quality and measurement

Performance Appraisal and Finance: Avoiding the Hidden Costs

Performance appraisal costs a lot of money. A real lot of money.

First, of course, there's the time involved, from
  • Deciding the form and format to use...to
  • Identifying, with Finance, what the available budget will be for any associated salary increases or bonuses...to
  • Determining and coordinating the schedule by which the appraisal process will be executed across the enterprise...to
  • Determining how the salary and bonus numbers will be communicated to all levels...to
  • Training management in legal requirements and correct completion of the forms...to
  • Training (or at least, hopefully, guiding) employees in their part of the process...
...all of which (and more) finally gets you to the actual completion of the forms for every employee and then the individual meetings with each employee.

Okay, those are just a sample of the visible costs - because every minute that's spent on the appraisal process is time not spent on necessary productivity, customer support and profit and revenue generation.

Now let's look at the hidden costs - because those are exponentially higher than the ones you can see, track and manage.

As soon as your employees know that performance appraisal season is at hand, their attention has officially strayed away from their regular job duties and your organization's critical mission.

It doesn't matter what your mission is. Nor does it matter whether the employees are high fliers or low performers. They're distracted. And rightfully so.

Performance appraisal is rarely used as a positive, developmental tool - no matter how it's presented to the staff. As a result, employees are justifiably concerned about what, exactly, the appraisal is going to be used for.

More than that, they wonder how they and their performance are going to be presented to them by management. They believe they need to be prepared to respond to any information (or misinformation) they hear, practice appropriate responses - and, most important, they're going to speculate about why. 

Always remember: Your employees aren't stupid. You wouldn't have hired them if they were. That means that they're looking at any number of possible scenarios that the management team might be working toward or operating to - any or all of which will impact them and their families. Probably not well.

It's that distraction that gives you your first level of hidden costs - because all of that is taking place before you've even done the appraisal.

Next comes what happens after...and it's worse.

Your employees aren't going to be happy with the process, the verbal appraisal you've given them, the results or, particularly, their ratings - whether in numerical or word scales. If you've got any raises or bonuses attached to the process, they'll be even less happy with those.

On a practical level, what you're doing with the performance appraisal process (and, btw, you can call it '360 Degree Feedback,' 'evaluation,' 'review' or anything else - it's the same thing in your employees' eyes) is telling them what you think of them. And, if you follow the path of too many HR organizations, what you're telling them is that they're 'average.'

Sure, you appreciate their work - but it's average. And average people get average ratings. They also get average salary increases - if they get increases at all - and forget about a bonus.

It doesn't matter that your people live their work lives end-running all the management systems that keep them from succeeding to the extent they'd like. It doesn't matter that they've not been adequately trained. It doesn't matter that they have no idea exactly why they're being asked to do the work they do.

All of that comes from management. But, when it's performance appraisal time, what they see is that for all that they try from within the system to do what management wants (and needs) them to do - that same system is now telling them that they aren't very good at it anyway.

They're average.

What would you do? How would you react? 

And what does that dissatisfaction sound like throughout and beyond the enterprise - from hallway conversations to email, Facebook, Twitter and Whisper?

All of which makes your organization a less attractive employer...which further lessens productivity. It also decreases innovation and puts your competitive position at risk.

Performance appraisal as a developmental tool isn't hard. It just takes a shift in perspective and a commitment to a different, more holistic way of building your enterprise.

The faster you make the shift, the more quickly you'll see the results in productivity and profit improvement.
Please note that nothing expressed above constitutes legal advice.

Performance Appraisal: What Do You Do with Your "Lowest" Performers?

Depending upon whose account you've read, when Jack Welch ran General Electric, the company's performance appraisal policy was to fire the lowest 10 (or 15 or 20) percent performers.

All based on their performance appraisal numbers.

Welch's thinking was that, whatever that percentage was, those people weren't fulfilling what the company needed, so why keep them? Better yet, since all the employees knew that that would be their fate, they'd work all the harder to perform all the better all year round.

And because it was Jack Welch, organizations worldwide adopted the policy and applied it to their own organizations.

Big mistake.

It doesn't work the way he thought. In fact, his was bad and counter-productive organizational thinking on two different fronts:
  1. Most appraisal-related numbers, no matter how hard management tries, are arbitrary, and
  2. By letting those folks go, you're adding costs to and losing opportunities for your operations and organization.
Here's how I know.

Numbers are numbers - even when descriptive words are attached to them. But the numbers and the words are still being interpreted by the person doing the appraising.

Is a 5 the same thing to you as it is to the rest of your colleagues? How about a 2 or a 3?

Do you all define, perceive and understand the descriptors the same way? Do the descriptors apply the same way across departments? Divisions? Corporate headquarters or a remote location?

How do you know?

Whether you're management or a first line employee, you're going to interpret the number, the description and the performance based on your own frame of reference. Yours. No one else's.

And, let's be honest, if you're in management, you're looking at your employees' performance through the filter of how your particular function, department or division is performing. After all, their performance determines the way that your performance is perceived by your management.

Managers can be trained and trained and trained again on the categories and criteria of the performance appraisal process - and you're still going to find inconsistencies across the organization.

You can't help it. Numbers and their associated descriptors are perceived and interpreted. That makes the results arbitrary - because an employee who performs the same way for two different managers is likely to be rated two different ways.

Now let's take it a step further. If you follow our friend Jack's advice and get rid of the 'lowest' performers, you've just dumped a percentage of your organization that has knowledge of how things are done - and how to get them done. You've lost specific expertise as well as the networks that those employees have developed to end-run problems, obstacles and any other form of dysfunction the organization presents.

So what do you do with under-performing employees? You ask questions. For example:
  • Have they been trained for the job they're performing?
  • When did that training take place?
  • What did the employee think of the training?
  • What was presented particularly well? What didn't fit or work?
  • Do they understand what they're being asked to do...and why?
  • Do they think that they're using their greatest skills?
  • When do they feel they're contributing the most to the organization?
  • How and when do they demonstrate those contributions?
What you're looking for is how to best utilize the knowledge, skill and experience that that employee already has - and then build upon it, whether in your department or another.

The more you know about your employees' skills, the more you can access and utilize them across the enterprise. Sure, it may mean that you're moving folks around - or changing and updating job descriptions. But the more you use the people you have...letting them use their greatest strengths...the more positive a culture you're building - and that translates to increased morale, productivity and profits.

This is not to say that there are employees who shouldn't stay with the organization. In those cases - because you already know who they are - it's your responsibility as a manager to take the necessary action. That way you become a hero for those of your employees (and you, too) who have been living - day after day - with the difficulties the truly problem employees create.

It's a win all the way around.
Please note that nothing expressed above constitutes legal advice.

What do you do when the answer is no? 5 steps to a global win.

So Scotland voted. Or at least the registered Scottish voters got their chance to weigh in on their future. Happily, well over 80% of them did. Unhappily for 45% of those who voted, they lost.

The country they wanted to establish as an independent, self-determining entity will stay part of the United Kingdom.

Now what? What are the leaders across the UK doing to make this into a win for everyone? Even the ones who lost?

Nothing. Frankly, as was to be expected, they're doing a different version of making the same mistakes they made that led up to what was, to all intents and purposes, a Scottish Revolution.

As a result, even though for the moment they're going through various motions, the long term effect will be an even greater distrust, disconnect and undermining of Government than before. All thanks to the country's 'leaders.'

It's sad but true that in most cases leaders lose the opportunities they've just gained through mismanagement of what comes after a win. They underestimate the damage they're doing by taking their 'win' and leaving the losers behind...because they can.

That's a very big, very costly, always-to-be-remembered mistake...which makes the supposedly winning leaders the real losers.

Interestingly, while not on a world-map-changing level, this is a not uncommon occurrence in organizations every day. For example:
An employee brings forward an idea in a team meeting to solve a problem while their colleagues are nodding in agreement. You listen with, you hope, an interested expression on your face, while you think of all the reasons why not...
You have an open-door policy that one of your people takes advantage of to bring you new thinking. Even as you listen, you're thinking of the reports you have to finish or the emails you need to respond to from your colleagues or your customers or your spouse...
Your organization has adopted a lean/six sigma/quality improvement initiative that has teams forming and storming and norming all over the place, generating ideas, implementing pilot projects, presenting results to you in an approved format. As you give them the t-shirts, coffee cups and certificates in reward for work well done, you've decided to kill their suggested plans to expand upon their successes for time, cost or productivity reasons you're convinced will apply.
In every case, you had a win. You had ideas, innovation and participation. You had exactly what the business books - as well as business owners, executive teams, Boards and shareholders - want and expect you to create.

Yet, too many managers, executives and business owners mishandle what happens next after any number of forms of a win. As a result, they miss out on the opportunity to create success on a far greater scale than they otherwise imagined.

For you, that stops now.

Here are the 5 steps - in order - that you take when you're presented with the opportunity to create a global win:

1. Don't just listen. Hear.

One of the most valuable commodities you have - and compliments you can give - is the ability to really hear what your people are saying. To give them your full attention. Your focus. To let them know that you're fully present both with them and for them.

By doing so, you not only gain far more information than you previously had access to - now and in the future - but, without saying a word, you build a collegiality that takes the pretty-words concept of 'team' and turns it into an action.

2. Ask penetrating questions. Find out What and Why.

Your people have reasons for the information they're sharing. Whether it's a problem or a solution - or both - they have a logic to which they're operating that, most likely, is outside of or goes beyond your understanding of what they do. You want to know that reasoning. You want to ask questions about their logic. Instead of defaulting to "How?" you want to spend time and attention on the key, more penetrating questions: "What?" and "Why?"

By asking about the specifics that led to identification of the problem and/or solution, you're getting insight into exactly what they're dealing with on a regular basis. You go even further by asking them why those things are happening. Not with blame or finger-pointing - but, purely, as information gathering.

Think of it as a mystery that needs to be solved - with you and your people the ones who will solve it.

3. Make it a conversation. Create a shared outcome.

By truly hearing what your people have to say and getting at the more penetrating information, you've created a conversation. Now it's time to create a shared outcome.

That's where your position of power comes into play. You know things and have access to people and information that go far beyond what your team members have available. At the same time, they know things about how your organization really works - including the obstacles they confront and end-run every day - that you need.

Now's the time to take all the information and figure out - together - how to use it to its best advantage...for you and for them.

4. Determine how to generate as big a win for everyone as possible.

It's time to kick in your value chain thinking.

The biggest and best wins - no matter the size of the problem or solution or, for that matter, from how deep in the organization it comes - create a veritable tidal wave of success. But only when you consciously work your solutions as part of your value chain.

Internal and external to the organization, every action and decision has a ripple effect. From your choice of suppliers to your hiring/on-boarding/training processes to the IT systems you adopt, everyone who touches your organization from within or outside is impacted.

As you look at not only the problem and/or solution that's been brought forward - but, particularly, the what's and why's - begin to figure out what you can do to create a positive tsunami of impact for and with your senior-level counterparts within the enterprise. Don't forget to include your team members. They can positively work things cross-organizationally in ways that you can only dream.

5. Generate a plan with timelines, metrics and responsible parties - including you. Execute it.

You've got the right thinking. Now you take the right actions.

It's all well and good to talk pretty and make promises. The problem is, whether you know it or not, no one believes you when you do. That's because, whether from you or others, they've been taught that unless there's action - and your skin in the game, too - it's just a bunch of pretty words.

To make sure that that doesn't happen, figure out - together - how to create the win you've identified for everyone. Just as with any other project plan you put together, start asking questions like:
  • What are the steps? 
  • In what order? 
  • Who needs to be involved - within and outside our team? 
  • At what point?
  • How do we bring them in?
  • How will we know how we're doing at every stage?
  • What are the metrics we'll be using? 
  • Are they in place...or do we need new metrics and measurement systems?
  • Who will be responsible for ensuring that the data are up-to-date? 
  • What's the reporting structure?
  • When/How often do we meet to discuss how we're doing and next steps?
...and those are just the starter questions.

The key to this step is to make sure you're prominently involved - as first line of defense, creator of new relationships and possibilities, sounding board and more. The more they see you taking the right actions on your own and their behalf - so that they see you have skin in the game, too - the more and better they'll do for you. Now and in the future.