Implementing an effective and objective performance management process helps employers communicate expectations and results to employees. This in turn drives higher performance levels from them. Here are some challenges to look out for when implementing (or improving) a performance management process.
6 Challenges in Establishing a Performance Management Process
“Employers are refocusing on the importance of performance management.” Mary Rizzuti and Diana Neelman told us in a recent BLR webinar. They are looking to make the most of limited compensation (and raise) dollars by tying pay to performance ratings. However, this is not without challenges; knowing what to expect up front can be the difference between an effective or ineffective implementation. Here are some performance management process challenges to address during the planning stages:
- Combating inconsistent engagement levels of different managers. Getting all managers on board is critical. Managers need to be fully trained on the process and HR needs to monitor managers to ensure that the program is being used consistently and objectively. When the system is applied inconsistently, some employees benefit and others flounder, leading to employee mistrust and disengagement.
- Establishing the right metrics. The metrics should be measurable, and they need to tie into the strategic business plan of the organization. “Using a strategic plan – if you have a corporate plan – many times helps you get kind of a focus of where you want to go and gives you some ideas of what you might want to use as far as metrics.” Rizzuti and Neelman advised. There should also be a balance between short-term and long-term metrics – especially when it comes to skill development.
- Tying rewards to key compensation objectives to drive motivation. “When employees are engaged in performance and what’s expected, they really are more motivated to achieve and to work towards a common strategic goal.” Rizzuti and Neelman explained. This requires meaningful discussions. Employees need to understand how their personal objectives contribute to the company’s strategic goals.
- Creating a system that adequately distinguishes between high performers and average performers. Creating this distinction is key because it provides the basis for compensation differences for different performance levels—which is one of the goals of the entire performance management process. When trying to create distinctions between performance levels, having too many ratings can be problematic. While this may be counter-intuitive, having too many ratings choices may mean that managers don’t have to create meaningful differences between employees.
In other words, too many ratings makes it too easy for everyone to be above average. For example, if there is a rating between “meets expectations” and “outstanding” (such as “exceeds expectations”), then the one in between often becomes the default – the new normal – rather that “meets expectations.” One tip to avoid this problem is to try for only three ratings levels. This forces a clear distinction and makes it obvious if too many employees are being rated higher than their performance merits.
- Eliminating the entitlement mentality. Entitlement mentality minimizes effectiveness. (Entitlement mentality refers to employees who feel that they are entitled to a raise every year regardless of performance—typically because this has been the norm). Many companies still reinforce an entitlement mentality by providing annual increases or bonuses that are not tied to company performance, or by taking other pay actions that do not differentiate the top performers from the others. This is difficult to change, but possible with time. In a true pay for performance environment, performance needs to impact pay and HR actions in order to be effective.
- Effectively using limited budgets. The budget levels obviously impact how much the employer can differentiate pay based on performance ratings. Nevertheless, distinctions should be made even if they are small. This is more easily accomplished when fewer performance levels are used.
Implementing a performance management process often involves a cultural shift. It will take time to change, but it is possible. A successful performance management process implementation requires a good deal of dedication from top management, HR, and managers.
For more information on the challenges employers face when implementing a performance management process, order the webinar recording of “Pay for Performance: Keys to Engaging and Retaining Your Best Employees.” To register for a future webinar, visit http://store.blr.com/events/webinars.
Diana D. Neelman, CCP, is a principal and senior consultant with Compensation Resources, Inc. (CRI) , in Upper Saddle River, New Jersey. With over 20 years of collective compensation and HR experience, Neelman is responsible for business development and project management in all areas of compensation, consulting to a variety of industries on salary administration, performance management, and incentive compensation, with a specific emphasis on executive and general compensation matters within not-for-profit organizations.
Mary A. Rizzuti, CCP, PHR is a principal and senior consultant with Compensation Resources, Inc. (CRI) . With over 15 years of compensation experience, Rizzuti serves as project manager for consulting projects. She also leads CRI’s Training Institute, delivering customized compensation and human resources training for senior leadership and human resources professionals.