Performance management (PM) can be a leverage point for change in Trinidad and Tobago as there is a gap between productivity and reward at the national level, which culturally and systemically infiltrates private firms and the public sector. The WEF (2017) reports ‘poor work ethic in national labour force’ as the most problematic factor for doing business in Trinidad and Tobago. Given this context, this article will explore how effective performance management systems can be used by organisations to close this gap.
The bell curve and kurtosis
The normal distribution fits many natural phenomena including behavioural and social sciences. It describes how data observations generally cluster around a central peak (average) and taper off to either sides of a bell curve in a symmetric manner. The blue curve illustrates this symmetry around a score of 3 when accounting for performance appraisal scores between 1 and 5. The red curve shows skewing to the right and kurtosis (sharpness of the peak) around a score of 4.
This bell curve can be used to analyse performance in an organisation by ranking employees on this simple scale of 5. With 1 representing non-performers, 2 – below average performers, 3 – average performers, 4 – above average performers and 5 – high performers. Naturally, most persons can fall between 2 and 4 (70 per cent according to some experts) with the most frequent category being 3 as this represents meeting the expectations of the job. While this may be considered a ‘forced ranking’ method, the calibration of performance to objective targets can be done no other way. Underperforming organisations often render performance curves that resemble the red one above. This is underpinned by a sentiment where employees peg themselves as more productive or talented than the average worker, but logically a majority cannot be above average. Many socio-cultural and psychological factors can be used to explain a false sense of performance, e.g., the Dunning-Kruger effect, Johari blind spots, etc. However, in the case of Trinidad and Tobago, it can be suggested that our false sense of productivity is rooted in our relatively high standard of living. This is sustained by our natural mineral resources, as our innovativeness and labour market competitiveness as evidenced by WEF 2018 sub-indices remain relatively low, e.g., Cooperation in Labour-employer relations (140th /140 countries) and Growth of innovative companies (125th/140).
Additionally, if a significant amount of employees are surpassing expectations, consideration should be given to changing the performance targets, but therein lies the problem as these targets should be based in some objective system. Trinidad and Tobago and the wider Caribbean traditionally have not been very systemand data-oriented, which translates to underdeveloped performance management systems in local firms. Management information systems can overtime change culture as they provide transparency and alter narratives and belief systems. Such systems do not have to be complex or based in cutting-edge technology to impact peoples’ behaviours; they need to articulate and impose clear and simple truths. Let us look at the workings of a basic performance management system.
The performance management system
Any performance management system must start with the end in mind. All components should be aligned to the strategy (vision and mission) of the organisation and must be underpinned by the organisation’s core values. The system should speak to accountability at all levels of the organisation (management, team and individual). Once you have clearly articulated your mission, vision and core values, develop and cascade your performance management system as follows:
1. Develop objectives
a. In aligning your performance management system to the strategy and core values, objectives should be stated as outcomes and not outputs. For example, implementing a customer portal is an output; improved customer satisfaction is the outcome. New processes or systems can be implemented within time and budget, but the overall outcomes such as reduced cost or increased customer satisfaction may never be realised.
b. Objectives should speak not only to what outcomes are achieved, but how the company or individual goes about doing it. For example, corporate social responsibility objectives should be built into the scorecards of executives; likewise, adherence to core values and ethical practices should be embedded in the objectives of individuals.
c. Objectives should be Specific, Measurable, Achievable, Relevant and Time Based (S.M.A.R.T.). d. Consider business drivers for achieving your objectives. These drivers should also be articulated as objectives. For example, your business model may link customer satisfaction to employee satisfaction. These cause and effect linkages are useful in calibrating performance issues.
e. Cascade company objectives to team and individual employees. The same cause and effect analysis can be applied here. For example, what are the things that individuals should do well in order for team objectives to be met? Translate these drivers of team outcomes into individual performance appraisal objectives.
2. Develop measures
a. Each objective should have one or more measures, but avoid wasting time measuring everything related to an objective. Focus on the key performance indicators (KPIs).
b. Consider both leading and lagging measures for each objective. Lagging indicators speak to outcomes that the individual or team is trying to achieve and normally are measured at the end of a reporting cycle. Leading indicators measure the theorised drivers of these outcomes during the reporting period. Here the leading indicators should predict whether outcomes will be eventually met, however, this is not always realised. This raises the question of doing the wrong things the right way vs doing the right things. This distinction allows you to calibrate your initiatives/activities to better align to your objectives.
c. Consider all the components of your value chain: suppliers, inputs, processes, outputs and customers. This will provide context for determining leading and lagging KPIs.
d. Do not cascade measures. Cascade your objectives to the individual and then determine a suitable measure. For example, a sales KPI for a department may be easily disaggregated among individual sales agents, however, the KPI may not be easily applied to support staff. Cascade the objective of increased revenues by determining what support staff are required to do in order to drive this outcome. For example, develop KPIs around the scanning of supporting documents.
3. Develop targets
a. Avoid absolute targets such as complete all applications in five days. Allow for acceptable variance around a given service level agreement, e.g., complete 95 per cent of applications within five working days.
b. As much as possible, base targets on historical data analysis and/ or industry benchmarks. Where neither of these exist, consult with other subject matter experts to create a baseline.
c. At the individual level, the target should represent achieving a 3 on a scale of 5, or a 2 on a scale 3, i.e., the middle of the distribution. Determine target ranges that objectively place employees into the various buckets on your distribution.
4. Implement and calibrate
a. Before implementing new measures and targets, mangers should discuss with the employees being appraised to ensure buy-in, fairness and a common understanding.
b. Have periodic check-ups on employee performance. Do not wait until the end of a reporting cycle to reveal underperformance. Use coaching sessions and mid-year reviews, along with your leading KPIs, to provide direction and feedback.
c. Your current way of operating may not be sufficient in meeting new strategic, operational and individual level targets. At each level, determine the activities that will help you meet the targets:
i. Company level initiatives that transform your business model towards achieving strategic targets
ii. Operational or departmental projects or continuous improvement aligned to achieving operational targets
iii. Individual development plans to help employees achieve their targets
d. Your objectives and measures should be consistent, however, continuously review your initiatives to ensure that they are relevant to achieving your objectives.
e. Reward employees and managers for meeting and exceeding individual, team and strategic targets.
f. If targets are being consistently exceeded, e.g., more than half of your employees have exceeded a particular individual target, it may be time to increase targets.
g. Document clear procedures and consequences for underperformance. Make this transparent and consistent to all employees.
h. Track and store your performance data in a manner that facilitates the generation of analysis and insights into calibrating performance.
The outcome
A systematic approach to PM, i.e., objective, transparent, consistent, fair and aligned to your strategy, will render systemic benefits. Reward, recognition, succession and strategic workforce planning become simpler and less contentious. This in turn positively impacts employee experience and morale throughout the organisation. As a system of meritocracy takes hold, some individuals who do not belong where they are may naturally move on, while others may resist. However, an effective performance management system at work can address any resistance. ‘Forced ranking’ ironically provides natural buckets for employees, which facilitates a more targeted approach to performance management (avoids broad brushing) — exit strategies for consistent nonperformers, developmental strategies for average performers and succession routes for high performers. I would add the caveat that a high performer in one role may not be a high performer in another; as such, compliment the performance management system with the necessary psychometrics.
The adoption, implementation and enforcement of effective performance management systems in both the private and public sectors will propel meritocracy as a core value into wider society. The systemic implication of this over time is a transformed national culture that enables and sustains competitiveness in a disruptive global economy.