In recent years, two of the most popular HR subjects have been whether the annual performance review should be abolished and how the Chief HR Officer can become an equal business partner to the CEO. Interestingly, achieving the latter can be greatly facilitated by achieving the former, while making employees much happier about the entire process.
Today, most CEOs and line executives still operate their businesses by setting quantitative annual business objectives in such areas as earnings per share, sales, market share, cash flow, etc., that are consistent with their overall business strategy. Therefore, any HR initiative that can support and enhance their ability to achieve those objectives in a practical way is typically well received. Utilizing a management-by-objectives performance review approach is one of the best ways a CHRO can directly align HR with the business, and the CEO and line executives.
The key question is “what is the RIGHT WAY to do it?” Here are my thoughts on how to answer that question.
First, the performance review should have three similar but different documents. The first document, which would be utilized for the top two or three management levels, would be an executive level document that uses the MBO approach which is most appropriate to support the business needs of the company. Two-thirds of the performance weight would be given to the performance/business results achieved, while the remaining one-third would be given to an evaluation of the executive, management and interpersonal skills utilized to achieve them. The key is to directly tie the objectives identified in the review process to the business objectives that have been approved by the CEO and the Board for the company, and the President of each division or organization at the start of the fiscal year. Then, the second document would be for managers and supervisors that would place two-thirds on MBOs, key projects and the results achieved on the key duties in the job description, while the remaining one-third weight would be placed on management and interpersonal skills. The third document would be for professional, technical and all other employees and would place one-half weight on the results achieved on the key duties in the job description and key projects, while the remaining one-half would be placed on interpersonal skills.
Second, conduct meetings with line management to develop a detailed manual of sample objectives/goals that can be used as a guide. Make sure that each example is specific, measurable, attainable, quantifiable, relevant, time-based, and so on. Many managers need to have a lot of examples of a well-written objective to guide them. By working directly with line management, you help get their buy-in into the value of the process AND how you can tie the objectives listed on the performance review document to their annual business objectives, budget, profit plan, strategic plan and so on
Third, ensure that all three performance review documents have a section for “Additional Major Accomplishments” that come up during the performance review period, but were not included in the objectives or key projects identified at the beginning of it, as some them will likely be modified or deleted, and others added.
Fourth, when the employee has been a team member on a major team project in addition to his/her typical job duties, that performance on the team should be included in the performance review. The employee’s performance results and skills utilized on the team should be evaluated by the team leader and provided to the employee’s supervisor. In the end, the employee’s overall performance should be a weighted mix based on both job and team performance, such as 75% job/25% team. The team performance should be based on: a) the employee’s team performance results, b) the importance of those results to the team’s overall performance results, and c) the importance of the team’s overall results to the business.
Fifth, you will need a very pragmatic management training program that teaches managers: (a) how to write a good objective using the above manual, (b) how to evaluate AND rate typical performance results achieved against the objectives, (c) how to evaluate the various skills used to achieve them, and (d) how to provide employee feedback on the performance results achieved and the competencies or skills used [or not used] throughout the entire performance review period.
Sixth, throughout the performance review period, there should be ongoing informal performance feedback as the employee’s key work results are achieved or on a known regular basis. This gives the manager a chance to demonstrate interest in the employee’s successful work, job skills development and career desires several times throughout the period; which is what they desire most. Therefore, the end-of-the-performance period discussion should be more of a conversation that concentrates mostly on job skills development over the upcoming performance review period. Also, any discussion of strengths and improvement areas should be evidenced by the hard facts and the performance results that led to the evaluation, wherever possible.
Seventh, competencies or skills vary greatly from level to level (typically clerical/administrative, professional/technical, lower management, middle management, and senior/upper management), and even job to job. Use the above meetings with line management to identify the: (a) interpersonal, (b) technical/job and (c) management skills for each level and job. The more line management is involved in developing the review documents, the more likely they will be to use them. Also, whereas the performance results (versus job objectives or duties) and additional major accomplishments sections of the performance review document should be open-ended and particularized for your company; the competencies and skills section of the document should be the key criteria upon which any computerized performance review system is selected after all of them have been identified and approved by top management.
Eighth, you should refer to the strengths and improvement areas section of the performance review document when you list the Development Plans for the upcoming performance review period. If the improvement areas in the current job are significant, the development should concentrate on them. When there are no major improvement areas, the development can concentrate on the next most likely job. In either situation, identify the training for any new job skill WITH the employee as it should be consistent with his/her job skills and career development whenever possible.
Ninth, the question of whether to include an overall performance rating has two different viewpoints. Including the rating allows HR to use the data for compensation purposes to ensure there is an equitable distribution of salary, bonus and stock dollars, while relying on the managers to give the employee informal feedback on a regular basis. Excluding the rating is used when the performance review document is utilized primarily for employee development purposes. The ultimate decision whether or not to use the overall rating is one that should be discussed with the entire top management team before the final decision is made. Whether or not you include an overall performance rating, do not connect any formal or informal performance rating to a forced ranking feature.
Lastly, at the end of the performance review period, the completed performance review document can be used as an evaluation tool for any salary, bonus and stock performance actions. In doing so, you directly connect the CEO and upper management to the real business value of the entire performance review process.
The above approach provides a pragmatic mid ground for the use of this important HR tool between those who want to use it so that it can have a material impact on the business and thereby help the CHRO become an equal business partner to the CEO, and those who want to see the annual performance review completely abolished because of some employee dissatisfaction with its current use.
The challenge for the CHRO is to gain line management support for the entire performance review process, its associated management training, and commit the necessary resources to implement it because, if he or she truly wants to be an equal business partner, this will help dramatically towards that end.