By evaluating employees’ degree of engagement, a performance management system can “definitely impact the productivity you get from your workforce in many dimensions” and enhance your ability to retain talent, says Jim Holincheck, a research vice president at Gartner Group, in Chicago, Ill. But, he warns, “It can be a double-edged sword. If you don’t use it right, it could de-motivate people and you’ll have performance and productivity decline.”
Getting Your Money’s Worth
Depending on the industry, companies are spending between 20 percent and 70 percent of their budgets on people-related costs, Holincheck says. They obviously want to improve the return on their investment.
Typically in larger companies, “both the manager and the company want to see that they’re getting the bang for their buck and make sure they’re getting maximum performance from each person,” concurs Cathy Shepard, principal in the human capital practice at Mercer, in Los Angeles, Calif.
Performance management systems are especially useful at keeping track of who gets paid what, so companies are able to easily assess whether the people getting higher salaries are performing the best.
At many companies, the appraisal process is unwieldy and in need of streamlining. Managers often still write up performance appraisals in Microsoft Word documents, then route the file via e-mail for approvals. Organizations typically don’t have a central repository for storing the appraisals, making it difficult for the human resources department to track whether the appraisals are even getting done.
A lack of clear metrics can adversely affect employees’ performance. “If results are not properly linked to rewards, the process can de-motivate the workforce,” Holincheck says. Conversely, a company may have a process that rates its people and recommends rewards, but may not be rating them on right areas.
Furthermore, notes Holincheck, “It’s difficult in Word to do things like goal alignment and cascading of goals and objectives from company to department so you get additional capabilities beyond the original form.”
Automated performance management systems were once avoided because they had a reputation for delivering one-size-fits-all appraisals. But a new generation of applications lets companies define the criteria for an employee appraisal. The review may have sections on goals and objectives and developmental planning, as well as sections that allow a manager to rate an employee’s proficiency in certain competencies.
“In one sense, it’s a shell and you can put whatever you want in the form,” says Holincheck. But it’s important to customize the review with the right competencies for the right person in order to help develop the person’s abilities and get the most value from the system.
Performance management systems vendors, such as Success Factors and Halogen Software, let managers load up appraisal forms with goals and objectives that can be drilled down for further detail, as well as sections that assess competency and recommend further development.
Some systems also have mechanisms that help the supervisors who are preparing reviews. Q&As and a reporting mechanism enable supervisor to keep track of their progress in the periodic flood of performance reviews.
Same Time Next … Month?
Managers and employees alike tend to dread the annual review. It’s a huge time choke for managers and a source of anxiety for employees. Automated review systems make it easy for managers and employees to take the pulse of their performance more frequently and with less at stake.
“One of the opportunities with a tool is to have more regular feedback for employees. When you have a conversation with someone, you can capture that,” says Holincheck. By enabling — and even encouraging — managers to keep tabs throughout the year, an automated system will provide an accurate picture of an employee’s performance in a manner that’s as pain-free as possible.