Does your approach to Performance Management ‘Sing’ or ‘Sting’?

www.pivotsoftware.com
Does your approach to
Performance Management
‘Sing’ or ‘Sting’?
How to focus on practices that create meritocracies,
and avoid being seduced by the technology.

To Sing or to Sting?
Copyright © 2013 Pivot Software Page 1
Disclaimer
This document is intended as a guide only. Readers are advised that before acting on any matter arising from this
document, they should consult Pivot Software.
© 2013 Pivot Software Limited. All rights reserved.

Does your approach to Performance
Management ‘Sing’ or ‘Sting’?
How to focus on practices that create meritocracies and avoid being
seduced by the technology
Contents
Are you ‘stinging’ or ‘singing’? .................................................................................................3
The 10 peak practices that create meritocracies............................................................................5
Some performance management basics .......................................................................................8
The importance of underlying principles.................................................................................... 10
Transparency delivers engagement .......................................................................................... 12
Looks cool, but is it relevant? Evaluating new technology for performance management .......................... 17
To Sting or to Sing? ............................................................................................................. 20
About Pivot Software........................................................................................................... 21
References....................................................................................................................... 22

Are you ‘stinging’ or ‘singing’?
Let’s face it, performance management done badly ‘stings’. And we don’t like doing things that hurt,
right? At the same time, do performance management well, and it ‘sings’, in the form of higher
engagement, improved retention, higher individual performance and critically, better organisational
results.
That’s better organisational results with dollars attached too. A Boston Consulting Group (BCG) studyi
of
Fortune’s best places to work showed companies regularly in the top 100 outperformed the S&P500 in share
price by 99% over 10 years. The highest performers had superior capability in three areas: Leadership
Development, Talent Management and Performance Management & Rewards. Superior capability in
Performance Management and Rewards contributed 2.1x Revenue Growth and 2.0x Profit Margin, when the
most capable organisations were compared to the least. That’s a gap your executive team, CFO or HR team
shouldn’t ignore.
Local research concurs. The 2012 Aon Hewitt Best Employers (‘BEs’ display excellence in HR practices) studyii
showed BEs achieve on average 9% more profit per employee. 71% of people at BEs strongly agreed with the
statement “this organisation’s employees gain a clear benefit if they are a high performer”, versus only 40% in
other organisations. 62% strongly agreed that, “my performance has a significant and direct impact on my
pay”, versus only 38% in other organisations.

There is clear evidence that building capability in
performance management and reward is effective
and profitable, but what does that actually look
like?
The BCG report describes high capability as being underpinned by the principle of a ‘meritocracy’. That fits
neatly with Pivot Software’s experience in terms of what organisations investing in improvements want.
In a meritocracy, employees feel they are promoted, recognised and rewarded on merit. This means that
they want to strengthen the link between reward (including pay and promotions) and performance, coupled
with practices perceived by staff as fair and transparent. This eBook argues the case for performance
management practices that have merit, i.e. that create a ‘meritocracy’ and work for both your employees and
your organisation’s ends.

The 10 peak practices that create
meritocracies
If you are going to do performance management you need to do it thoroughly and well, which may put more
hesitant organisations off, or see them just dabble a little. Committing half-heartedly can be worse than doing
nothing; you may well experience a lot more ‘sting’ than ‘sing’!
So what are the most capable organisations doing? What are the practices that have merit?
Each organisation tends to express their own culture through their approach to performance management, but
here is an outline of what Pivot commonly sees in the organisations serious about it:
The 10 peak practices alignment in action:
Key Factors Present Rationale
1. CLARITY
Performance matters and is clearly differentiated. It
supports a meritocracy where performance
expectations are clear, evaluation is robust and the
consequences are meaningful.
The aforementioned research covers this - there is a strong
link to superior organisational performance. In a
meritocracy, performance impacts all recognition and reward
decisions (promotions, development opportunities, pay
increases, incentives etc).
2. REGULAR FEEDBACK
Ongoing employee and manager communication and
feedback are at the heart of the process.
The year-end review is an element of performance
management. If you haven’t communicated well through the
year, you can’t expect the employee to see the process as
credible and relevant.

3. OWNED BY THE BUSINESS
It’s driven and valued by the business, not a side
activity driven by HR.
If the process is not owned and driven in the business it’s a
‘tick the box’ exercise that will not engage your people and
will not lead to better outcomes.
4. ENGAGING, COLLABORATIVE
The process is engaging and collaborative (rather than
one-way), staff are empowered to drive their
performance.
Participation drives engagement, especially for knowledge
workers.
5. MANAGER SUPPORT
Managers are supported with skills training/mentoring.
They are disciplined in their approach; there are strong
global performance standards, it’s led from the top,
and there are real consequences for those not engaged.
Great practices in setting objectives and delivering ongoing
feedback and difficult messages just don’t emerge by
themselves. Capable organisations ensure their people have
the skills and tools to communicate well. They use global
standards for performance including on approach,
assessment definitions, competencies and behaviours etc. A
strong framework creates a common language that gets
everyone ‘in the same boat rowing the same way’.
6. MODERATED RATINGS
Ratings are moderated for consistency and a rounded
perspective, ensuring performance levels are
differentiated.
Ensures consistency and fairness. Gives leaders a broader
view of talent across teams. Helps correct the tendency for
rating to skew to the right.
7. ALIGNMENT AND AGILITY
Objectives are set and aligned to company goals; the
approach is increasingly agile (e.g. 90 day reviews,
holistic measures).
Effective planning, feedback, review and reflection gives rise
to effective dialogue on performance – no surprises or
moving of the goal posts. Also, organisations and
environments are too dynamic to set everything in stone and
expect no change through the year.
8. REWARD BEHAVIOUR AND RESULTS Overall performance impact encompasses much more than an
individual task focus. Performance gains often lie in more

They reward behaviour as well as individual results.
And increasingly, contribution to the performance of
others (team and organisation).
effective collaboration with others and sharing of ideas in
the modern work environment.
9. CULTURE-LINKED
Their approach supports the culture they want to
develop (e.g. linked to values or desired
competencies).
The most capable organisations keep investing in increasing
their capability further and to align with and reinforce
organisational change (i.e. if they are developing a stronger
culture of innovation, this flows immediately into changes to
objectives and competencies etc).
10. PROCESS EFFICIENCY & MONITORING
They use state of the art systems and processes. And
monitor the effectiveness of the process as well as the
performance it’s measuring.
Given the importance of the process to organisational
performance it’s imperative that organisations do everything
they can to make the process easier and more effective.
They need to empower the business to get on with it but
retain overall visibility and control which is too hard using
just email and documents.

Some performance management basics
Pivot’s experience of best practice in performance management suggests connecting pay with performance is
the most effective approach. The reality is that unless everyone in a role is paid the same, there needs to be
some rational basis for exercising discretion in pay decisions.
You can pay for skills, but they may not be put to good use, so somewhere you are going to have to factor in
performance. If you haven’t got a robust process for doing that, there will be a lot of ‘sting’ to deal with in
terms of your people not understanding your decisions and perceiving them to be unfair or lacking
transparency; that’s not going to be good for engagement or organisational performance.
Getting performance management right is not simply about introducing new technology either. In fact
technology can just make the process go wrong faster! It is critical to have the foundations, the quality and
clarity of process, right first. The “10 peak practices” in the table are a good starting point, here are some
other key considerations.
• Terminology: If the term performance management has a negative connotation in your organisation,
change it. Some organisations may call it “performance and development”, “ASPIRE”, “GROW” or
“SUCCESS”, that way performance is implied and “management” is left out of it.
• Clean and simple process: Don’t shove everything into the process and make it too complicated. You
will want to use the output of performance to feed into remuneration, talent management, learning,
development plans, career and succession plans. That doesn’t mean you need to over-engineer your
approach or confuse things by lumping it all together. For example, you probably don’t need a
development plan linked to training options. Best practice organisations adopt a 70-20-10 approach
(70% of development from on the job actions, 20% manager/peer coaching etc and only 10% formal
courses) so suggesting courses as the solution for development is sending the wrong message.

• If you are going to use 360 degree reviews for performance, then be targeted. Do you really want
your whole organisation to grind to a halt while everyone reviews each other? And have the support
in place to ensure the 360 feedback is delivered and used well.
• Talent: make sure you do more than just ask managers to rate potential, as the research shows they
won’t get it right. You need a way to collect the information but keep it simple and flexible. Unless
you have 10,000 plus employees you probably don’t need to spend a fortune to get good reporting on
your top two or three tiers of leadership. Talent management is really about career planning for
those with potential within the organisation and succession planning is about deciding, who in the
talent pool, should be considered for key roles. These go well together, but talent identification that
feeds into this process can occur through the performance management system.

The importance of underlying principles
Getting agreement up front on what principles will underpin the design of the your performance management
framework pays dividends. Focus on engaging your executives and other key stakeholders in agreeing to these
principles. Get this right and it should be a lot easier to make decisions on the detail, without going around in
circles.
Adhering to the agreed principles should support a ‘meritocracy’ i.e. a system for identifying high
performance and rewarding it. If you don’t create this, your best people leave or disengage, lowering the bar
for everyone else.
Drawing from 10 peak practices you can quickly identify the principles that underlie performance
management at high performing organisations:
• Clear recognition and fair reward of individuals who perform to a high level.
• A commitment to performance management as a day-by-day process not an annual or bi-annual
review cycle. This is supported by regular and immediate feedback and coaching.
• A system of performance management that recognises individual’s strengths and builds on these.
• The process is ‘agile’, fast, efficient and responsive.
• Recognise that it’s not just the results people deliver (the what) but also the values and behaviours
(the how) that underpin those results.
• It is results that an individual produces that are assessed as part of the process, not the person’s
character.
• The assessment process is transparent, robust and consistent, with clear differentiation across the
workforce.

• Performance goals will align with company strategic goals so people focus on the right things and can
see how their daily work contributes to these goals.
Much of this is well understood but not translated into practice consistently. The use of software to automate
and streamline the process makes it much easier and more effective. It also means that performance
management can be measured, valued and people treated like the proper assets they are in an organisation.

Transparency delivers engagement
Levels of engagement should be a key metric for HR to judge the effectiveness of performance management.
So why is engagement dropping across many organisations? According to a recently released study on
engagement by Aon Hewitt, a global HR consultancy, only a third of firms surveyed achieved an improvement
in engagement in 2010.
Sometimes we think the nice, fluffy stuff will deliver engagement, but what staff typically want is a clear idea
of how they are doing, and confidence that a fair process of evaluation is in place. What you need to achieve
is an approach that forces alignment, so you can gauge what percentage of staff are working on what company
objectives, and what activity is consistent with company values.
Clarity around the process and the feedback mechanisms is what promotes engagement. That extends to being
clear about where the performance reviews reside i.e. a single source where performance information is held,
not Word documents floating around with various versions, open to disagreement around the latest versions.
As noted earlier, in the 2012 Aon Hewitt Best Employers study, 71% employees at the best performing
organisations strongly agreed with the statement, “In this organisation employees gain a clear benefit if they
are a high performer (e.g. recognition, financial and non-financial benefits, opportunities)”, and 62% with,
“My performance has a significant and direct impact on my pay”.
Does your performance management process achieve results at ‘best employer levels?’ If not, you have a
strong case for action.

Alignment in action:
An example of what can be achieved is Meridian Energy, one of New Zealand’s largest electricity generator,
supplying electricity to over 180,000 residential, business and rural customers throughout the country. The
company has more than 500 staff across four regional offices and is considered one of New Zealand’s leading
employers.
By moving to an aligned performance approach they have improved engagement significantly between 2009
and 2011. The change lifted overall results by between 10% and 30% across four key engagement metrics.
They are now getting close to the Best Workplaces Survey (BWPS) top 25% benchmarks, with improvements
across:
•Understanding of how performance is measured
•Acknowledgement they receive regular feedback on performance
•Perception that performance is fairly assessed
•Perception that poor performance is dealt with effectively

Achieving ‘agile’ performance management
As the word suggests, agile is all about trying to increase flexibility and responsiveness. Agile concepts were
pioneered in the software development sector, where people wanted to move from the slow and steady
“waterfall” approach of development, where projects followed a prescribed set of steps in linear fashion
towards an outcome.
Agile development takes a more iterative approach, doing small ‘sprints’ of development and constantly
reviewing progress. At the heart of this is an open, collaborative team approach amongst programmers, rather
than the more individually oriented traditional approach.
Performance management is traditionally managed using a waterfall-type approach. An annual process is run,
reviewing an individual’s performance in line with cascading organisational goals. It is linear, ordered and
relatively fixed.
It has become trendy to disdain this approach.
Traditional performance management is staid and
boring while agile performance management is
dynamic and engaging.

Businesses do need standards and policies around processes like performance management, and that can’t be
ignored in any changes to the model. However the business environment we work in is changing faster and
faster, so organisational goals are changing more quickly too – performance management needs to support
that.
Employees are getting feedback all the time from a wide range of sources, especially if they are working in an
agile type environment and the concept of a traditional manager is also being challenged. The team are self-
managing. Having a rigid feedback process doesn’t fit so well with that.
Today’s reality for HR teams is that performance management, no matter how agile, still needs to be aligned
with corporate goals, still needs to be documented, and you still need to provide the right kind of support to
both managers and their staff.
Technology has a role to play in confronting this challenge of getting more agile, while meeting the needs of
the enterprise. Agile processes need agile technology, so a monolithic HRIS will struggle to support the HR
team’s needs.
Make sure you know how agile your technology is in responding to change because that’s the game these days
and surprisingly some of the big players in the market are much more rigid than you would think. Don’t think
of a performance management process as a problem that you can solve and move on. It’s dynamic and needs
to respond to the environment, different CEOs and different market conditions. Your needs will change, so
choose an agile system that can respond to that and will support your organisation in making fast changes.

Software-as-a-Service (SaaS) is helping to drive agility.
It can be implemented relatively easily, is simple
for users to learn and use, and is constantly being
improved by innovative developers.
There is also the emergence of ‘social’ technology tools, where social media type approaches are being used
to support HR processes.
Some of this technology is in the ‘hype’ phase, and will take some time to mature and be ready for
widespread adoption, but it’s still worthy of evaluation by anyone interested in HR technology.

Looks cool, but is it relevant? Evaluating
new technology for performance
management
There are so many new features being built into performance management technology that you could be
forgiven for saying “Looks cool, but is it relevant?”
That is actually the right question to ask. How far do you want it to be about the technology rather than the
process? For example, is it really helpful to have a feature which drafts manager comments based on their
rating - how authentic is that?
Don’t let technology determine your approach. Avoid unnecessary distractions and options that only have
‘entertainment’ value. It’s important to achieve a solution which makes the core task at hand more
effective. Keeping the look clean and the process simple and intuitive is critical to success with new
technology.
Integrated options can look attractive but can be deceptive. In practice a lot of the theoretical benefits of
integration are never realised, the possibilities are elusive and organisations put up with inflexible systems
which never realise the potential they were sold on.
That’s partly because, whilst the vendor may have a suite of products, they are often from an amalgamation
of companies that they have acquired, giving only the appearance of integration. In reality you have the same
tasks to integrate the systems as if you would have had with multiple vendors, but you don’t have the
flexibility to choose the best-of-breed match for your needs and the flexibility to change components if your
needs change.

Don’t assume that one vendor can meet all your needs and it will be easier than dealing with multiple
vendors. It’s far better to deal with people who know their stuff than someone who has to refer every
question to an expert in another time zone.
Analytics are also critical, with the advent of data warehouses and the need to integrate data from HR,
Finance, Sales, Marketing, and Operations; why would you want to build your company dashboard or analytics
capability in a way that locks you into one vendor?
Talent management is important but the organisations that do this well are targeted with their effort. Some
companies are so large (10,000+ employees) they need technology to help them recognise who people actually
are. If your organisation is not that big, don’t go over the top.
Talent Assessment is one thing, but companies usually struggle with actually putting development strategies
together and putting them into action - so don’t forget that part of the equation. It’s not about gathering
information on everyone for the sake of it.
You need to get the balance right between a long term talent focus and the here and now. Understand that
assessing current performance is the foundation of recognising and developing talent. Don’t get too carried
away trying to predict the future without ensuring the foundations are in place!
Fundamentally, applying new technology to performance management should be driven by achieving
alignment.
From a CEO’s perspective, they want to know exactly what personal activity is being done to contribute to
overall company goals – that’s the real strategic value of performance management. This seems achievable
with an inspiring leader, who has a clear vision and a team small enough to relate with each person
individually every day. In large complex organisations the work needed to achieve the same alignment seems
nigh impossible. The disconnection between overall corporate goals and an individual’s delivery can be huge –
resulting in lost productivity and waste. Therefore, make sure your process can align quickly to changes in
strategy.

We often see the way an organisation “aligns”
individual performance objectives with
organisational strategy, is to “replicate or cascade”
a high level goal, such as “growth in net profit”.
The further away from the top of the organisation,
this is cascaded to, the more disconnected the
individual is from knowing the pathway to deliver.
How can customer service officers impact net profit? – they need to be shown the way. E.g.: “Effectively,
and without rework, resolve all customer queries within one day of receipt” – can then be connected to the
company goal –this way they are able to see the “value tree” from their role up to the organisational goal.

To Sting or to Sing?
Getting your performance management system to ‘sing’ rather than ‘sting’ is actually about the need to
simplify. To get away from our tendency to overcomplicate the process, to want to introduce fancy
technology that looks good but doesn’t really deliver what we need – a clear alignment of individual
performance with organisational outcomes.
Getting your performance management framework right is crucial, and then using technology to automate and
streamline those processes, making them visible to everyone involved.
Above all, it is ensuring the work of your people, the ‘assets’, is contributing to the organisation’s outcomes.
When that’s happening, as HR professionals we become as valuable as those measuring and developing other
assets.

About Pivot Software
Pivot Software helps organisations use technology to improve their control over complex and often emotional
human resource processes. Productivity, enhanced transparency of outcomes and improved employee
engagement are just some of the positive impacts of implementing our technology. As human resource
professionals, we understand how well managed remuneration and performance management policies bring
organisational values and principles to life. We enable HR interactions that are meaningful and beneficial.
Conversations between managers and staff are supported, and not replaced, using our solutions which are as
easy to use as a simple website.
Over 50 organisations across Australia and New Zealand use Pivot’s solutions, with the majority coming from
the energy, resources, financial services and professional services sectors. The HR policy and strategy needs of
our clients are met using a secure, internet-based, highly configurable software-as-a-service model that fits
within any corporate IT infrastructure. Our clients enjoy a time-saving solution designed for the task; not a
generic tool that is ‘made to fit’.
Pivot Software (New Zealand) Limited Pivot Software (Australia) Pty Ltd
Phone: +64 3 359 1707 Phone: +61 2 9911 4016
Email: info@pivotsoftware.com Email: info@pivotsoftware.com
Address: Address:
Pivot Software Ltd Pivot Software Ltd
PO Box 20 348 PO Box 5373
Bishopdale West Chatswood
Christchurch 8543 NSW 1515
New Zealand Australia
Copyright © 2013 Pivot Software
All rights reserved. All trade names referenced are the service mark, trademark, or registered trademark of the respective manufacturer.

References
i From Capability To Profitability - Realising The Value Of People Management. The Boston Consulting
Group And The World Federation Of People Management Associations. Authors Rainer Strack, Jean-
Michael Caye, Carsten Von Der Linden, Horacio Wuiros And Pieter Haen. July 2012.
ii 2012 Aon Hewitt Best Employers In Australia And New Zealand, Highlights Report

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Does your approach to Performance Management ‘Sing’ or ‘Sting’?