Balancing performance management conundrums

performance management-min

HR should focus its measurements and rewards on the unit through which the greatest value is created.  Focusing the measurement and reward systems on the wrong unit of analysis can demotivate, create confusion and make the whole less than the sum of the parts, writes Wayne Brockbank. 

Performance management is the starting point of much of talent management.  It serves as the basis for goal setting, measurement, feedback, financial rewards, non-financial recognition, promotions, leadership development, on-the-job development, and outplacement.  The purpose of this essay is to discuss three of the major decision points and trade-offs which must be addressed to have measurement and reward systems that are accurate and credible.  Given that rewards should be based on robust measurements, the essay focuses on measurement while suggesting some of the reward implications.

Weighing Output against Behavior
For certain types of work, it is easy to measure output but is difficult to accurately assess behavior.  Such is the case in B2B sales.  At the end of a week, either the salesperson met a sales target or did not.  For other types of work, it is difficult to measurer output but is relatively easy to assess behavior.  Such might be the case for a cabin crew attendant in Singapore Airlines.  On the other hand, for some work it is relatively easy to accurately evaluate both output and behavior.  Such might be the case for an assembly line worker.  For still other types of work, it is difficult to accurately assess either behavior or output results, at least in the short run.  Such might be the case for a research scientist.  Results might not be known for years.  At the same time observing the individual at work is not likely to provide much insight to value creation.  The classic example is the individual who was to meet Albert Einstein on a bridge and apologised for being late while Einstein waited alone on the bridge.  Einstein’s purported response was, “Not to worry. I have been working.”  Different companies even in the same industry must weigh output results versus behavior differently in assessing and rewarding performance.

For certain types of work, it is easy to measure output but is difficult to accurately assess behavior.  At the end of a week, either the salesperson met a sales target or did not.  For other types of work, it is difficult to measurer output but is relatively easy to assess behavior.

Unit of Analysis.
The driving question for this aspect of performance management is, “At what unit of analysis does the company create the greatest value?”  (Please excuse the sports metaphor.)  Is value created through individual effort as in tennis?  Is it through team effort as in ice hockey? Or is it through institutional effort as in baseball’s Money Ball?  Allocating a hundred points across these three units helps HR to know on which units to focus measurements, how to divide bonus money and how to allocate public recognition.  Are individuals rewarded for their individual effort?  Are teams reward for integrated teamwork that creates value?  Or are people rewarded for total organisational performance?  HR should focus its measurements and rewards on the unit through which the greatest value is created.  Focusing the measurement and reward systems on the wrong unit of analysis can demotivate, create confusion and make the whole less than the sum of the parts.

The driving question for this aspect of performance management is, “At what unit of analysis does the company create the greatest value?”

Power Curve or Normal Distribution
A currently hotly debated topic in the academic literature is whether to rely on the logic of power curve or the logic of the normal distribution.  Some argue that in most cases, a very small number of individuals create the overwhelming greatest amount of value.  Therefore, the great preponderance of financial rewards should be allocated to a small number of people.  Those supporting the normal distribution argue that in most cases there are a number of high performers, a roughly equivalent number of low performers and a large number in the middle.  Therefore, the bonus pool should be divided up on the basis whether an individual is an A player, a B player or a C player.  One way to assess which approach is best for your company is to ask the question, “What percent of your people create 90% of the value?  Is it a large number or a small number?” This question will frequently provoke a heated discussion.  The heat is provoked by a lack of consensus about how the company actually creates value.

One way to assess which approach is best for your company is to ask the question, “What percent of your people create 90% of the value?”

In order to design and implement an accurate, credible and performance inducing performance management system, HR professionals must bring their intellectual prowess and their deep knowledge of the business to address these issues.

Action Steps:
HR professionals need to determine the extent to which the measurement and reward systems will focus on the following:

  • The balance between output measure and behavioral measures;
  • The balance among individual, team and organisational measurements and rewards’
  • The balance between power curve versus normal distribution assumptions in measurements and rewards

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