Five Performance Management Strategies That Actually Work
Twelve months has rattled past. It’s annual appraisal season. You’re racking your brains to remember what happened last year. You trawl through your diary and emails, searching for anything that will justify an A-Player rating. Meanwhile, your manager does the same. Neither of you can come up with anything meaningful. It’s going to be yet another exercise in box ticking. Then, your appraisal is shelved and forgotten about for another year.
Sound familiar? I often wonder why annual appraisals became the most popular performance management strategy. It’s always puzzled me. I’ve yet to find evidence that they work to improve performance, which I am told is the aim.
Effective performance management is about so much more than this. It should be future-looking and focused on ensuring team members are happy, engaged and working towards company goals. Not a retrospective conversation that’s bogged down in what you did seven months ago. Who can remember the details of that?
So, if annual appraisals don’t work, what are the more successful performance management approaches that do?
1) Focus on objectives and metrics
Management by objectives started in the mid-1950s with Peter Drucker’s work. It began the trend for annual objectives linked to performance. Many companies try to make their goals SMART (Smart, Measurable, Achievable, Realistic and Timely). I have a real problem with the ‘ART’ bit of this.
There’s so little ambition in the words, ‘Achievable, Realistic and Timely’. These goals aren’t moon shots. Or stretch goals. It all sounds very 1980s.
It’s far better to make goals and metrics ‘FAST’ (Frequently Discussed, Ambitious, Specific and Transparent). A quarterly rhythm is more effective than annual as it builds more significant momentum. FAST goals speak to daily huddles and weekly team meetings. Because they’re ‘Frequently Discussed’, goals are embedded in ongoing review, helping people to allocate resources and make critical decisions, keeping staff focused on what matters and linking to concrete goals.
They’re ‘Ambitious’, meaning difficult but not impossible. A benchmark is to make them 70% achievable. But there needs to be stretch built in. And if you just miss hitting the target? Then, it’s not a failure. Make a mental shift to recognise the close runs as much as the achievements.
It’s like setting yourself a new PB when you’re running. If your goal was 2 hours and you come in at 2 hours 15, celebrate how close you got and then do a retrospective to work out what you could have changed to hit your target.
‘Specific’ is about clarity in what you expect team members to do. Use KPIs as a metric and make clear the minimum standard you’re going to measure. Do this daily.
‘Transparency’ means goals for individual team members need to be shared. From experience, I know if you’re having a tough day in sales, it’s reassuring to hear that other team members are faring better. And there are some great tools for sharing data – technology that will give your teams the score in real-time.
2) Provide continuous feedback
This is vital for effective performance management and should be done daily. I always recommend daily huddles to our clients – they take only 10 minutes but will save you an hour. ‘What are you doing today that will have a meaningful impact?’ ‘Where are you stuck?’ ‘Did you do what we agreed yesterday?’ These critical questions should be asked every day without fail.
We also recommend weekly check-ins for all staff. At the very least, these should be fortnightly. Anything less than that, and you’ve deliberately decided to have a performance management system that doesn’t work for your employees. If you feel there are too many people to do this, then your span of control is too big. And if you don’t like doing it, you shouldn’t be a manager. End of. This is what you owe your people. It’s what it means to be a servant leader. You should be a sole contributor if this doesn’t sit comfortably with you. Resign now from your management position.
Gallup says that 75% of team member engagement comes from an individual’s relationship with their manager – that’s huge! So it follows that every one of your managers needs to be an A-player. This is the number one point of leverage that will help you scale your business. From the Executive Team down – all of your leaders should be As.
And here’s the thing. Leaders can only be an A if their team members are also an A. It’s amazing the shift that happens when managers realise this. Their whole purpose is to coach their teams, and this is what they’re measured on.
3) Align with organisational goals
This is why OKRs (Objectives and Key Results) are among the most successful performance management strategies. They are linked to the overall goals of the business. In fact, with our clients, we cascade them through their strategy.
Starting with the BHAG and purpose, we have a 10 to 25-year horizon. Then, we bring it back to the next three to five years (the time frame over which we expect the business to double in size) or even one year if the growth is 100% yearly. Within that, we work out what OKRs we will drive for the next 12 months and then divide this into quarters, looking at what would constitute meaningful progress in the next 90 days.
Once this framework is in place, individual OKRs and KPIs are linked to the overall goals. We use the Target Operating Model and Accountability Chart to show clearly who is responsible for what and how they will be measured. Everything is aligned.
4) Recognise, analyse and reward strong performance
What’s the number one thing you can use to measure competitive advantage? My bet is net profit before tax. You have a sustainable competitive advantage if yours is better than your competitors. Therefore, I like bonuses to be linked to profitability.
In his book ‘The Great Game of Business’, Jack Stack analyses ways to align incentives and recognition with critical results. He bonuses the whole organisation on profitability. And then pays this quarterly rather than annually. Annual bonuses are too far into the future. No one will change their behaviour for an incentive that’s a year out.
Stack recommends setting an annual target and dividing the bonus as follows: 10% in Quarter 1, 20% in Quarter 2, 30% in Quarter 3 and 40% in Quarter 4. Quarter 1 is probably in the bag due to work in the previous year, but the 10% payment is enough to keep people interested. Then it’s cumulative, so if you miss one quarter, you can catch up and get it in the following one. The beauty of this approach is it incentivises the whole company to work together to achieve the key results.
The quarterly approach appeals to me, with bonuses always at most 20% of total take-home pay. There’s random recognition built in, too, which is so much more effective. Unexpected and frequent celebrations of success, random parties, gifts or time off as a reward are all great ways to motivate and improve team performance.
5) Coach underperformers and hold them accountable.
Navigating underperformance is a crucial element of successful performance management. Start with clear expectations. I will always point you towards the first foundational question of the Gallup Q12 staff engagement survey: ‘Do you know what’s expected of you at work?’ Only 34% of Americans can answer this as a 5 out of 5. As a baseline, you want 75% of your staff to give this the highest rating before you even move to the rest of the survey.
How do you clarify expectations? Job scorecards. Every staff member in your organisation should have a set of KPIs linked to this, three to five for each role. Then, they need to be coached to meet your minimum requirements. You and your managers will know what excellent looks like in the role and how to rank A, B and C-Players. No grey areas. It’s crystal clear to everyone what needs to be done to maintain a B+ or A ranking. And big decisions need to be made about anybody who consistently tracks less than this.
Successful performance management rests on the simple principle that ‘what gets measured gets done.’ The best performance management approaches create a cascade of goals and metrics, from top-level strategic objectives down to the daily activities of frontline employees. Your managers should continually monitor those metrics and regularly engage with their teams to discuss progress in meeting the targets. Good performance is rewarded; underperformance triggers action to address the problem.