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Many companies run the risk
of under performing because they do not pay sufficient
executive attention to the design and management of the
individual performance management system.. Typically,
such companies view performance management as constituting
a performance appraisal and do not make the explicit link
between the on-going management of business performance
and that of the individual staff member. Even worse, they
delegate the whole matter of managing individual performance
to the Human Resources function under the mis-guided belief
that it is a "people" issue. The Human Resources
function usually responds by lavishing ,at best, the very
latest people technology on developing a solution and
at worst, creates a new administrative bureaucracy that
is quite divorced from the business. In both cases the
result can be devastating for the business performance
of companies of whatever size and financial health. The
core reason is that by handing performance management
to the Human Resources function the company is abandoning
part control over the performance of the business to a
function ill-equipped, even with the best intentions,
to make the required contribution.
Managing individual performance lies at the heart of the
management task and in inextricably linked to attaining
given business goals. Consequently, the line executives
must take accountability for the design and management
of the full performance management system taking inputs,
as will be required, from a multiple set of disciplines
including Information Technology (e.g. a PeopleSoft or
SAP ERP), Business Intelligence (for slicing and dicing
business information relevant to targets) and Human Resources
(for design features related to maximising goal oriented
individual behaviour). Only then will the company have
a fighting chance of aligning individual performance with
business performance.
If management abdicates its role to the Human Resources
function it will find a system rich in people concepts,
poor in business alignment and threatening to the future
health of the company. Take the penchant of Human Resources
functions for developing competency sets for all jobs
throughout the business and then using them to drive performance
management. In effect what they are doing is hard wiring
fixed, questionable behaviours into the business. Fine,
if the business environment is stable and unchanging over
long periods of time. Very dangerous if change is the
order of the day as is commonly the case. Consider the
impact of this on the performance management system and
ultimately the performance of the business. Competencies
are drawn up and place in the performance appraisal process.
A rating scale is devised to evaluate the individual's
performance. Usually, the scale is behaviourally anchored
around descriptors such as; Less than Competent, Competent,
More than Competent or a variation on this theme. The
individual is then evaluated against the descriptors.
To no one's great surprise the vast majority of staff
are rated as Competent or above. The rating is then used
to drive so called "pay for performance" annual
increases. As most staff are Competent or above it follows
that most staff are awarded Average plus salary increases.
The problem, however, is that the rating scale describes
Competent performance but it does not describe Competitive
performance. A company full of Competent people does not
necessarily make for a high performing competitive company.
The company now has a situation in which;
Distorted messages are sent to staff on performance standards
Individual's are over rated while the company under performs
Salary increases are mis-allocated.
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1. The result is a less than competitive company that
pays out more than it should on salary costs and consequently
enters a downward financial spiral that could end with
its demise or takeover by a competitor.
How does the company fix this problem? With difficulty
and with pain. The best way is to move from the central
idea of a fixed competency set anchored to a fixed rating
scale. Business is dynamic and requires a dynamic performance
management system. The answer, as practised by General
Electric, Standard Bank and the likes lies in the concept
of the "Vitality Curve" much promoted by Jack
Welch. The concept is simple, powerful and capable of
making a dramatic impact on the performance of the business.
It replaces Rating performance with Ranking performance.
By all means continue to use the competency approach if
wedded to it but at the end of the day when it comes to
pay replace rating with ranking. The Ranking approach
requires the line manager to place the performance of
an individual , relative to his peers, into one of several
comparative categories. These categories usually capture
performance that ranks as being in the Top 20%, Middle
70%and Bottom 10%. Other variations on this theme are
possible depending on how clearly the company wishes to
differentiate performance. The bite comes when the categories
are married to a steep reward curve such that the Top20%
receive high rewards, the Middle 70% modest rewards and
the Bottom 10% no reward at all. In fact the idea is to
exit the Bottom 10% and replace them with relatively higher
performers.
The essential effect of the Vitality Curve is to ratchet
up significantly the overall performance of the individual
by making the individual use his/her competencies to out-perform
his peers by delivering real, tangible superior results.
This is quite a different situation from the one in which
the individual was invited to perform against a set of
static Competence descriptors. Further, competing against
peers serves to raise the performance bar for everyone.
No one can opt out and coast as was the case with the
rating approach.
The Vitality Curve is not, of course, without its critics
and it certainly does have its downsides. But in the hands
of experienced practitioners, such as PenLion, there is
nothing to beat it in turning around the fortunes of companies
that have become bloated and are performing sluggishly.
PenLion has experience in designing and implementing the
Vitality Curve approach and has conferred with FORTUNE
500 companies from across the globe about their similar
experiences. |
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