Set Meaningful Employee Performance Measures Set holistic measures

Set Meaningful Employee Performance Measures Set holistic measures to inspire employee performance. Mc. Lean & Company is a research and advisory firm that provides practical solutions to human resources challenges with executable research, tools, and advice that will have a Mc. Lean & Company is a research and advisory firm providing practical solutions to human resources challenges©via executable research, tools and advice that clear and measurable impact on your business. 1997 -2013 Mc. Lean & Company. have a clear and measurable impact on your business. © 1997 - 2013 Mclean & Company. Mc. Lean & Company is a division of Info-Tech Group Mc. Lean & Company is a division of Info-Tech Research Group Research Inc. Mc. Lean & Company 1

Introduction Set employees up for success by implementing performance measures that inspire great performance, not irrelevant reporting. This Research Is Designed For: This Research Will Help You: üHR Professionals that need to assist leaders ü Learn why setting holistic employee on setting employee performance measures. üLeaders who want to set more effective employee performance measures is essential. üTransfer department goals into holistic employee performance measures. üCommunicate and apply employee performance measures. üReview employee performance measures for effectiveness. Mc. Lean & Company 2

Executive Summary • In today’s competitive environment, managers must assess and inspire employee performance in order to assess the achievement of business goals. • Employees also want to understand how they can be successful in an organization. Performance measures that are clearly aligned with organizational goals are essential to their understanding, driving performance, and improving employee engagement. • Often, managers spend too little time setting holistic employee measures, resulting in unintended behaviors and gaming of the system; or too much time setting employee measures, resulting in overreporting, and underperforming employees. • Managers who invest time in creating more effective performance measures will be rewarded with increased employee engagement, better employee performance, and the data they need to make more informed business decisions. • Mc. Lean & Company helps managers use a structured process to develop employee performance measures for different groups of employees – from large homogenous departments to individual contributors. • Translating organizational goals to employee measures and communicating with employees and other stakeholders will help managers keep better track of workforce productivity, maintain alignment with the organization’s business strategy, and improve overall results. Mc. Lean & Company 3

The Case for Meaningful Employee Performance Measures What’s in this Section: Sections: • Understand what employee performance measures The Case for Meaningful Employee Performance Measures are. • Learn why setting effective measures is beneficial to the organization and employees. • Get to know Mc. Lean & Company’s framework for setting meaningful employee performance measures. Get Clarity on Goals Set Holistic Employee Performance Measures Communicate to Implement Performance Measures Review Measures to Audit Effectiveness Mc. Lean & Company 4

This set focuses on employee performance measurement as part of employee performance management Employee performance measures are the metrics, qualitative measures, rating scales, and other instruments used to assess achievement against set goals, targets, and standards. In order to inform, supervise, and assess employee performance, employee performance measures must be set (and re-set) throughout the performance appraisal life-cycle. Employee performance appraisal #1 Employees perform & develop. Why employee performance measures matter: For employees… Measures determine how they focus their time, energy, and attitude. They need to know how to be successful and optimize compensation (if applicable). For managers… Measures determine their focus in coaching, mentoring, and reporting, They also inform compensation decisions. For executives… Measures determine how they evaluate workforce productivity and set talent programs, including compensation. The organization grows & develops. Employee performance appraisal #2 Employee measures are a passionate area; everyone cares a lot because it’s such a high impact activity. It determines how employees play the game. -CEO, Professional Services This solution set focuses on employee performance measures, only. For more about employee development planning, see Implement Effective Development Planning. Mc. Lean & Company 5

Setting effective performance measures supports, and is informed by, the entire talent management program Aligning employee measures with the strategic plans of the talent management program reinforces the organization’s vision for employees. Meaningful employee measurement Supports and informed by Recruiting Onboarding Training/ Development Rewards/ Recognition Compensation Succession Planning Candidates want to know how they will be assessed before joining an organization to self-select in or out of a measurement environment. This is crucial to bringing in the right people, and building the employer brand. In order to get employees productive as soon as possible, measurements serve as a guideline as to where they should focus their attention most prominently. If measurements are well aligned with businessbuilding activities, then identifying where employees must improve becomes much more clear. Organizations can choose training and development initiatives that target key skills. Effective measurements provide clear guidelines that determine whether employees will be eligible for performance rewards, or whether they should be publically commended for their contributions. Effective measures that reflect the organization’s chosen compensation strategy will clearly determine how much an employee receives, rather than leaving it entirely up to management judgment. Measures not only indicate development areas and indicate maturity for succession, they also serve as a risk mitigation medium to prevent those without demonstrated success from gaining leadership roles. Mc. Lean & Company 6

Unfortunately, many employee measures are meaningless, and fail to drive high-quality performance Too many ineffective performance measures create more work for the manager rather than inspire employee performance. Determine if your measures are worth tracking – or if they are lacking. Meaningful performance measures are: ü Clearly linked to organizational mission, values, and objectives. ü Based on a holistic understanding of employee performance. ü Relevant to organizational decision-making. ü Accepted by employees and managers. ü Easily understood by employees and managers. ü Valid: relevant to the role and goals and within an employee’s control. ü Reliable: consistently applied to assess different employees doing the same job. Ineffective performance measures are: ü Difficult to track, update, and communicate. ü Easily gamed by managers or employees. ü Narrowly focused on targets rather than the quality of work. ü The cause of unintended outcomes or incentive for the wrong behaviors. ü Overly complex or elaborate. ü Easily manipulated due to reliance on simple calculations. ü Negotiable without taking into account business needs, leading to lower performance standards. If your measures are characterized as more ineffective than effective, and the resulting problems are plaguing your department, read on to improve your employee performance measures. Mc. Lean & Company 7

The right performance measures provide an objective basis for organizational decision-making and standardized processes Benefits to the organization: How meaningful employee performance measures can get you there: Better employee performance Employees with clearly defined performance measures will know what is expected of them and how to accomplish it. Additionally, performance measures drive employee engagement by helping employees understand how they contribute to the organization. For example, employees know what will get them more rewards, recognition, and compensation because it is measured. Objective decision -making Meaningful performance measures provide a standardized way of comparing employees based on objective measures. This standardized approach can be used to support decisions related to compensation, promotions, employee development, and succession planning. For example, variable pay tied to performance is increasingly common for non-sales, non-executive positions. Legal defensibility By providing a basis of comparison between employees, well-defined performance measures let you make informed and objective decisions. For example, making the case for why one employee was promoted over another. Standardized procedures By providing an objective basis for evaluating individual employees, performance measures can help you standardize existing processes. For example, developing training programs that target skills needed to achieve higher levels of employee performance. Risk management Meaningful performance measures are holistic in nature, so they deter employees from committing rogue acts in order to fulfill one overarching target. For example, dissuading financial sales employees from skewing numbers to inflate monthly sales targets by also measuring on other factors related to selling. Mc. Lean & Company 8

Clear performance measures help employees prioritize their tasks and obtain rewards & recognition for their contributions Benefits to employees: Recognition for contribution How meaningful measures can get you there: Meaningful measures provide employees with rewards based on standardized, objective criteria. Additionally, recognition is based on the highimportance tasks on which employees spend most of their time. Clear task priorities By understanding how their performance is evaluated, employees can focus on tasks that are most critical to their roles, and managers can prioritize tasks for their teams. Better employeemanager relations Focused career development Providing objective and standardized performance measures minimizes managerial subjectivity (or the perception of such subjectivity), leading to more harmonious relations between managers and their teams. Meaningful performance measures can help employees navigate their professional development by focusing on areas that need improvement. Risk point: Without meaningful measures, employees check out. How we’re evaluated is so confusing and totally subjective; I have no idea how to do well. So, I just do what I can and don’t really bother with the rest. -Actuary, Legal Services Mc. Lean & Company 9

Meaningful performance measures drive employee engagement, which in turn, drives business success Clearly defined performance measures linked to specific goals bolsters engagement by showing employees the importance of their contributions. Significant components of employee engagement are tied to employee performance measures. I understand the rationale behind most of the business decisions made by senior management Indicate what leadership believes is important, showing employees how their decision making is aligned with employee evaluation. 0. 60 In my last performance review, my manager accurately reflected my performance Result in more accurate performance appraisals, and the right employees being rewarded for the most effective business building behaviors. 0. 49 I clearly understand what is expected of me on the job Meaningful performance measures… 0. 46 0. 0 0. 1 0. 2 0. 3 0. 4 0. 5 0. 6 0. 7 Help employees know how to be successful in their work and evaluate their own performance. Correlation with Employee Engagement Source: Mc. Lean & Company, N = 7595 Improved employee engagement is proven to improve employee performance. Setting meaningful measures can impact your bottom line. In 2010, organizations with engagement levels that were: • Higher than 65% posted total shareholder returns 22% above the average. • Less than 45% posted total shareholder returns 38% below the average. Source: “Trends in Global Employee Engagement, ” from AON Hewitt, 2011 Mc. Lean & Company 10

Comprehensive performance measures aligned with business objectives drives results at Kimberly-Clark “People didn’t see a link between their effort and the results of the company. ” – Liz Gottung, Sr. VP and CHRO Industry: Consumer Manufacturing Segment: Large Kelley Whitney, Talent Management Magazine Source: Situation • An established manufacturer of • • health products, Kimberly-Clark was struggling financially in the early 2000 s. With a new CEO coming on board in 2003, the company began a global reorganization effort. As part of the global makeover, the company decided to overhaul its performance management system. Prior to reorganization, Kimberly. Clark relied on a three-tier employee ranking system. Action • The new performance • • management system swapped rankings for a combination of individualized goals and company-wide competencies. Employees were asked to develop individual objectives based on departmental or functional business objectives. HR developed a competency framework based on six leadership qualities: visionary, inspirational, decisive, collaborative, innovative, and ability. Results • Kimberly-Clark saw dramatic • improvements in employee engagement, with 73% of employees reporting feeling engaged in 2008 compared to only 56% in 2005. Additionally, a 2006 survey, revealed that 95% of employees felt that they knew what was expected of them and 67% said they felt their performance evaluations were fair and accurate. Mc. Lean & Company 11

Mc. Lean & Company Helps HR Professionals To: ü Empower management to applyü HR best practices ü Develop effective talent acquisition & retention strategies ü Build a high performance culture Maintain a progressive set of HR policies & procedures ü Demonstrate the business impact of HR ü Stay abreast of HR trends & technologies Sign up for free trial membership to get practical solutions for your HR challenges "Mc. Lean & Company provides practical research, tools and advice covering the entire spectrum of HR & Leadership issues to ensure you experience measurable, positive results. " • - Rob Garmaise, VP of Customer Experience Toll Free: 1 -877 -281 -0480 hr. mcleanco. com Mc. Lean & Company 12