Managing Performance

About a decade ago, the Toronto based company Rypple (acquired by Salesforce in 2012) popped onto the tech scene and made a lot of noise with their very loud marketing strategy that claimed Employee Performance Management systems are broken. Their argument was that current performance management systems and processes as practiced in most companies don’t work, are more of an employee demotivator than a motivator and are primarily HR driven compliance systems versus systems and processes that drive better organizational performance. While not being fully in their camp, I was more in agreement than not, but for different reasons than Rypple articulated.

I believe most employee performance management systems and process are too complex. As a result, they are not used or are paid lip service and as a result, they become a compliance process versus a value-added management tool. Overlay them with Performance Improvement Plans (PIPs) and complex termination procedures and it is no wonder that operating managers become frustrated with Human Resources practitioners.

A few years ago, a friend shared their challenge of terminating an employee. The employee probably was never a great fit for the role when they were hired but the company was growing rapidly and decided to make do. As time went on, the requirements of the role morphed and the employee became even more challenged to meet their boss’ expectation but because of higher priorities, the issue was never dealt with. During this period, the employer had been trying to support and grow the employee into the role without success, but it was obvious to the manager, the employee and their peers and subordinates that the employee was struggling. Finally, a decision was made to terminate the employee. At that point, HR was brought into the process and insisted on putting the employee on a PIP.

One of the hallmarks of a good performance management system is that an employee should never be surprised when terminated to find out that their performance was not meeting expectations. When used correctly and early, a PIP is a useful process to notify an employee of serious performance gaps and put actions in place try and close the gaps. Unfortunately, this is rarely how PIP’s are used. Most PIP’s are put in place as an HR compliance process, long after the manager has already concluded that the employee is not salvageable and needs to go. As a result, PIP’s have a stink associated with them that they are a pre-cursor to termination. As a result, even a salvageable employee who is put on a PIP will take this as a sign that their career is over at their company and will begin their job search which will lead to them leaving even if they pass the PIP.

In the case outlined above, HR wanted to put the employee on a 90-day PIP, even though the employee and his manager has been discussing the employee’s performance for many months and the performance gaps were obvious to all. So, for the next 90 days, the employee left the office every evening stressing over the PIP and when finally terminated, was given an average severance and left the company feeling like they were a failure, which was exasperated by the PIP process.

Many years ago, I had made the same mistake as a leader. I had a manager I had recently hired that was not meshing with their team and not performing at the same level as their peers. Employees were by-passing their manager and coming directly to me in open revolt. In discussion with HR, I was advised to investigate to make sure that I wasn’t only hearing one-side of the story. I discussed with the manager what I had been hearing from employees and was told that this was just a disaffected group and that I should talk to employees whom liked working for the manager. I asked for names I should talk to and when I did, I discovered that they liked her as a manager because they never heard from her and that she wasn’t holding them accountable as she should have been. After further discussion with HR, I was informed I should put the manager on a PIP, which I unfortunately did.

For the next few months, I spend a great of management energy proving my case that the manager was not a fit. When I finally released the manager, they took legal action to get a greater severance. Prior to a court date, mediation was required. The mediator was a retired labour lawyer. After hearing both sides, the mediator met with me. He told me he was going to recommend greater severance. He then gave me the following advice. He said, “employees don’t like to see other employees hurt, even when they don’t like them. They just want them gone.” He went on to ask me to add up “the cost of the 3 months of salary the manager was paid while on a PIP, the cost and distraction on my time and HR’s time spent managing the employee during the PIP, and the HR and Legal cost versus the cost of the additional severance he was recommending.”

The former was much greater than the latter. Then he asked “when I really knew the manager was going to be terminated?”. I said at the end of the PIP, to which he replied “Bullshit, that I knew shortly after employees started coming to me and when I also heard the other side of the story”. He was right. He then told me, “next time, terminate the person as soon as you know for sure, and take some of the money saved on the PIP and their salary to offer a more generous severance. This will make the terminated employee go away and leave others in the company feeling the employee was treated fairly.” I have never done a PIP since.

After that, whenever HR raised the suggestion of putting an employee on a PIP and if I had already had made up my mind, I replied that I won’t do a PIP, that is would be disingenuous to suggest that the employee could keep their job if they passed the PIP and if really pushed by HR, I would ask them if they are recommending that I lie to the employee by telling them so. That usually ended the discussion.

So how do I do performance management. I have a simple system. I stack rank all employees under my span of control against my expectations of performance for someone at their level. This means a junior employee who is doing better than expected, will sit higher on the performance rank than someone more senior who is performance at or below expectation. Stack ranking is like a lifeboat drill. If the ship is sinking and you don’t have enough lifeboats to save everyone, who do you put in the first, next, and last.

Once the stack rank is done, divide the list in quartiles. I care most about the first and fourth quartiles (the highest and lowest performing). For every person in the first quartile, I expect to see a strong career development, promotion and retention plan. For every person in the fourth quartile, I expect to see and equally strong development plan to get them out of the fourth quartile within one to three quarters timeframe.

So that there is not a stigma about being in the fourth quartile (meaning an employee is about to get fired), top performers who have been in the first quartile arbitrarily move to the fourth quartile when promoted, because they are new that their new job and the performance bar is now higher.

Each calendar quarter, the leadership team does another stack ranking. Perennial inhabitants of the fourth quartile are soon identified. Managers, who has tried quarter after quarter to improve their performance, become the champions of recommending termination, versus termination being imposed from above.

I am sure there are many other ways of managing performance, but for me, simpler is better.