1 Using KPIs & Other Strategies to Boost Performance Mgmt. Performance management is crucial to the success of any business, particularly where pay for performance is concerned, but it s oh so difficult to translate that recognition into action. Companies have to track and measure the right things and make sure the metrics are top of mind across the organization. The measures have to be businessbased, of course, and reviewed frequently for relevance in today s churning, challenging times. Daunting? You bet! Performance management, properly applied, isn t easy, as noted in the Mercer Human Resource Consulting (www. mercerhr.com) article, Effective Performance Management Practices: Ten Ways to Improve Your Results, by Lori Holsinger and Colleen O Neill. The authors observe that too many organizations erroneously think they will have positive results by only concentrating on revising the appraisal form or copying the rating scheme used by a best practice company. While there may not be any silver bullet for performance management, Mercer has identified 10 steps that can help you maximize your organization s effectiveness on this score (see the sidebar, Mercer s 10 Steps to Improved Performance Management ). Where to begin? Looking at Mercer s list, PFP sees you have to find a way to make performance management part and parcel of business life not just something done each quarter or (heaven help us) once a year. That s why we were so pleased with a session at the recent Society for Human Resource Management (Alexandria, Va.; conference in Orlando this summer, Driving Business Goals Through KPI Measurements, led by Kim McCauley, former HR manager at Boston Beer Co. (BBC; Boston; www. bostonbeer.com), brewer of the Samuel Adams brand and others, who is now president of the consulting firm A Missing Link (Cumberland, R.I.; ; net; In her session, McCauley detailed a process for making performance measurement a vital, important part of business at BBC that seems applicable to many other companies. Not only does the process she described have the potential to address common performance management concerns, it also offers HR a chance to shine in a strategic way a compelling combination, in our view. The clout of key performance indicators (KPIs). According to McCauley, BBC had functioned as a highly entrepreneurial company since it was founded in It had no HR function until eight years ago and no budget until four years ago. It did recognize, however, that it was having trouble in the HR arena, specifically keeping enough feet on the street i.e., enough sales reps in place to keep business booming. And that wasn t the only area of concern. When McCauley performed a needs analysis, she concluded that managers had a difficult time understanding HR s role and how it could support business goals. Further, the company operated at an entrepreneurial pace, so goals and directions would change throughout the year. This inspired fire drill behavior, with which any manager in an entrepreneurial organization is all-too familiar. To reduce these counterproductive tendencies, BBC decided it needed a tool to help communicate consistent measurements that are identified as management focused. This tool would report on measurements that focus management s atten- Editor: Ann Podolske Managing Editor: Jane Troy 2 Publisher: Lee Rath Editorial Coordinator: Stephanie Mannino Executive Director: David L. Foster Design: David Allikas IOMA s Pay for Performance Report (ISSN ) is published monthly for $309 per year by the Institute of Management & Administration, Inc., 29 West 35th St., New York, NY Institute of Management & Administration, Inc. Internet address for subscription inquiries: Periodicals postage paid at New York, N.Y. and additional mailing offices. POSTMASTER: Send address changes to IOMA s Pay for Performance Report, 29 West 35th St., New York, NY ; Fax: Subscribers are invited to make periodic copies of sections of this publication for professional use. Systemic reproduction or routine distribution to others, electronically or in print, is an enforceable breach of intellectual property rights. IOMA offers easy and economic alternatives for subscribers who require multiple copies. Contact Randy Cochran at ext 640 for further information.
2 tion on the following hot spots : Decrease the average cycle time of all open positions. Provide timely feedback on performance. Publish and report on the CEO s focus points. No small order, but adopting KPIs in three crucial areas recruiting, retention, and relationships made it a reality. How KPIs are put together. McCauley outlined a three-phase process for getting this tool off the drawing board and into reality. An overview: Phase I: Identifying the CEO s needs. At this initial phase, the CEO and senior management were asked to provide: 1. Areas of organizational pain. 2. Understanding regarding their top three to five issues. 3. Three potential hot potatoes. McCauley offered the example of late appraisals. Some managers thought late reviews were acceptable because employees were paid retroactively. However, employees looked forward to their reviews, and when they didn t get this feedback, they began to question their importance to the organization and this created false impressions. For instance, a few employees left because they thought they had no career path at the company they d had no regular reviews which would have shown them otherwise. 4. Feedback on what McCauley and her peers came up with. Phase II: Gaining buy-in and partnership. In this phase, McCauley and her colleagues worked to gain senior management s support for creating measures and the tool that would present them. She used a number of strategies to get these tough customers on board. They consisted of: 1. Including them from the beginning. 2. Aligning measures to business needs cycle time, turnover trends, etc. 3. Making measures relevant to the goals of the senior management team. 4. Ensuring that the measures measure up. Key: Even when McCauley thought a measure senior management suggested might not be the best for the job, she used it over her own. Reason? Better to put their measures in place and let them see the shortcomings than to use measures they don t support. Plus: Once they see the measures miss the mark, they re more open to other possibilities. 5. Partnering at various levels. 6. Being authentic; using feedback to create ownership. 7. Meeting with senior managers for lunch or coffee on a monthly basis. 8. Courting the squeaky wheels, the managers who had the most to say about HR. To bring them on board, McCauley would ask them to tell her what KPIs they thought should be applied to HR. That worked like a charm. Phase III: Implementing and then revising, revising, and revising again. So informed, McCauley and her crew came up with the following framework for the tool: 1. Set the tool s objectives: Distribute it monthly. Use it during meetings to convey trends and raise Mercer s 10 Steps to Improved Performance Management Mercer Human Resource Consulting (www. mercerhr.com) has developed a list of 10 good ways to improve your performance management system, according to the article, Effective Performance Management Practices: Ten Ways to Improve Your Results, by Lori Holsinger and Colleen O Neill (go to the Mercer Web site for the full story). The 10 steps: 1. Reflect your organization s performance values. 2. Secure the commitment and active participation of your company s executives. 3. Find the relevant performance metrics. 4. Build in accountability hold managers accountable for performance feedback and differentiation. 5. Establish complementary roles and responsibilities for managers and those they manage. 6. Integrate performance management with other business and human resource processes. 7. Minimize the administrative burden of your system. 8. Provide the necessary training and communication. 9. Measure and track your results. 10. Don t rest on your laurels continuously improve your process. 3
3 issues. McCauley noted that when the KPI tool was first launched, she would present the results during monthly senior management meetings. One month, however, she had the managers read the results out loud. The effect was very powerful the managers paid attention to the data and provided feedback then and there that she had never received when she did the reading. Use it to frame all dialogue within the HR department. And it does, for the entire department was bonused on KPI. 2. Revisit its objectives and solicit feedback. 3. Make it easy to use, read, and understand. 4. Reinforce it as a reference avoid the CEO project of the month trap. To achieve these objectives, it became clear that revisions would be required though McCauley was a little overwhelmed by how many. She admitted to 25 drafts or more, but learned a lot from the process, including: 1. Use the feedback as a reason to revise; incorporate comments. 2. Incorporate best practices from other companies. 3. Use organizational expertise. Of course, revisions take time, and McCauley found out the hard way that it pays to: 1. Automate when possible. About six to eight months into the process, McCauley asked her associates in the HR department how much time they were putting into KPI. They told her about three days a week. Her reaction? Wow. She knew she had to automate, and fast, and explained that it doesn t have to SETTING AND MANAGING 2004 COMPENSATION Wednesday, August 13, :00-3:30 PM ET Join IOMA and our panel of experts for the very first look at merit pay increases for 2004 and how to handle next year s most problematic pay issues. Learn the forecast for average raises and bonuses across industries, size of companies, and geographic regions. Plus, get the strategies you need to control compensation costs and handle top management s main compensation-related concerns all in the convenient context of a 90-minute audio conference. DIAL IN & LEARN: How to handle the delicate issue of salary increases and bonuses in this tight economy; What your options are when paying for hot skills ; Techniques to motivate and increase productivity without relying on money; How your peers are coping with pay compression; The hottest low- and no-cost alternatives to merit pay increases. Plus you ll get the chance to participate in the Q&A session following the discussion! Don t delay sign up now for $249. IOMA subscribers pay ONLY $199. Register online at or call Please mention priority code PFPNL. be expensive an Excel spreadsheet was quite adequate for the purpose. 2. Revise on a quarterly or biannual basis not monthly. Monthly revisions reduce the reliability of your data, she warned. 3. Benchmark progress show how your data have evolved over time. The result? While McCauley thought from her discussions with managers and top management that the KPI had buy-in galore, she realized two months after it was launched that nobody looked at it. That was the impetus for another major revision. First, she polled key managers to see what they read and what they didn t read, and asked what she could do to make the tool more compelling. The feedback: A few of her metrics were too difficult to follow. One she thought was a simple formula that represented the revenue lost for every sales position that went unfilled wasn t simple enough. In any case, the managers only wanted to know how many positions were open that month. One manager asked for a custom report that only presented a few metrics. She gladly complied and told attendees one of the most powerful statements she could make during such discussions was, Sure, we can do that. But McCauley didn t stop there. She wanted to give the company s managers a little more than they asked for. For example: When the managers requested data about turnover, McCauley also gave them a list of the top five reasons people left the company. At last, a payoff. The revise, revise, revise approach has borne a good crop. While the final (for the moment, anyway) version is proprietary, happily, some of the results are not. In the two years since the first KPI was launched, McCauley reports the following benefits: A 180% increase in internal promotions. A 75% reduction in perceived career development turnover. An 82% reduction in late appraisals. While McCauley admits that KPI didn t do all this, it did open the eyes of executives and managers as to what was going on. Furthermore, she told attendees, a KPI mea- 4
4 surement can shed light on the entire performance management process. As PFP has reported here as recently as last month (see How to Overcome Fear of Feedback in Your Company, PFP July 2003), managers often avoid having the hard discussions with their charges. KPI measurements such as average performance rating, average percentage increase awarded, and number of employees ready for the next role shed light on any performance management avoidance. For example: Managers could claim their business units aren t reaching goals due to lack of skill, poor performers, or people not getting it, but the KPI measurement could show average performance ratings, average merit increases, and several employees ready for the next role. KPI aligns the different aspects of the HR function and ensures that recruiting, payroll, employee relations, and other parts of the company are getting consistent messages. That s the beauty of a KPI it pulls it all together, McCauley told the audience. Last but not least, she reports, KPIs opened eyes to everything that HR touched. Or, at least, it reduced the ambiguity of HR s role. There are limits to what KPI data can do, however. We [in HR] fell in love with data... we loved it a little too much, McCauley said. Sometimes managers would call to talk, and all they d get back was data. Data don t provide color or context. You can t measure the impact of a sexual harassment claim on morale with a KPI, she explained, nor can you measure the impact of an employee getting a 2.1% increase when he expected something in the 6% range right after he turned down a competitor s job offer. Dealing with such issues takes a different set of skills and tools. Conclusion. Any organization, not to mention HR/compensation managers overseeing PFP programs, would benefit from a tool that helps communicate what matters so consistently and powerfully. While KPI certainly won t solve every issue you need to address, it can undoubtedly help you and your organization make performance management live in unexpected and profitable ways. Here s How Avis Now Tries Harder to Reward Employees One good way to keep employee morale up in both good times and bad, PFP believes, is via a well-conceived recognition program. In fact, employee recognition does more than just satisfy workers, as Avis Rent-A-Car has learned since beginning a systemized rewards program. Recognizing and rewarding employees can also improve a company s bottom line by increasing retention and decreasing voluntary turnover. And this could be particularly important now because, even if the stock market continues to show signs of life, budgets remain tight, and HR/compensation managers, having little money to provide financial incentives, must be creative. The success of Avis s rewards program has won approval from workers responding to employee surveys, said Lauren Orsini, HR manager, employee loyalty, Avis Rent-a-Car System, Inc. ( It has also prompted management to adopt other HR programs. Orsini discussed the rewards program and its results in a session at the recent IOMA Human Assets Conference in New York City. Survey-driven program. An Avis survey of employees in the late 1990s showed a number of them feeling unappreciated for doing a good job. This led the company to partner with the O.C. Tanner Co. (Salt Lake City) to create a recognition program. The first version of the program, rolled out in 1999, was based on a fairly simple idea: Managers nominate workers for various awards they can use to purchase gifts, keeping records of both the nominations and the awards granted. Along with their rewards, employees also receive a thank-you card from the manager and a certificate acknowledging the specific good work being rewarded. Largely because of the support of the CEO, said Orsini, the program was successful from the start. It calls for direct reports, area vice presidents, department heads, and country managers to sign 5
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