Garrison Keillor's famous joke about Lake Woebegon is that "all the children are above average."
In reality, that's how every company would like its employees to perform, but how can this ideal be encouraged, and measured?
Ideally, evaluations should fit into a company's overall strategy for attracting, using and retaining talent. Nancy Mobley, founder and CEO of Insight Performance, an HR consulting firm, says companies like Wegmans and Walmart have developed a holistic strategy that helps individuals form part of the company's overall identity.
"They have a retention strategy that they've developed that goes far beyond performance management," Mobley says. "It's a much higher strategic vision of, What are the goals for the organization? Who are they in their marketplace? How do they want to be known by their customers? Performance management is a piece of that once you get someone in the door."
Robert Cardy, a business professor at the University of Texas at San Antonio, agrees that evaluations should fit seamlessly into an overall human resources strategy.
"It might be worthwhile to think of performance appraisal as part of a larger system of talent management," Cardy says. "For example, the selection system is meant to hire the best candidates. The training system should identify and remove performance gaps due to knowledge deficits. There are other systems as well, such as compensation, but the point is that if these systems are working well, you should have a group of above-average employees."
WHAT AND HOW
Broadly speaking, any performance evaluation system has two components: what aspects of performance are measured, and how. The basic purpose of performance evaluation is to reward and reinforce desired behaviors; the first step is to decide what those behaviors are.
"The most effective performance management strategies that I have seen are those that are completely aligned throughout the organization."
The Partnering Group
"Far and away, the most effective performance management strategies that I have seen are those that are completely aligned throughout the organization," says Bob Baxley, a partner with the consultancy The Partnering Group and a former executive with H.E. Butt, Winn-Dixie and Albertsons. "Buying and merchandising, along with operations focused on the same objectives and outcomes, are the most successful in inspiring the desired corporate performance, and they minimize internal competition."
Orienting employees away from internal competition and toward the collaboration the organization needs–among departments, stores, regions or whatever other units are in place–should be one of the goals of performance management. That's not always easy to do with standard evaluation models.
"Depending on how the objectives [of an evaluation] are set, they can enable performance or have a complete opposite effect by creating competition amongst individuals and amongst teams and departments."
"Depending on how the objectives [of an evaluation] are set, they can enable performance or have a complete opposite effect by creating competition amongst individuals and amongst teams and departments," says Eva Nafekh, senior consultant with Heartleaf Consulting Inc., a Toronto-based firm.
Baxley agrees: "Having the buying/merchandising team totally focused on sales without a profit component is similar to having the operations teams having a profit objective without a sales component or shopper satisfaction element. In each case, decisions are made that are contrary to the best collective interest of the organization."
It's easy to fall into that trap because many companies tacitly encourage employees to take a narrow view of their work.
"Unfortunately, the typical silos still found in many organizations actually de-incent collaboration and teamwork, so unless the entire team is concentrating on the success of the entire organization, people naturally will work toward what's in their best interest," Baxley says.
One way to ensure that performance management leads to the desired degree of collaboration is to have key performance indicators (KPIs) that are shared across relevant departments or other units, says Robert Satterwhite, a partner with The Partnering Group.
"Getting fresh products from the farm to the display shelves requires teamwork between sourcing, logistics and stocking," Satterwhite says. "In this instance executives might all share a common initiative with a common measure of success in their performance plan for the year (e.g., increasing handoff efficiencies between these areas)."
Clearly spelling out goals, whether they're shared or individual, is a necessary part of the evaluation process.
"Whether the organization places weights on dimensions or uses some other scheme to reflect importance, including initiatives and goals in the performance evaluation system, sends the signal that the initiatives and goals are real," Cardy says. "Identifying strategic initiatives and goals without including them in the performance evaluation system is, in essence, not putting your money where your mouth is."
MAKING THE NUMBERS
Many of those goals will be quantitative. In retailing, especially at the executive level, there is a tendency to set benchmarks in terms of numbers to be attained and, ideally, exceeded.
"My experience is that management roles are mostly numbers-focused (e.g. sales, profits, labor, productivity, turns, staff turnover, funding targets met, etc.) from department management at store level to the corporate VP levels, which certainly requires the 'right' metrics for the incentives to be effective and set up to deliver the right results," Baxley says.
Numerical performance-evaluation goals have advantages: They're easily understood and objective–on the surface, at least. But they also can raise questions about parity.
"In terms of the fairness question, my view has always been that if I don't directly control it, then it's difficult to be fully accountable for it (whatever 'it' is), so 'fair' isn't always an option, but that's just the way it is," Baxley says.
Cardy notes that a fair evaluation process will take extenuating circumstances into account.
"Someone can engage in all the right behaviors but not hit the desired numbers, such as amount of sales," he says. "It is also important to recognize that a number of factors outside of a worker's control can affect outcomes. Sales, for example, can differ due to economic factors and geographic differences."
SCALES AND CURVES
Numbers also can come into play in the basic structure performance evaluations. The classic model for performance evaluations is a numerical rating, from 1 to 5 or 1 to 10, on a series of job performance aspects. In some cases, this gets used to rank employees, either within the entire company or within a department or other business unit. Some companies even use a "forced curve," whereby a preset proportion of employees must be ranked high, medium and low.
This at least gives the appearance of objectivity, but its ultimate usefulness has come into question. Microsoft recently ended its forced-ranking system, announcing in a company-wide memo that its performance evaluations would no longer involve curves and ratings.
"A lot of companies have found that a forced-ranking system does not drive long-term performance."
The Partnering Group
"A lot of companies have found that a forced-ranking system does not drive long-term performance," Satterwhite says. "While there is some research showing that forced-ranking evaluation does lead to short-term gains in productivity (as lower performers are let go), over the long term those benefits disappear–most likely because people are competing against each other rather than collaborating to reach company goals.
Cardy feels that, while forced rankings are a bad idea, numerical scores still have a place, at least in some cases. "People still want to know how they're doing and want the feedback," he says. "The organization may also need to put numbers to these assessments for a variety of purposes. For example, the organization may need to demonstrate that its selection system is valid and doesn't discriminate. Or, the effectiveness of a training program may need to be assessed."
But Mobley considers numerical standards questionable. "People are moving away from this numerical form," she says. "First of all, those numerical forms are very subjective. Frankly, it takes a lot of time to prepare those and do those well while you're trying to manage your business. The concept [should be] of putting some responsibility back on some of these regional managers, or management-level people. They should be in a position where they can actually take some ownership for their work performance."
There is, however, one traditional association with the performance interview that should remain in place, if possible: Tying it to raises and/or bonuses.
"There have been proponents of separating performance evaluation from salary implications," Cardy says. But "the practical reality is that coaching requires assessment, and separating the two is a false dichotomy...Sure, we all want to know how we are doing in the judgment of our boss and others, but we also want to know what the assessment means in terms of a reward. If the pay side of the discussion is left out, the feedback can quickly be seen as hollow rhetoric. Including discussion of the reward can give the feedback and coaching suggestions motivation."
Performance evaluations, when done right, can be a valuable tool to guide and reward employees. They're part of what should be a complete toolkit that keeps the company running smoothly.