Performance Management Fundamentals

We have researched the practice of performance management,and asked many business leaders how they define it and how it contributes to their organizations continuous improvement effort,and we have concluded that effective performance management begins with the identification of what's vital to the organization because if these priorities are not clear and it is not clear what role everyone plays in the priorities,the rest of an organizations performance management effort is unlikely to mean much.Group rewards encourage teamwork,while individual rewards encourage an individual to optimize his or her own goals even if it may sub-optimize the organization as a whole.

Managing employee performance requires first and foremost clear communication of what is important for the organization and how the individual can best contribute. In fact, studies have shown that the primary reason people don't do what managers want is that they don't know what the managers want.While communication about targets and goals can be done as part of the strategic planning, performance review and execution processes, it should also be reinforced in the everyday conversations and coaching sessions between employees and their managers.Ideally, performance management Systems refers not just to people management, but to process management, and plant management.Yet we found the most common element of performance management was identified as annual performance appraisals, which came in for some criticism during our research.The Credit Department was careful to take no risks, while the Loan Officers focused on quantity, hoping that something, at least would be approved. The bank as a whole suffered.One of the drawbacks of annual individual performance reviews - especially when tied to compensation - is the high risk of driving the optimization of individual metrics while sub-optimizing the organization as a whole.

But a few people said that their performance review process was greatly improved by increasing the frequency from annual to quarterly, indicating the feedback discussions were both more timely and less stressful. Others found that when reviews were from salary adjustments they could focus more effectively on coaching.Performance Management must be about much more than individual performance measurement. To manage performance, we must manage the system by which people, plant, process interact to produce results.Frequent observation and feedback is more helpful to people than formal annual reviews.Frequent communication about what an organization needs and wants greatly increases the odds that the organization will get what they need and want.Tying money directly to performance appraisal can be a two-edged sword - raising stress and reducing the intrinsic rewards and personal satisfaction from doing a good job for the team.Avoid managing performance through the rear view mirror by including steps for more frequently assessing and impacting how people perform Make more of the goal setting process which produces targets against which we measure performance.