Making Performance Reviews Pay Off

Creating a system to measure employee diligence can be well worth the effort, but only if star performers receive the rewards they deserve

By Karen E. Klein

Q: We are looking to add measurable standards to all of our job descriptions and link achievement of those standards to merit-based pay increases. Do you know of any good references that would help us in this endeavor? -- J.S., Westbrook, Me.

A:

Defining employee-performance standards and then finding a fair and accurate means of measuring how your employees are living up to them are tough tasks, ones that will take a good bit of time and commitment from everyone at your company, according to human-resources experts. Since department heads and employees typically need training on how to go about the process, you may want to invest in an HR consultant who specializes in this field and can help you get started. At the very least, experts say, you should pull together a group of managers and employees who can give you input and help implement the new standards.

As you develop the standards, stay away from lofty, unattainable goals and vague language. Performance standards should be observable, measurable, challenging, realistic, and relevant, says Mae Lon Ding, a compensation and performance-management expert with Personnel Systems Associates.

SPOIL THE BEST.

  "Standards should be developed to cover each important accountability in the job," Ding says. "In addition, measurement needs to be accurate, regular in occurrence, understandable, administratively feasible, and reported back to the employee regularly -- more than once a year." Developing standards and measures is a skill honed with experience, she explains, adding: "I encourage companies to think of this as an ongoing process, where, each year, you review what works and what doesn't work, so that standards and measures can be refined."

Once performance standards and measurements are in place, the next challenge will be to provide rewards substantial enough to motivate additional effort. "A 1% or 2% differential in annual base-pay adjustment between mediocre performance and good performance, or between good performance and outstanding performance, may not be sufficient to motivate a significant increase in effort," Ding says. Have your committee or consultant talk to the workforce about the size and form of merit pay. Would cash bonuses or profit-sharing be acceptable alternatives to straight pay-increases?

Many managers are likely to resist investing the amount of time required to develop high quality performance standards and measurement processes, so be prepared to sell the idea to your middle management. With proper performance rewards, however, your company may well see a significant improvements in diligence and effort.

GOING BY THE BOOK.

  There are a number of books aimed at teaching employers how to set performance-management standards. A few recommendations, all available at Amazon.com: The Performance Measurement, Management and Appraisal Sourcebook, edited by Richard W. Beatty, 1995; How to Measure Managerial Performance, by Richard S. Sloma, 1999; and Sample Employee Performance Measures, by Jack Zigon, 1995, which includes performance standards guidelines for 140 positions in 11 different industries.

The U.S. Office of Personnel Management addresses employee performance on its Web site, www.opm.gov/perform/overview.htm, and includes a downloadable form for setting performance standards, www.opm.gov/perform/articles/1999/pdf10.htm. The Management Assistance Program for Nonprofits has a good discussion of performance management on its Web site, www.mapnp.org/library/grp_perf/grp_perf.htm, along with links to other sources of information, including human resources newsgroups and online discussion groups that might be particularly helpful.

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