EQnomic effect of Performance Management

Performance management is one topic on which we provide training at PeopleSmarts.  Over the course of the past several weeks we have been internally discussing this topic and the launch of a software application to support and provide additional resources in conjunction with our trainings.  While performance management is a comprehensive process, one piece of that process is the performance review.  This week I ran into a former colleague from the retail industry who was telling me horror stories of his schedule right now because his company is currently in the midst of their bi-annual performance review process.   I suppose as this topic we have been working on it seemed fitting to write about it today.

Talking with my former colleague reminded me of some of the stories and inefficiencies of some organizations performance review process.  The first mistake they make is confusing the annual performance review with being the entire performance management process.  It seems like managers and employees don’t take the time to talk throughout the year, so often the employee is surprised by the feedback received during the review (and therefore dread the annual review because it is negative).  The second problem is lack of preparation.  Maybe the manager is too busy, maybe it is a time-management issue, but either way the result is that the manager waits until the very last second to “Rush” a review by the deadline – and therefore fails to give the employee any constructive feedback on their performance.  As a result the employee dreads the annual review because there is no value in the feedback.

A few years ago I took over a new division during the annual review cycle – according to my new boss the former division manager had written reviews for each of my 23 direct reports and it would be “easy” for me to simply deliver the review.   So I started reading and found each review to be nearly identical.  The only change was perhaps the addition or deletion of a word like “not”  or “does not” instead of “does”.  Example:  “  Mike lives our company values”  vs “Michelle does not live our company values”.   What!  And this is supposed to be feedback as to how this person performed during the year?  There were no examples to back up the sentence or to corroborate how or why Mike or Michelle did or did not live the company values.  Simply said, I could not “easily” just deliver such a review.

There are two major cost components associated with delivering a review like that in the example.  One is the opportunity cost of the time the former manager spent writing those reviews – while not nearly the amount of time it would have taken to create a comprehensive review, but several wasted hours of that manager’s labor in the writing and delivery.  Maybe one hour total x 23 direct reports or 23 total hours.  To deliver a review with no value and waste half of a work week doing so creates no economic value for the company.

The other cost I see is the lack of impact of the review.  The employee eventually becomes disenfranchised and disengaged as a result of no clear feedback or knowledge of how they fit into the organization.  They simply stop to care, and now you bare the cost of disengagement.

 While we continue to develop our trainings on the basis of EQnomics, or the economic effect on a company of poor management practices or disengaged employees expect to see more on this topic as well.    There are two ways a company can spend their performance management budget:

A company can throw labor dollars and the cost of missed productivity at a poorly developed or poorly executed performance management and performance review process is wasting money on achieving nothing.  

Or

A company can have great processes executed well where employees are valued, employee skillsets are developed and where clear, consistent and measurable feedback are delivered throughout the year.

Each company will spend money, each can say they have a process in place but one company is simply burning dollars that yield no or little return (like simply renting your employees)  while the other is increasing the value of their employees or their “people assets”. The company who invests in their human resources and creates an appreciating asset stands to yield greater returns in the long run than the company who simply rents their employees time.