It's Performance Development Review (PDR) season at work. A lot of people have been complaining about our PDR system, largely because it is so time consuming and complex. The form itself is 20-30 A4 pages (depending how verbose you are in completing the sections) and takes several hours to complete. There's also a quite complex link to pay. Much of the complexity links to the fact that pay is centrally controlled. This got me to thinking about PDR systems, how they relate to pay and how the whole thing could be simplified. I'm assuming a total green field and the only restrictions are what is legal and achievable.
I should possibly say at this point that my job is busines analysis which is largely about redesigning and implementing business processes, and IT systems to support them.
First off the PDR form and how it is used. The form itself I see as being 2 pages, or rather two sides, of A4. It could even be set up as two tabs in a spreadsheet. If individuals want to attach extra sheets of narrative or detail that's up to them. Typically the only people who will see a form will be the person it refers to, their manager and their manager's manager. HR may, in response to a complaint or query or as part of a random or scheduled spot check/oversight, also see them but would not usually get involved.
Side one of the form has at the top the basic identity information of whose PDR it is (the direct), who their manager is and the relevant dates. Immediately below that are three boxes for objectives for the coming year, each person having one to three objectives for the year. I realize that that might seem like an incredibly small number but objectives should be broad and quite high level and, as Drucker said, a person can only concentrate on one thing at a time, may be two. If you come up with more than three goals then you're probably trying to stretch your direct report too thin, some of the goals are 'nice to haves' rather than 'important/essential' or some of the goals can be combined because you've gone too detailed and/or prescriptive. Next section is a box for detailing what development the direct should have over the coming year with an indication of how it will be delivered. Finally, three signature boxes. One each for the direct, the manager and the manager's manager agreeing the goals and development. The reason for bringing in the manager's manager is both as a check (is the manager setting the bar too low or too high, are they agreeing unreasonable development, do they seem to be favouring some directs over others or are they setting objectives that don't serve the organisation's goals) and because they should have a broader view, as they probably manage more teams, so can spot common trends and synergies.
Side 2 is virtually identical to side 1, although you'd probably lose the top section of who it's for and their manager's details. Now, instead of talking about what the direct will achieve and do you're talking about what the direct has achieved and done then giving a score. The sign off box is agreeing the score. Exactly what scoring system to use depends on local preferences but I'd suggest either a 1 to 5 (1= objective not achieved or achieved well below expected standard, 5 = objective achieved well above expected standard and 3 = objective achieved to expected standard or not achieved for reasons outside the directs control) or Red/Amber/Green (mapping to 1, 3 and 5 in the 1 to 5 scoring system, maybe add other colour for the "not achieved for reasons outside the directs control" situation). I do think the "not achieved for reasons outside the directs control" situation should be addressed. Reviews tend to be an annual thing and a year is a long time, things change. It could be that an objective that was very important last year became unimportant. Maybe a goal depended on something else, or someone else, which fell through. A couple of classic examples are: The direct had an objective of achieving a certification that required them to attend a course but cuts to the training budget meant they were unable to attend that course; In a consultancy organisation the direct had a goal of being fee earning for a certain proportion of the year but changes in the market meant that their particular skill set was needed less so they had to spend time retraining and fell short of their goal.
A lot of people talk, and write, about SMART objectives. Specific, Measurable, Achievable, Realistic and Timebased. Mark and Mike over on Manager Tools recommend just looking at M and T in their podcast on setting annual goals, I won't rehash the rationale here but I do recommend everyone listen to that podcast (and their other podcasts), a lot of my thinking that has lead me to this post has been influenced by their podcasts. Whilst I agree with the arguments for MT goals my experience tells me that the A needs to be added back in (so it's a MAT objective), too often an over confident direct or over ambitious manager will put in a goal that simply isn't achievable. The check is needed. The objectives should, of course, serve the objectives of the team. Usually a good objective will be something that can be stated in one or two short sentences. For example "Be fee earning for at least 75% of year.", "Generate an average of at least 10 sales leads each month. Convert at least one sales lead a month into a sale.", "At least 60% 'Good', 'Very Good' or 'Excellent' rating on customer satisfaction survey by end of year.", "Issue an average of 50 or more parking fixed penalty notices per day, to be measured fortnightly. No more than 5% successfully appealed.", "Gain PRINCE2 Practitioner certification within 3 months" &c. You'll notice that every one of those has something that can be measured (mostly a number but in one case it's a yes/no, you either do or don't get the certification) and a time scale. The direct has something clear to aim for and knows when it's due, they can also measure their progress towards their goal. At the end of the year the manager has something objective to measure the direct against, there is some wriggle room for humanity and taking account of circumstance of course.
But what do you do where there isn't a clear measure? This is addressed in the Manager Tools cast on goals, listen out for the story of "John and the Gate Guards". In summary, if you can't measure the outcome itself find a proxy. Two of the example objectives I mentioned above actually use proxies. The first is fairly obvious, "At least 60% 'Good', 'Very Good' or 'Excellent' rating on customer satisfaction survey by end of year.", what our objective here is is to have satisfied customers but satisfaction can't really be measured directly, there's no meter you attach to your customer that will tell you if they're satisfied or not. What you can do is survey your customers and get them to tell you how satisfied they feel. Whilst for an individual customer this might not be a good objective measure (some people are never satisfied, or maybe have unrealistic expectations, whilst others are too polite to say when they're not) by collating the results of many surveys you can get a meaningful average while the outliers cancel each other out (although you should probably still talk to them to address individual complaints and find out what went particularly well). The second is less obvious, it is "Issue an average of 50 or more parking fixed penalty notices per day, to be measured fortnightly. No more than 5% successfully appealed.", more specifically the second part. It's easy to measure how many fixed penalty notices ware issued in a day, just count the stubs. What you cannot measure is if they were legitimately issued or if the direct just stuck them on 100 random cars then spent the rest of the day in the pub. What you can measure is how many were appealed and how many of those appeals were upheld, this is a proxy for the legitimacy of the issuance.
Once you have the scores obviously you want to do something with them, usually pay progression or regression. Many employers, especially in times of recession, try to centralise control on pay levels. Big mistake. The main things this achieves is putting an administrative overhead on the centre, slows the performance management process and removes a big chunk of the responsibility to manage from managers. Control on an individual's pay should rest with their manager, with oversight by their manager's manager and a right of appeal to the centre.
This can be achieved by assigning each manager a budget for their directs' pay and make them responsible for assigning it appropriately within the law and procedures of the company. They can then incentivise good performance and correct poor performance through pay (although other methods should be exhausted first). If someone leaves their team this also provides them with the choice of refilling the post at the same rate of pay, filling it at a different rate of pay or deleting the post and using the money saved to increase the pay of the remaining staff in recognition of the extra work they're doing. There would have to be a way for managers to bid for a budget increase, more senior managers to claw back excess and directs to appeal any reduction in pay before it happens.