9/21/15. Research Educa4on Solu4ons A NEW LANGUAGE FOR LEADERSHIP TRANSFORMING PERFORMANCE MANAGEMENT: AN ELI LILLY CASE STUDY

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1 A NEW LANGUAGE FOR LEADERSHIP TRANSFORMING PERFORMANCE MANAGEMENT: AN ELI LILLY CASE STUDY Research Educa4on Solu4ons Dr. David Rock, Director, NeuroLeadership Ins4tute Mark Ferrara, VP of Talent Management, Eli Lilly & Company 21 September, 2015 THREE PRACTICES HOW WE PARTNER 1

2 KILL YOUR RATINGS PERFORMANCE MANAGEMENT CONTINUUM Performance Scores No Performance Scores Forced Ranking Ra8ngs Based on quan<ta<ve results (i.e. 1-5) From: Judge Compe<<ve assessment Annual event Top down Individual contribu<on Significant paperwork Fixed mindset Overwhelming threat The line of courage Structured conversa8ons Guided conversa8ons To: Coach Coaching and development Frequent conversa<ons Shared responsibility Enterprise contribu<on Minimal paperwork Growth mindset Manageable threat THREE RESEARCH IDEAS TREND OR FAD? 1. Foster a Growth Mindset to encourage con4nual improvement 2. Minimize Threat to have candid and honest conversa4ons 3. Facilitate Insight if for people to posi4vely embrace change Fewer than five firms made major changes in large companies have radically altered PM 50-70% of firms considering major changes 2

3 REINVENTED PERFORMANCE MANAGEMENT Eli Lilly Performance Management Journey Helping people doing good work get even be8er Eli Lilly and Company Process Implemented January year old Pharmaceu<cal and Animal Health company Based in Indianapolis, Indiana 40,000 employees globally Values: integrity, excellence, respect for people Team Collected Data and Analyzed Agreed There Was a Problem Recommended Op8on to CEO Staff Gained Final Approval Assigned Dedicated Team to Implement Communicated Change and Trained EE s and Supervisors September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 11 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 12 3

4 Group Think Challenged Assump8ons Most organiza0ons approach performance evalua0on in the same way Supervisor does the evalua<ng Evalua<on at end of annual cycle (maybe mid- cycle as well) Ra<ngs of objec<ves, behaviors, competencies as well as an overall ra<ng(s) Inconsistent ra<ng formats Overall ra<ngs frequently made using a rela<ve scale Calibra<on sessions to help standardize and increase consistency Guidance given to induce differen<a<on/varia<on in the ra<ngs, typically targe<ng a normal distribu<on (o`en skewed high) Supervisor ra<ngs reviewed and ra<onalized at higher levels Supervisors can and will objec<vely rate performance Employee performance is normally distributed Performance ra<ngs mo<vate employees to improve September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 13 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 14 Difficult for Supervisors People See Different Things Review a year s worth of employee effort, behavior, and accomplishments Appropriately consider other factors that should and should not affect the evalua<on Boil this all down to one ra<ng that is objec<ve, fair, complete, accurate, and honest Factor into the ra<ng how this person s accomplishments compare to his/her peers Rate them using the same process, criteria, and standards another supervisor would September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 15 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 16 4

5 Normal Distribu8on? Engagement Most companies assume performance is distributed normally (Hewi8, 2004) This posi<on runs counter to predominant theories in psychology Recent research suggests the distribu<on may becer fit a power curve (O Boyle and Aguinis, 2012) Implica<ons: Most employees are below average Small group of elite employees contribu<ng dispropor<onately to the organiza<on s results A normal distribu<on may indicate a problem performance is being constrained at the high end It may be useful to dis<nguish two groups of performers: Elites and Non- Elites Deliver Ra8ng, Pay Adjustment, Bonus Jan Feb 15% 85% Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1 Illustra0ve September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 17 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 18 Summary Case for Change Five Tier Ra8ng System Company facing great challenges and opportuni<es; need to focus employees on highest priority goals Five- point performance ra<ng scale had become a distrac<on Employees want <mely and effec<ve coaching Employees do not feel valued for their contribu<ons We believe employees can grow and learn; PM process needs to support that belief Unsa8sfactory Low Successful Successful High Successful Exemplary Posi8ves to Maintain Process drives alignment Simple, rela<vely well understood Mechanism to reward top performance Mechanism to iden<fy low performance Documenta<on of expecta<ons, results, and decisions Nega8ves to Address Perceived unfairness in evalua<on of performance Employee engagement concerns Un<mely feedback, lack of coaching and support Perceived barriers to teamwork, collabora<on, and innova<on (e.g., compe<<on for ra<ngs) Lack of supervisor authority in the process September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 19 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 20 5

6 Op8ons No Ra8ng System Check Box e.g., did not sufficiently meet expectalons No Ra8ng Re- emphasized alignment of individual objec<ves to corporate Top to Bottom Ranking Rating Matrices Recommenda8on 6+ Ratings Today No Labels 5 Ratings 4 Ratings 3 Ratings No Performance Evaluations More frequent and quality conversa<ons between employees and supervisors Supervisor s<ll assesses performance. No labels are assigned, but mechanism to iden<fy and document those where improvement required Vast majority would receive 100% bonus. Small number of individuals with top performance would get an addi<onal cash award. did not sufficiently meet expecta<ons would receive reduced or no bonus Standard base pay increase considering pay posi<on, poten<al, and performance over <me Invested significantly in supervisor coaching capability for all supervisors, globally online and facilitator- led Increase supervisor authority by elimina<ng distribu<on guidance and discouraging performance calibra<on September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 21 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 22 Results Results Check Box e.g., did not sufficiently meet expectalons Pro s Addressed major issues well percep<on of fairness, engagement, more supervisor control, teamwork mindset, less bureaucra<c More frequent, ongoing conversa<ons resulted in fewer surprises at year end Empowered supervisors to be coaches, freeing them to focus on building trust, helping remove barriers and encouraging learning and growth Supervisor and employee can close out performance discussion at year end by focusing on highlights and key learnings Bonus no longer used as an addi<onal ra<ng; sense that we re all in this together Conversa<ons are more future focused No Ra8ng Con s Cost, effort, and change management Impact on other systems (e.g., sales incen<ves, staffing, succession management) Documenta<on of decisions more reliant on supervisors Some may not be as clear on where they stand Consistent feedback from global supervisors and employees that the process is simple and allows them to focus on our priori<es Emphasis on coaching has enabled real dialogue Eliminated walking on eggshell moments Less <me/effort invested on check the box ac<vi<es More focused on helping employees make progress on goals, learning, and growth September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 23 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 24 6

7 Results Recommenda8ons With this new process came a renewed focus on coaching and a number of tools to support both supervisors and employees to strengthen this partnership.empowering employees means truslng them to take inilalve, listening to their ideas, and being a good partner and enabler. Steve Fry, senior vice president, HR and diversity Just a quick note to say I love the new mypm process. Throughout the year I enjoyed the process being less formal and having the focus on conlnuous coaching..it feels great not having to painstakingly rate each leadership dimension and even be8er not reading pages and pages of PM s for each person. I have go8en hours of my life back while slll having great conversalons! going in I thought it was going to be overly socialislc, but awer working through it for the team, we have lost nothing on the opportuniles for quality discussion. What we have lost is all the extra work and owen disruplng frustralon of calibralons, spending a lot of Lme on why not this ralng, etc. Supervisors at Lilly CEO support cri<cal Have a strong case for change Dedicate people to implement Invest in supervisor training/employee educa<on Get the philosophy right for your company (e.g., to pilot wasn t right for us) September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 25 September 8, 2015 Company Confiden<al 2015 Eli Lilly and Company 26 THREE PRACTICES LEARN MORE Access further research and insights at NeuroLeadership.com 7

8 9/21/15 Research Briefings 2015 NeuroLeadership Summit - November 3-5 Bring a transformative learning experience in-house, with members of your team. Big ideas: Pick stars early & grow people faster Transition leaders better Transform diversity Create lasting change Topics: Breaking Bias Rethink Learning Neuro & trend research on: Performance management Diversity & Inclusion Compensation Transform Performance Management Build A Coaching Culture Neuroscience updates on: Empathy Persuasion Insight Behavior change Schedule Your Briefing Today: Visit Or [email protected] September Special Offers Institute Membership Access all Journal papers, discount to the Summit, exclusive webinars, 40+ hours of HD video and audio content, plus much more. Use promo code SUMMIT10" to SAVE 10% on Individual Membership. Register at NeuroLeadership Summit Upcoming Education Programs Certificate in the Foundations of NeuroLeadership Take a comprehensive dive into neuroscience research and theory and broaden your impact as a leader. The Virtual program begins Monday, November 9 November 3-5, 2015 in New York City Institute Members SAVE 10% on a Summit pass Learn more & register at summit.neuroleadership.com Register: neuroleadership.com/education Questions? [email protected] 32 8

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