Three Steps to Better Performance Management

In a previous post I discussed the results of a study that TriNet undertook in regards to Human Capital Management practices. The goal was to build some actual data sets around both HCM practices and outcomes in small high performing companies nationwide, including what worked and didn’t work to maximize their corporate performance. There were 700 companies in the study population with an average wage of $102,000, and an average workforce size of 18.1 employees.

I’ve already shared the results we found in regards to Talent Acquisition practices in these companies, but now I’d like to focus on what we discovered in terms of Performance Management practices.

The short list for performance management success calls for keeping focused on just three things:
1. Set and align goals from top to bottom
2. Link performance reviews to compensation
3. Touch base on goals throughout the year

We found that very few companies in the small and medium-sized market set concrete goals for their employees, and those that did failed to specifically link compensation to the completion of those goals throughout the year. Rather, promotions and salary increases—or lack thereof—became a matter of the manager’s “gut” instinct, and employees had no clear path to understand how they might grow and advance in the organization since there were no standardized processes for linking performance and compensation.

Even for the companies that did set goals, we noted a lack of willingness to adapt to changing conditions. New business issues may have arisen throughout the year, but there wasn’t sufficient discussion in the company itself that lead to revising the originally defined goals.

None of this is surprising. It is not uncommon for early-stage management teams to believe that sound human capital practices are a luxury—great in principle, but simply not practical given the pressures of the moment. But the hard fact is that every company makes the most critical long-term decisions about people, culture and structure early in its history, and concrete practices in human capital management are ones that can make a difference in a company’s success or failure as it continues to grow.

After all, end-of-year performance reviews shouldn’t be a mystery. Rather, they should be prepared for throughout the year so there are no surprises. What’s not measured is what’s not being managed.