learning

Performance Appraisal and Finance: Avoiding the Hidden Costs

Performance appraisal costs a lot of money. A real lot of money.

First, of course, there's the time involved, from
  • Deciding the form and format to use...to
  • Identifying, with Finance, what the available budget will be for any associated salary increases or bonuses...to
  • Determining and coordinating the schedule by which the appraisal process will be executed across the enterprise...to
  • Determining how the salary and bonus numbers will be communicated to all levels...to
  • Training management in legal requirements and correct completion of the forms...to
  • Training (or at least, hopefully, guiding) employees in their part of the process...
...all of which (and more) finally gets you to the actual completion of the forms for every employee and then the individual meetings with each employee.

Okay, those are just a sample of the visible costs - because every minute that's spent on the appraisal process is time not spent on necessary productivity, customer support and profit and revenue generation.

Now let's look at the hidden costs - because those are exponentially higher than the ones you can see, track and manage.

As soon as your employees know that performance appraisal season is at hand, their attention has officially strayed away from their regular job duties and your organization's critical mission.

It doesn't matter what your mission is. Nor does it matter whether the employees are high fliers or low performers. They're distracted. And rightfully so.

Performance appraisal is rarely used as a positive, developmental tool - no matter how it's presented to the staff. As a result, employees are justifiably concerned about what, exactly, the appraisal is going to be used for.

More than that, they wonder how they and their performance are going to be presented to them by management. They believe they need to be prepared to respond to any information (or misinformation) they hear, practice appropriate responses - and, most important, they're going to speculate about why. 

Always remember: Your employees aren't stupid. You wouldn't have hired them if they were. That means that they're looking at any number of possible scenarios that the management team might be working toward or operating to - any or all of which will impact them and their families. Probably not well.

It's that distraction that gives you your first level of hidden costs - because all of that is taking place before you've even done the appraisal.

Next comes what happens after...and it's worse.

Your employees aren't going to be happy with the process, the verbal appraisal you've given them, the results or, particularly, their ratings - whether in numerical or word scales. If you've got any raises or bonuses attached to the process, they'll be even less happy with those.

On a practical level, what you're doing with the performance appraisal process (and, btw, you can call it '360 Degree Feedback,' 'evaluation,' 'review' or anything else - it's the same thing in your employees' eyes) is telling them what you think of them. And, if you follow the path of too many HR organizations, what you're telling them is that they're 'average.'

Sure, you appreciate their work - but it's average. And average people get average ratings. They also get average salary increases - if they get increases at all - and forget about a bonus.

It doesn't matter that your people live their work lives end-running all the management systems that keep them from succeeding to the extent they'd like. It doesn't matter that they've not been adequately trained. It doesn't matter that they have no idea exactly why they're being asked to do the work they do.

All of that comes from management. But, when it's performance appraisal time, what they see is that for all that they try from within the system to do what management wants (and needs) them to do - that same system is now telling them that they aren't very good at it anyway.

They're average.

What would you do? How would you react? 

And what does that dissatisfaction sound like throughout and beyond the enterprise - from hallway conversations to email, Facebook, Twitter and Whisper?

All of which makes your organization a less attractive employer...which further lessens productivity. It also decreases innovation and puts your competitive position at risk.

Performance appraisal as a developmental tool isn't hard. It just takes a shift in perspective and a commitment to a different, more holistic way of building your enterprise.

The faster you make the shift, the more quickly you'll see the results in productivity and profit improvement.
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Please note that nothing expressed above constitutes legal advice.

Performance Appraisal: What Do You Do with Your "Lowest" Performers?

Depending upon whose account you've read, when Jack Welch ran General Electric, the company's performance appraisal policy was to fire the lowest 10 (or 15 or 20) percent performers.

All based on their performance appraisal numbers.

Welch's thinking was that, whatever that percentage was, those people weren't fulfilling what the company needed, so why keep them? Better yet, since all the employees knew that that would be their fate, they'd work all the harder to perform all the better all year round.

And because it was Jack Welch, organizations worldwide adopted the policy and applied it to their own organizations.

Big mistake.

It doesn't work the way he thought. In fact, his was bad and counter-productive organizational thinking on two different fronts:
  1. Most appraisal-related numbers, no matter how hard management tries, are arbitrary, and
  2. By letting those folks go, you're adding costs to and losing opportunities for your operations and organization.
Here's how I know.

Numbers are numbers - even when descriptive words are attached to them. But the numbers and the words are still being interpreted by the person doing the appraising.

Is a 5 the same thing to you as it is to the rest of your colleagues? How about a 2 or a 3?

Do you all define, perceive and understand the descriptors the same way? Do the descriptors apply the same way across departments? Divisions? Corporate headquarters or a remote location?

How do you know?

Whether you're management or a first line employee, you're going to interpret the number, the description and the performance based on your own frame of reference. Yours. No one else's.

And, let's be honest, if you're in management, you're looking at your employees' performance through the filter of how your particular function, department or division is performing. After all, their performance determines the way that your performance is perceived by your management.

Managers can be trained and trained and trained again on the categories and criteria of the performance appraisal process - and you're still going to find inconsistencies across the organization.

You can't help it. Numbers and their associated descriptors are perceived and interpreted. That makes the results arbitrary - because an employee who performs the same way for two different managers is likely to be rated two different ways.

Now let's take it a step further. If you follow our friend Jack's advice and get rid of the 'lowest' performers, you've just dumped a percentage of your organization that has knowledge of how things are done - and how to get them done. You've lost specific expertise as well as the networks that those employees have developed to end-run problems, obstacles and any other form of dysfunction the organization presents.

So what do you do with under-performing employees? You ask questions. For example:
  • Have they been trained for the job they're performing?
  • When did that training take place?
  • What did the employee think of the training?
  • What was presented particularly well? What didn't fit or work?
  • Do they understand what they're being asked to do...and why?
  • Do they think that they're using their greatest skills?
  • When do they feel they're contributing the most to the organization?
  • How and when do they demonstrate those contributions?
What you're looking for is how to best utilize the knowledge, skill and experience that that employee already has - and then build upon it, whether in your department or another.

The more you know about your employees' skills, the more you can access and utilize them across the enterprise. Sure, it may mean that you're moving folks around - or changing and updating job descriptions. But the more you use the people you have...letting them use their greatest strengths...the more positive a culture you're building - and that translates to increased morale, productivity and profits.

This is not to say that there are employees who shouldn't stay with the organization. In those cases - because you already know who they are - it's your responsibility as a manager to take the necessary action. That way you become a hero for those of your employees (and you, too) who have been living - day after day - with the difficulties the truly problem employees create.

It's a win all the way around.
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Please note that nothing expressed above constitutes legal advice.

Performance Appraisal: "I neither agree nor accept."

It's performance appraisal season!

How do I know? Because, lately I've been getting calls from friends, colleagues and even former clients who are either getting ready for or are in the midst of their annual performance evaluations.

The one constant - no matter their level in the organization or the specific industry, sector or country they work in - is that no one is happy with the process.

They have every right and reason for that feeling.

In the vast majority of cases, there's no reason to be happy with performance evaluation systems. That's because they rarely do what they're supposed to do: Develop.
Develop the employee.
Develop the culture.
Develop the organization.
Develop profits and revenues for the organization and success and a sense of accomplishment for the employee.
Instead, they're more often used as a punishment tool or a box-ticking exercise by management. That not only defeats the purpose, but also adds exponential costs and lost opportunities to the organization.

I'll get into how all of that plays out in later posts, but, let's be specific for the moment.

What should you do as you're getting ready for your evaluation?

When I'm asked for my advice, the first thing I  say is:
You don't have to accept the evaluation you're given - not psychologically, emotionally nor in writing. The only time you accept is when you see merit in it and can agree with what's been written as being wholly representative of your performance.
In fact, just in case, I teach everyone the same sentence:
"I neither agree nor accept."
And I make them repeat it to me - many, many times - as our preparatory discussion ensues.

Why that sentence? Because it's liberating. It means that you're not just sitting there as a target for whatever impressions, thoughts, ideas or agendas may be thrown your way.

Too often, employees feel powerless in the evaluation process. It doesn't matter whether you're being asked to evaluate yourself or you're reading your manager's evaluation. It doesn't matter whether you're a front-line employee or have an office in the executive suite.

You sit. You listen. You feel violated.

Not if you neither agree nor accept. Better yet, not if you tell them so.

The thing is - to be able to make your case, you need to be prepared. You need to:
  • Get a copy of the blank evaluation form prior to your appraisal and become familiar with its criteria
  • Get a copy of your job description and review it before you fill out the appraisal form or have your appraisal interview
  • Put together a portfolio of your accomplishments for the appraisal period - with as many soft and hard numbers as you can include - that address the appraisal criteria and demonstrate how you've fulfilled and exceeded the criteria and your job description's responsibilities.
By doing so, if you disagree with your management's assessment, you have specifics and associated documentation to support your comments. You're not just spouting off. You're making a reasoned and reasonable case for your management to re-think their evaluation of you.

Because you deserve it.
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Please note that nothing expressed above constitutes legal advice.

Why you really should be reading John Paczkowski

Ebay has announced that it's splitting the company in two. PayPal will soon be a completely separate entity.

Okay, that's the news part of this post. The really interesting part, though, is why you really need to be reading John Paczkowski's "Code/Red" column each weekday.

In an article entitled, "eBay to Spin Off PayPal With New CEOs for Two Publicly Traded Companies," parent publication Re/Code presented the news this way:
"After resisting activist shareholder pressure to do so earlier this year, online commerce giant eBay said today that it plans to separate its eBay e-commerce business from its PayPal payments unit, creating two independent publicly traded companies."
That was written by Kara Swisher, Co-Executive Editor of Re/Code. She is - rightfully and often - cited as the scariest woman in the Silicon Valley. She's honest and forthright and has been telling the truth about what's going on...and by whom...in the Valley and tech sector since the 1990s.

The article does what it should do. It informs. It engages. It's slightly snarky. It makes you want to read more on Re/Code by Swisher and their other writers.

But when she and her Co-Executive Editor, Walt Mossberg, wanted a very specific voice and take on the Valley and sector, the person they both wanted was John Paczkowski. Here's why.

In his Code/Red post on the same topic, he wrote:
"Carl Icahn is even more insufferably smug than usual today. After months of rebuffing Icahn's calls to spin off PayPal, eBay said this morning that it would do just that, creating two independent publicly traded companies next year. EBay's shares are soaring on the announcement, and Icahn's stake in the company along with them. The cantankerous billionaire is eBay's sixth-biggest shareholder, with nearly 31 million shares, about a 2.5 percent stake in the company. EBay shares are up about eight percent as I write this, which means Icahn's stake is worth about $140 million more now than it was yesterday at market close."
The title of the post is "Carl Icahn to eBay: Great Transaction! Highly Recommended! A+++ Fast Payment!!!!"

You gotta love it.

I always recommend reading. When it comes to business, I also always recommend reading about industries that aren't yours so that you know what the rest of the business world is doing and thinking about.

Add Paczkowski to your reading list...Re/Code, too. You'll learns a lot - and have lots of laughs in the process.

Secrets of Success: You're Not Alone

Today, as I was reading the truly excellent OpEd piece on the Business of Fashion site, I was reminded of what always struck me as the stupidest series of questions I almost invariably got when I was a C-level advisor talking with a new client. Here are the two versions of how it went:

Version 1:
Executive: Have you worked in our industry before?
Me: No.
Executive: Well, we're different.
Version 2:
Executive: Have you worked in our industry before?
Me: Yes.
Executive: Well, we're different.
Do you see a pattern here?

The thing that continued to amaze me - and does until this day - is the provincialism and insularity of each industry or company. Everyone thinks that what they're experiencing is different from what everyone else is experiencing.

They're wrong. And if you think that way, you're wrong, too.

Sure, there are nuances that are industry or company-specific. In fact, they're function-specific, if you want to get down to that level of detail - which, eventually, you do.

But to think that you're living in some sort of vacuum and can't learn from other industries about how to get over and beyond humps and hurdles is not only short-sighted, it's dangerous.

Granted, each industry goes through its own version of a set of problems that the industry has to solve for itself. Those within the industry that learn and grow fastest and best are the winners. The laggards either stay that way, have to work WAY harder than before to catch up or go out of business whether through M&A (if they're lucky) or closure.

What's always worth watching is how each industry is addressing, embracing and integrating the challenges it faces. That arc is your lesson.

That's why the Business of Fashion OpEd was so important. It talks about how the "businessmen" in both fashion and media have taken innovation out of fashion. How, by corporate ownership industrializing design to the point of sameness (for which read blandness), real creativity is either threatened, gone or only coming from the really courageous designers or those outside the mainstream industry.

Innovation is everyone's job in every industry and sector. From small, almost unnoticeable tweaks in how you do business to new product or service launches that change the world (or at least your industry), innovation is key to success.

So why wouldn't you read a piece focusing on the threats to innovation written about the luxe industry and fashion, in particular?

If you're smart, you would. In fact, if you intend to succeed, you will.

Don't be insular. Don't think you're different - at least not at first.

Start by knowing that others - before you and currently, in your industry and out - have and are facing the challenges that you face. Then be open to learning from them.

If you do, eventually they'll be learning from you.
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Who Watches the Watchmen? (Business of Fashion)