Best Practices for Achieving Talent Success Maturity
The Goals-based Performance Review
Graduate Instructor of Organizational Strategy & Strategic Marketing at Northwood University
Tim McRay began managing people at age 17 and has over 20 years of experience in administration, operational leadership, and executive positions. Tim has successfully filled functional leadership roles with Fortune 100 companies, including Blue Cross-Blue Shield, Citi, and Mercedes-Benz. He is now an independent advisor to companies seeking improvement in organizational strategy, performance, leadership development, and culture.
Tim holds a Bachelor of Business Management degree, an MBA in Marketing, and a Master’s Degree in Leadership Theory. He is an instructor of Organizational Strategy and Strategic Marketing in the DeVoss Graduate School of Business at Northwood University and teaches Business Administration and Human Resource Management at Southern New Hampshire University. Tim has also served as a guest lecturer for the University of Texas at Arlington MBA Program and the University of North Texas Professional Leadership Program.
Tim has previously served as a board member for Junior Achievement of North Texas, the Professional Leadership Program at the University of North Texas, Trumpets for Kids, and the Texas Diversity Council. He is a frequent speaker and contributor to local civic organizations, nonprofits, churches, and small businesses.
In his personal time, Tim is focused on creating time and life experiences for Julie, his wife of over 20 years, and their children Collin and Chloe.
Who it’s for:
What you’ll get:
An understanding of why outcomes-based performance reviews can be superior to competency-based performance reviews, and an example of what an outcomes-based performance review should look like
Why you need it:
For better talent evaluation
When it applies in the talent success process:
In the performance review cycle
Performance reviews are one of the most common management tools used today, with roughly 90 percent of American workers receiving at least an annual review. Although knowing who your A-players (and B- and C-players) are is vital for development and compensation planning, research shows that most reviews used today do a relatively poor job of identifying and quantifying performance. This article will discuss the challenges in more detail and present an approach for incorporating goals- and outcomes-based feedback to improve your ability to identify who your real A-players are, and why.
Performance Reviews Don’t Always Accurately Measure Performance
Despite their popularity, performance reviews not only fail to improve performance, they often cause a decline in it. The University of Pennsylvania’s Wharton School is among the institutions that have researched the usefulness and accuracy of most performance reviews. Its results show that a performance review is actually representative of employee performance only about 27 percent of the time.
At the same time, 9 in 10 companies report having a performance review system, but only 3 in 10 have employees who report the system is managed well.
Job Roles: Foundational, but Potentially Flawed
Well-defined job roles have proved to be a major factor in long-term employee retention. They’re also crucial to effective performance management. If you have a limited understanding of a job role within your organization, it’s logically much harder to evaluate the performance of the person in that role. Good performance management often occurs at the intersection of role clarity and the alignment of strategy (what the business needs to accomplish) with execution (what that job role does day to day to support that strategy). Unfortunately, role clarity is lacking in many organizations — often for two major reasons.
Role Definition Problem: Misspecification
Misspecification occurs when the person or group responsible for defining a role has an inaccurate or incomplete conception of what drives success in that role.
For example, a sales manager might believe that junior sales representatives require excellent negotiation skills, when analytical skills are actually more relevant to their job of prospecting and qualifying leads.
Misspecification can result in failing to assess competencies or other traits that are important, as well as emphasizing and rewarding skills or behaviors that are irrelevant or even counterproductive.
Role Definition Problem: Role Drift
Role drift occurs when the fundamental outcomes of a position change, usually in concert with the overall business or departmental strategy changing.
For example, a marketing employee may be tasked with a goal of creating direct-mail newsletters. A year later, the company has pivoted to a total focus on email newsletters and social media campaigns. Now, the basic day-to-day tasks of this employee have changed — and so have their goals.
Role drift can result in redundancies throughout your company. Two or three people could unnecessarily be working on the exact same business problem, because their jobs converged when strategic changes or business goals shifted in one or both of their business units.
Both misspecification and role drift cause problems for managers conducting performance reviews.
Not only is this unproductive, it also creates problems for performance management. When a role drifts and you’re still evaluating the employee based on the old role’s competencies and goals, you are wasting time for the employee and their manager.
Applying Outcomes to Avoid Misspecification and Role Drift
One of the clearest ways to overcome misspecification and role drift is to add outcomes to your performance review model.
Outcomes provide an objective standard around performance and goal attainment.
Let’s return to the example of the marketing specialist. The employee was originally tasked with a goal of creating direct-mail newsletters, but a year later the company pivoted to a total focus on email newsletters and social media campaigns.
Once that employee shifts from producing direct-mail newsletters to email newsletters, multiple aspects of their role will shift. If they are told the email newsletters need to average a 5 percent click-thru rate, that is now an objective standard. Either the email campaigns reach that target or they don’t.
To help set outcomes-based performance goals, some companies have recently shifted to ROWE — Results-only Work Environment. ROWE is a management structure in which goals are set, and then employees are tasked to achieve those goals. From a performance review standpoint, what matters is the objective measure of goal achievement. Your employees now have targets. Were they, or were they not, achieved?
Companies have seen different levels of success with ROWE. But many report improvements in strategic-level and tactical (employee-level) outcomes.
- Strategically, goals-based performance reviews provide a framework for the ongoing evaluation of job roles. You can correct misspecification and role drift by tying everyone to objective, measurable outcomes. This is important throughout the talent management life cycle because your recruiting is also going to be based on roles. Rather than a list of potentially poorly defined competencies for a job, an outcomes-based shift in thinking can boost your whole talent management process. Now the focus is on objective measures of performance.
- Tactically, goals-based performance reviews let you see who your high performers really are. These are the employees who constantly hit their targets and then, if you raise the bar on their numbers, they achieve those, too.
I’ve never talked to an employee who hasn’t experienced role drift of some kind. Think about the last line of every job description: “… and other duties.” To some degree, we have the opportunity for role drift built into our structure, and yet we’re still surprised when it happens. When we take a larger life view, we see that all of life sort of has role drift. Everything drifts from time to time. That’s the way life should be. It’s not always clear or comfortable, but it seems to be a natural part of life.
When we have no drift, we actually tend to get bored. We try to find something that allows for balance, flexibility, and growth in the role. We also want to allow for some level of spontaneity and creativity. We circle back to this gray area that allows for flexibility within our roles that supports the changes in our work or context.
When we circle back to the role drift concept, it’s usually caused by good intentions or a lack of resources. For example, with all the best intentions, high performers will almost always take on more work rather than turn it away — even when they don’t have time to perform the work within the context of their workweek. Further, as the business grows (a good problem), it’s very difficult to add employees at the same rate at which you gain new business. Someone has to do the work in the interim.
Bad bosses who aren’t attentive or intuitive with their people identify the high performer and continue to put more and more work on them without letting up. One creative option is for leaders to put “this role does not include” sections into job descriptions to create boundaries for those high performers. This can help them to remain focused, find collaborative solutions, etc.
Sometimes role drift occurs because the job really does need be to changed. When this happens, a lot of leaders are hesitant to call timeout and assess the situation. I encourage them to ask better questions and assess whether or not this change is for the better, if it is permanent or temporary, or if this is change is needed because of our people, processes, or customer needs.
The final questions are: Should we change? Can we change? And will we change? (in that order). And if the answer to all three questions is yes, yes, and yes, then it’s time to take action. If the answer is no, we should not change, then we need to talk to that employee and say, “It’s evident that this role needs to change. You may need to work through this drift, and help us think through whether to rewrite the job and the job description.
— Tim McRay, Graduate Instructor of Organizational Strategy & Strategic Marketing at Northwood University
Make Sure You’re Evaluating the Right Role
A phrase like “evaluate performance in real time” makes more sense if you define it a little more. It means you’re tasking managers in your organization with consistent monitoring of what their employees are doing and how those tasks relate back to the overall business goals. Start with a business goal (e.g., 90 percent customer retention this quarter). Then look at all the employees who touch customer retention. Their individual performance outcomes need to be contributing to that business goal. If an employee’s job has shifted or is misspecified, it needs to be realigned toward a new business goal.
Techniques for Outcomes-based Performance Reviews
There are several different approaches to making a shift to outcomes-based performance reviews. This section demonstrates how to use some of those approaches to make performance reviews more accurate.
People analytics is [a data-driven approach to talent management. You collect information on various roles, competencies, and goals over time. If you’ve had five different people in three years serve as a product marketing manager, look at their reviews. Certain factors may emerge that explain the high turnover rate for that position. It could be that the manager for that role is a task-master, at which point a discussion might result with them. It could be that the goals are unclear or not tied to any bigger company strategy, so the new hires are getting frustrated and leaving quickly.
Think of people analytics in this way: Most companies relentlessly analyze their sales funnel and overall financials, often daily. People analytics is just an effort to apply the same rigor and consistency to how your employees are performing in their roles.
Seventy percent of companies, including industry leaders like GE, are reinventing or eliminating the annual performance review entirely in favor of real-time feedback. The underlying idea: Remove ratings, rankings, and review cycles, and replace them with organic, real-time feedback between managers and employees. Employees will feel more recognized, course corrections will happen faster, and goals can be realigned as strategy is realigned.
Coaching is similar in concept to real-time feedback. Coaching refers to a shifting idea about the role of a manager. To help employees meet their goals, managers will regularly discuss development with them and adjust plans and approaches to their work. HubSpot research has shown that globally, employees’ biggest want is more opportunities for growth. Similarly, research by SHRM has shown employees’ biggest want is to be truly respected by their manager. A greater focus on coaching achieves both and helps keep employees working toward their goals.
The overall idea in reviewing different types of outcomes-based performance reviews is to find the best way for employees in your organization to remain focused on prioritized goals and outcomes.
Outcomes-based Performance Reviews: A Sample
A best practice for outcomes-based performance reviews typically involves a goal review section and a goal planning section. In the goal review section, the manager and employee rate performance on each goal while also providing feedback on the relevance of the goal. The goal planning section is much more open-ended. The employee sets goals for the upcoming year or quarter, and the manager reviews, comments on, and edits them. Visually, it looks like this: