The disconnect comes in how the current static goal-setting process does little to bond individual performance to evolving corporate goals. Overall, eight out of 10 companies surveyed report a goal-setting process in place, yet the majority of these targets were set annually and none had a direct connection to corporate goals on an ongoing basis, according to T he Performance Management Practices Survey conducted by Performaworks Inc.
With goals being set annually, then by definition it would be difficult to adjust individual performance targets to shifting corporate strategies, something that three-quarters of the respondents experienced this year. Further, 35% of surveyed HR managers reported M&A activity at their company over the past year, 50% reported significant leadership changes and 26% reported significant strategy changes.
“Most large companies surveyed – 88% – expressed a desire to evolve their performance management system to a strategic process,” said Paul Schaut, President and Chief Executive Officer of Performaworks. “But this is very difficult to do with the manual systems that most companies use that do not allow them to adjust expectations or develop employees on an ongoing basis. They realize that performance management is not just about automating annual performance evaluations, it is also about establishing an ongoing process that aligns employees to corporate strategy and one that facilitates a continuous cycle of planning, performing, and reviewing.”
Performance Review – Review
The study calls into question the process of evaluating employees solely on competencies, without looking to goals of importance to the company. Instead of looking at if any employee is a “good communicator” or “works well with others,” the study says HR managers need to realize the question to ask is, “have they achieved their goals?” Most employees set goals but these goals are not aligned to corporate initiatives, or even their manager’s goals, and need to be.
Therefore, competency models and development plans have become more valued. Establishing individual, business unit and corporate competencies as well as the mechanism to facilitate these competencies becomes more of a priority. Most companies currently have less than a quarter of their employees using competency systems and 69% using development plans.
The study found to maximize the performance management system’s effectiveness, the system should directly feed variable pay. In about half the companies surveyed, variable pay plans cover less than 25% of employees, with plans that cover most or all employees in place at only 16% of companies. However, the study data shows over the next two years, almost 75% of respondents plan on a gradual penetration of variable pay into a larger percentage of the workforce.
The survey polled 56 North American HR managers at companies with 2,000 or more employees. More information and a copy of the full report can be found at www.performaworks.com .