Improving on the Performance Assessment Systems - Some personal notes

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1 Improving on the Performance Assessment Systems - Some personal notes Tony GIBEILY Professeur à la FGM Introduction: The managers of our organizations 1 are fully aware of their need to follow up on and appraise the performance of their people, though some of them keep on doing it unsystematically, and to large extent subjectively, jeopardizing thus the results of their exercise and demotivating sometimes their people. The purpose of this paper is to briefly revisit the performance appraisal issue and stress on the need to carry it out systematically, as well as to propose some practical tools I had the chance to develop for some local companies. Importance of the Performance Assessment: Performance Appraisals (PA) are essential for the effective management of people and for their evaluation. They help employees develop as they help them improve their business practices and, when needed, redirect their goals and objectives. They also enable management better monitoring the performance of people against the standards of their business, better deciding on work delegation, better handling people empowerment and succession plans, as well as determining their people training needs and development. In fact, when properly done, PA can accomplish many good things: Seniors get to know better their people and their tasks Serious issues can be pinpointed, addressed and resolved before they become critical Company s priorities, goals and objectives can be fairly well redefined when needed Relationships between seniors and employees are fostered and improved on Seniors get to better support and develop their assistants Training needs are set more effectively Confusions and misunderstandings among people and management are better understood and resolved and many other things, especially helping the organization fairly rewarding its people for their performance, a crucial issue as, only things that get rewarded get done: "You get more of the behavior you reward. You don't get what you hope for, wish for or beg for. You get what you reward - ( Leading on the Edge off Chaos", Emmet C. Murphy and Mark A. Murphy, 2003). 1 Lebanese companies and regional ones alike. 1 P a g e

2 PA relationship with MBO: As shown in Figure 1, the relationship between the PA and the Objectives is evident as the latter are the yardstick of the achievement that individuals are to attain so as to permit the company attaining its Goals, at a time the correlation between the Employees Objectives and the Company s ones are to be secured if a win-win situation is to be obtained to benefit both parties. Figure 1: The relationship between MBO and PA Place of PA in the Management Wheel: PA is part of the Control Function as shown in the following Figure 2. It helps Seniors Controlling the outcome of their Directing (it tells them, for instance, to which extend their directives have been understood and followed up, and it lets them know it these were addressed to people capable of carrying them out or not) and assists management in the Planning process as well (it helps it determining the training/ development needs for people and the need for eventual new recruits). 2 P a g e

3 Figure 2: Place of PA in the Management Wheel Place of PA in the overall Organization Development: As outlined in Figure 3 2, PA is an integral part of the Organization s Development which it influences through its feedback on the capacity of people in fulfilling the responsibilities and tasks that are allocated to them. It also affects it through its impact on the career and successions plans, which condition the organization s development as well. Figure 3: Place of PA in the Organization Development The need for a System: PA can be done candidly and informally, and often is in small to medium sized organizations. However, it would profit using a system as in its absence PA would be done very likely in a subjective way (which would prove inefficient and would create demotivation and relationship problems). For the system to be effective, it has to secure many things, and among them: Let Appraisees: 2 Where TDM are the Task Distribution Matrices that distribute the tasks among the various positions of the organization and the FCA are the Financial Commitment Authorities that allocate the financial authorities among the same people. 3 P a g e

4 Know that their individual performance matters (and won t go unnoticed), and that their progress and development are taken seriously Know how well they have achieved what they were meant to do Determine what they have to do better in the future Get the rewards, development and promotions they deserve. Help Company: Make people accountable and know that their status, remuneration, development and promotion depends on it Book time on one-to-one basis for both seniors and assistants to address important work related issues (performance progress, degree of fulfillment of goals/objectives, appropriateness of work processes, team collaboration, training and development needs ) to identify what can/should be done to correct problems and enhance performance Control the success of its recruitment and induction practices. A PA system may come in many types that are not mutually exclusive: Informal meetings vs. formal ones Ad-hoc vs. periodical Comprehensive vs. partial Counseling vs. evaluation meetings Skills vs. job related Irrespective of above, the PA system has to engage in a fair, structured and consistent manner the discussion, the examination and the evaluation of the performance of the subordinates by their Seniors with a view to identifying gaps between their actual performance and their planned one (identifying appraisees weaknesses and strengths as well as opportunities for their improvement and development). The system would beneficially be used also for the assignment and justification of rewards and penalties. Moreover, PA should be managed as an ongoing process as employees require frequent feedback. Because of that, organizations are encouraged to handle mini appraisals (monthly or quarterly) pending the full appraisal sessions (that are frequently handled annually). Some Sheets that can beneficially assist the PA system: PA systems vary substantially from an organization to another depending on its business, size, managerial capabilities and experience in the PA. However, the following three proposed sheets can be beneficially used: 4 P a g e

5 The 1 st sheet assesses in an overall manner the goals, objectives, plans and budgets set for the employee and their degree of attainment. It also pinpoints in a descriptive manner the major achievements and shortfalls of the employee for the period. SAMPLE COMPANY Date: Period covered by the Appraisal from to Last appraisal date: Name: Position: In position since: Appraiser's Name: Position: Page 1 / 3 Brief Statement of the major duties / tasks position is entrusted with: Pre-agreed upon Goals, Objectives, Plans & Budgets for the period & degree of attainment: Goals, Objectives, Plans & Budgets % Annotations Major Achievements for the period Major Shortfalls witnessed during the period Special Observations: Sheet 2 appraises the performance of each employee based on preset criteria the employee is to be aware of at the beginning of the period so as to use them as a guide for employee performance. The criteria the sheet covers are to be weighted and would vary by kind of job and by hierarchy level. Some of them would be common to a category of jobs while others would be specific to the job the employee is holding. Though, whenever possible, objective criteria should be used and linked as much as possible to the performance drivers of the job, flexibility should better be retained to avoid rendering the assessment a very mechanical work, which would then leave no room for the senior who is handling the assessment to interact with the appraisee. 5 P a g e

6 SAMPLE Co. SALES PERSON Date: Period from to Appraised Person: Page 2 / 3 Criteria of Assessment Assessment over Weight of criterion Relative points Observations (Use additional notes if needed) Suggestions for Improvement Appearance and poise 2 Knowledge of languages 2 Loyalty and inspiring confidence 2 Team spirit 2 Personal Development 2 Assistance of other people 1 Proper preparation of sales calls 2 Administrative capabilities 1 Respect of Co's rules & regulations 2 Effective response to reporting and analyses 1 Respect of Superiors 2 Knowledge of Products 2 Kowledge of Competitors 2 Knowledge of Clients 2 Marketing orientation and ideas 2 Attainement of Sales Budget 6 Thoroughness in following up on receivables 3 Support of new products 2 Sufficiency of obtention of new Clients 2 Acceptability of Lost Clients 2 Satisfaction of Clients 5 Acceptability of Goods returns 2 Time spent on market 1 Time spent in Company 1 Overall opinion of his/her Senior 3 Overall opinion of Management 4 Overall opinion of Colleagues 2 Pre-agreed upon focus for the period: (Focus..) 5 (Focus..) 5 70 of 10 Total Points secures: Out of a Max 700, representing: Sheet 3: Based on above 2 sheets, this sheet is established to document the overall macro appraisal of the employee and to annotate the corrective/ improvement actions the appraiser agrees on with the appraisee for the coming period. 6 P a g e

7 SAMPLE COMPANY Name: Page 3 / 3 Date: Overall Appraisal based on previous 2 pages Observations / Remarks of Appraisee What Agreed upon Actions to undertaker by Appraisee for coming period Why When Needed Resources / Support Special Observations: Appraiser's Signature Appraisee's Signature Management Comments What to watch for when performing PA: Many issues are to be considered when performing a PA, and among them: Management expectations should be well understood by Employees Employees performance should be well linked to the organization s overall one and to its Business Plan Performance criteria and activity targets are to be set at the beginning of the period by Management with the consent / commitment of Employees Performance criteria should be explicit and their measurers identified whenever possible Achievements should be followed thoroughly across the year and improvement triggers addressed promptly Performance targets should be reviewed in the course of the year whenever there is a need for it PA should be done in a transparent manner and its results should be done objectively by Seniors and discussed with Employees The feedback system is to inform the appraisees about their performance and should also permit the appraisers getting feedback about work conditions, job problems and other related issues Bonus should be paid soon after assessment. While performing the PA, the appraiser needs to watch the following as well: 7 P a g e

8 Encourage Discussion and allow appraisees to challenge the appraisal done by their superiors. They would then accept more the PA Perform the appraisal in a positive manner: Make sure that employees know that the purpose of the PA is to help them improve and to reward their performance, more than to reprimand and punish their short performance. Use PA to mutually adjust set objectives, rebuild processes Find ways to let the appraisee accept the negative feedback and resolves to improve. If not, chances are high that the performance of the appraisee is unlikely to improve and may deteriorate even further Avoid facing up employees directly with criticism. Instead, let them retrace the poor performance they went through calmly and with evidence on hand Appraisers should support their assessment with specific and clear examples and should avoid generalizations Appraisers should focus on job-related behaviors and attitudes, not on the personality of the appraissees Appraisers must address the whole appraisee performance and not only their job skills When PA is done, agree with the Employee on what they have to accomplish for the coming period and what would count most for their future appraisal. The Process PA has to go through to succeed: The process the PA has to go through should follow the following steps: Preparing the turf: material, reports and other things relating to performance and to the job of the appraisee (job description, plans and budgets) Informing the appraisee of the PA time, place and process Opening the session with the aim of agreeing on the objectives of the meeting and the process, and putting the appraisee at ease Carrying out and documenting the session Assessing the performance and agreeing on the action plan Setting targets for the coming encounter Agreeing on support and training needs Finalizing the session and positively closing it. Above process would optimize the chances of the PA system to succeed, though however other issues can cause it to fail, and among them: Absence of support of Top Management Tendency for appraisers to make their subordinates look good Lack of proper preparation of the PA Insufficient participation by the appraisee in the preparation of their goals and development plans. 8 P a g e

9 Often enough, the PA doesn t work out of insufficient preparation by the appraisers and the appraisees, more than the inadequacy of the system. The issue of the 360 degree appraisal: The 360 degree appraisal is a quite powerful approach, though it is not meant to replace the traditional appraisal. Here, the employees are asked to appraise themselves as well as (anonymously or not) they are appraised by their seniors in charge, their colleagues and their assistants. The purpose of this approach is to give the appraisees a better picture of their performance through the feedback of their colleagues and assistants, over their own assessment and their supervisors. The need to assess the one-shot jobs separately from the repetitive works: The assessment the seniors need to carry out should comprise the repetitive works the appraisees perform as well as any other one-shot job entrusted to them during the period (such as projects). Each of these non repetitive Tactical Actions could beneficially be appraised by a separate assessment sheet like the one proposed below (sheet 4), and the Tactical Actions entrusted to each appraisee could be summed up in a consolidation sheet (sheet 5). Sheet 4: Tactical Action Sheet 9 P a g e

10 Sheet 5: Control Sheet of Tactical Actions by Appraisee The need to be able to measure what is being assessed: All PA systems are inert, and their effectiveness will stem from their capacity to trigger prompt and proper corrective actions to the best of the capabilities of the organization and in conjunction with its Strategy and Objectives. To be effective, the PA system should, as much as possible, manage the Business Drivers and not the Results, i.e. it should, as much as possible, translate the Strategy of the organization into a measurement system. Though such a system may emphasize on the Financial Objectives, it needs to include the Performance Drivers of these objectives. The usage of Financial Ratios would prove then helpful as they address many basic questions, such as: How is the profitability of the organization going? How does its solvency stand? Is it properly using its resources? How does it compare to yesterday, to budget, to industry The basic types of financial ratios are the following: LIQUIDITY RATIOS: measure the company's ability to meet its short term obligations and assess its solvency GEARING / LEVERAGE RATIOS: measure the extent to which the company has been financed by debt ACTIVITY / EFFICIENCY RATIOS: measure how effectively the company is using its resources 10 P a g e

11 PROFITABILITY RATIOS: measure the management overall effectiveness as shown by the returns generated on sales and investment. They aim at helping assessing the ability of the organization to earn profits and sustain growth, on short and long term basis. Moreover, the performance drivers are also to be analyzed. For example, and referring to the DuPont Model (developed 1914 by F. Donaldson Brown), instead of assessing the Return On Investment as being the Net Income divided into the Total Investment, this performance indicator could better be set equal to Earnings As a Percentage of Sales (an operating performance indicator) multiplied by the Investment Turnover (a structure indicator) as per Figure 4, where each of these two performance indicators can be split down into its basic constituents. The usage of Financial Ratios is valuable when properly used as they permit comparison between periods and permit thus trend analysis and benchmarking against industry averages. They snapshot the organization, give useful insights and may trigger red flags Despite their relevance, Financial Ratios may face many problems as they have no financial theory standing behind them and as such their values should be tested over time. They in fact give no answers, but help raise questions and don t tell much about the future: A Ratio holds little meaning on its own merit. That s why a sound financial analysis calls for the use of several ratios that need to be handled in a bundle Year-end balance sheet figures don t account for seasonal factors. That s why averages are needed 11 P a g e

12 They use financial data. As such, their worthiness depends on the meaningfulness of the used financial figures. Examples: receivables need to be properly provisioned for doubtful accounts, change in accounting policies should be taken into consideration Financial figures don t tell the whole story and can sometime be misleading. Examples: (1) the organization s results improved because Clients service was reduced at a time such can impact negatively on future sales, (2) manufacturing focused on high turnover for the period while product development was neglected To deal with above shortfalls, the organization should cope with the Balanced Scorecard (developed by Robert Kaplan and David Norton): a performance measurement system that, over and above the financial measures, monitors also customer, business process, and learning measures in conjunction with their alignment with the organization s Strategy as per figure 5. Figure 5: The Four Perspectives the Organization s Strategy (and Vision) is to be translated into As per the model, for each of the four perspectives of the performance indicators, the Objectives, Measures, Targets and Initiatives are to be established and followed up on for an effective performance management (Figure 6). 12 P a g e

13 Figure 6: The Four Perspectives of a BSC A word of conclusion: Of course, one of the major concerns of any organization in assessing the performance of its people is to secure them equitable pays commensurate with their output and development and to monitor their promotion. Performance assessment needs to be fair, defensible and accurate to serve its purpose as if not their implications can prove harmful. They are however of a paramount importance to any organization because of what we can call the Matthew effect : "To him who has shall be given, and he shall have abundance: but from him who does not have, even that which he has shall be taken away". Moreover, needless to stress on the fact that, no matter how hard employees strive to improve, their performance will be marked by their past performance assessments. For that reason, organizations need to find ways to help past bad performance improve through counseling, training, mentoring and close positive repetitive monitoring. 13 P a g e