A few years ago I had the great opportunity to work with a Canadian owned, privately held corporation which had hit a home run with the design and manufacture of an unique product which had taken its industry by storm. The company had grown quickly and substantially over the previous decade and should have been enjoying the fruits of its success, but there was a significant rot at the core of that fruit.
The success of the company had been won through the efforts of designers and the team effort it took to bring a manufactured product to market, but the reward and recognition system was absent. At the time I became involved, the company was experiencing an annual voluntary turnover rate in excess of 22% per annum. Exit interviews were exposing reasons such as weak and unmanaged – even abusive – behavior by various managers, no clear linkage of work effort or achievement to a defined reward system, and a number of other issues that clearly pointed to a lack of understanding of what the quid pro quo was for putting in a quality work effort. The company was unraveling from the inside out.
The new CEO, under whose auspices I entered the company, worked to several key principles, one of which was that he wanted to establish a work environment where performance mattered – to create a performance culture. And that is what we did. Over an eighteen month period we developed two systems to reward employees. The first system was a behavior-based system, where annual salary adjustments were made based on appropriate behaviors for that particular job. The second system was a management objectives system, which included a newly-introduced incentive bonus plan (rewarding members for achieving clearly-defined annual, individual and team objectives).
We immediately set about using the performance management system to identify good and poor managers, and quickly began removing the poor ones from the company. We introduced an accelerated first-line management development plan, which identified high potential non-managers for promotion into first-line managerial roles – people skills being the key criteria. Upon appointment, they were trained in the first six months of their tenure in three key areas: the basics of the supervisory role (nuts and bolts supervision), handling difficult communications, and an in-depth understanding of the company’s performance management system and its link to compensation decisions.
True, there were other projects we undertook to improve the overall quality of human resources management in the company, but those listed above were the key steps to creating the type of culture we had envisioned. Did it work? Well, after 2 years, our turnover rate began to decline, and by the end of 30 months on a rolling average basis, it dropped from its original 22% to 2.5%, and held steady. With the significant drop in turnover, we began to see significant improvement in workforce productivity, which got better year by year. Sales continued to climb, but costs dropped, so profitability improved significantly year over year. A conservative estimate of annual savings because of the lower turnover rate alone was more than three-quarters of a million dollars – straight to the bottom line.
Throughout my first five or six years with the company we clearly and continuously benefited from the steps we took to create and administer the performance management rewards system. Along the way, I observed a number of key factors for success on both the managerial and employee sides of the equation.
Top Five Tips for Management/Managers
- Establish a performance management system and create measures that clearly link individual and team performance to the higher level goals of the company.
- Communicate. Make sure all employees understand the system, the measures, the process, and then have a real opportunity to ask questions and get meaningful answers on how it works and what it means for them.
- Stick to the system like glue to paper. I guarantee that as soon as that commitment wavers, the system will fall into disrepute and disuse. A lot of good progress will unravel.
- Hold all managers from the top of the organization to first line accountable for using the performance management system fully, faithfully and with integrity. Build this accountability into the performance management system for managers, and rigorously hold them to account.
- Train managers in how to effectively use the system. Managers should clearly and in an applied way be able to understand how to use the system, how to apply it to manage both good to great performance (positive rewards) as well as poor performance (penalties).
Top Five Tips for Employees
- Understand the performance management system – what your goals are as an employee, what the rewards and potential consequences are, and how individual and team performance will be recognized.
- Be prepared to ask questions, and don’t stop asking if you are uncertain about how the system works or what it means in the context of your particular duties.
- Be prepared to discuss and negotiate your performance goals and targets, to ensure that individual performance metrics are understood and, most importantly, are realistic and achievable.
- Be proactive. Don’t wait for a scheduled review of your performance, particularly if you start to see things evolving which will compromise your ability to achieve established targets. You can hold managers to account for their performance management responsibility by having them give feedback and advice on how to improve.
- Be prepared. Do your homework before your performance reviews. Score your own performance where numeric targets are established, and have behavioral examples ready to present where there may be a behavioral evaluation involved.
Of course, there are a number of potential pitfalls to the success of a performance management system, and I can leave these to another time. But in my experience, a well-designed performance management system, coupled with a strong managerial commitment and scrupulous attention to proper use, can be hugely beneficial to an organization. Whether your goal is to achieve corporate objectives or increase profitability, rewarding and motivating your work force in a structured and purposeful manner is the best investment you can make.
About the author
Barry Bruce is an independent human resources consultant whose company, SOAR Consulting and Training Inc., provides human resources management support for small and medium sized companies in a variety of industries. His company also provides project-based, human resources system design and human resources auditing services. You can find out more about SOAR Consulting and Training Inc. at their website: www.soarconsulting.ca.