1707 Phone: +61 2 9911 4016 Email: [email protected] Email: [email protected] Address: Address: Pivot Software Ltd Pivot Software Ltd PO Box 20 348 PO Box 5373 Bishopdale West Chatswood Christchurch 8543 NSW 1515 New Zealand Australia Copyright © 2013 Pivot Software

All rights reserved. All trade names referenced are the service mark, trademark, or registered trademark of the respective manufacturer.

mailto:[email protected]

mailto:[email protected]



References

i From Capability To Profitability - Realising The Value Of People Management. The Boston Consulting

Group And The World Federation Of People Management Associations. Authors Rainer Strack, Jean-

Michael Caye, Carsten Von Der Linden, Horacio Wuiros And Pieter Haen. July 2012.

ii 2012 Aon Hewitt Best Employers In Australia And New Zealand, Highlights Report

does your approach to performance management ‘sing’ or ‘sting’?

Technology

boston consulting

performance

performance

pivot software

high performer

performance

organisational

direct impact