How to Create an Employee Performance Management System

How to Create an Employee Performance Management SystemDespite the understanding that talent is a source of competitive advantage, establishing an effective performance management program remains a challenge for most organizations.

According to Mercer’s 2013 Global Performance Management Survey, only 3 percent of organizations worldwide said their performance management system delivered exceptional value, while almost half (48 percent) said their overall approach to performance management needed work.

The profile of pay-for-performance has never been higher than it is now, with everyone from academia to mass media weighing in. Most organizations are not satisfied with their pay-for-performance programs and there is a general sense of dysfunction.

According to Mercer’s survey, attracting and retaining the right employee ranks highest among expected outcomes of pay-for-performance programs, as reported by 86 percent of participating organizations. This outcome is followed closely by motivating employees to focus on the right things and perform at higher levels. Additional priorities, cited by more than one-third of organizations, are encouraging specific behaviors and promoting employee engagement.

Clearly, workforce capability and motivation are two areas advisory firms can focus on to drive performance.  By investing more time in assessing employee needs, determining where critical talent lies and identifying factors that influence employee behaviors, advisory firms can improve their pay-for-performance programs and enhance their overall success.

Managing performance is difficult and complex. On the other hand, it is also one of the most important activities a financial investment firm can undertake. The potential impact of the performance management process cannot be underestimated.

Improving pay-for-performance can be a matter of choosing the right model.  Mercer cites three pay-for-performance models that organizations should consider deploying as alternatives to, or in combination with, traditional variable pay models:

  • In a promotion-focused or “tournament” model, pay varies significantly from one career level to the next, with less emphasis on differentiation based on performance between employees at the same level. In this model, competition for advancement, rather than the size of pay increases or annual incentives, motivates employees to perform well. The best performers earn more via promotions based on relative performance evaluation. About 14 percent of those in the 2013 survey reported using this type of model.
  • In a membership or “efficiency wage” model, overall pay (and benefit) levels are targeted above the market median, and employees must perform at high standards to stay with the organization. In this model, the desire to keep a high-value position is what incentivizes employees to perform well. Around 14 percent of respondents in the 2013 survey said they use this model to attract and retain high-performing talent and stimulate performance.
  • In a service or “bonding” model, a trajectory of planned increases shifts pay from early to later in the career, once performance is credibly demonstrated. This model also locks in employees over the long haul by preserving firm-specific knowledge that is key to productivity, while enforcing performance minimums to stay with the organization. Only 7 percent of respondents in the 2013 survey reported using this type of model.

Good performance management is a process that provides feedback, accountability and documentation for performance outcomes. Investing the right amount of time, effort and resources in performance management can yield untold returns, increased productivity, enhanced employee morale, a higher quality of work and reduced turnover.

There are many ways to approach the task of creating a performance management process, but most are organized something like this:

  • Individual goals and corporate strategy are defined and communicated company-wide
  • Progress on goals is monitored, and management provides coaching on performance
  • Individual performance is appraised with feedback and formal documentation
  • Compensation is given based upon performance
    • If performance meets or exceeds the desired standard, a reward is given
    • If performance does not meet the desired standards, a performance development plan is created to address the gap and a new performance review date is scheduled.

Ultimately, companies must invest more time in identifying talent needs and strategies, critical talent, and factors that influence employee behaviors. It’s a matter of being open to alternative models, assessing fit to context, monitoring effectiveness and optimizing accordingly. Despite all the noise and negativity surrounding pay-for-performance in today’s wired world, it’s a riddle each organization must solve in its own way.

 For more information on Summit Brokerage Services, visit www.joinsummit.com or contact us at (800) 354-5528.

Summit Brokerage Services is part of Cetera Financial Group, RCS Capital Corporation’s (NYSE: RCAP) retail investment advice platform.

This blog and website are for informational, educational and discussion purposes only, and the owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. Summit Brokerage Services, Inc., Summit Financial Group Inc., and any of their affiliated entities and principals are not a law firms or an accounting firms, or substitutes for an attorney or accountant. Although topics may be discussed on this blog that may involve legal, accounting, or investment issues, nothing on this blog shall be deemed to constitute the practice of law, legal advice, investment advice, and/or tax advice. Summit Brokerage Services, Inc., and its affiliates do not, and cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms or strategies. The content on this blog is “as is” and carries no warranties. You should consult an experienced professional regarding tax consequences of specific transactions.

No reader should act in reliance on anything discussed in this blog without prior consultation with a licensed professional who is qualified to evaluate the reader’s individual facts and circumstances and offer an informed professional opinion with respect thereto. If any reader takes action or makes decisions based solely on the information on this blog without prior consultation with a qualified, licensed professional, the reader does so at his or her own risk and agrees that Summit shall have no liability resulting from such unilateral action or decisions by the reader.

Summit makes every effort to provide accurate and truthful information in its posts on this blog, but in no way expressly or impliedly warrants or guarantees the accuracy of its postings and/or the information posted here by others. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy.

Summit may, on occasion, post links to information maintained on other websites. Such links and the information thereon are not under Summit’s control.  The mere appearance of a link to a third party site does not mean that Summit has undertaken a review or approval of the link and/or its contents.  Readers must treat information from third party links at the reader’s own risk, and Summit accepts no liability with respect to such third party information. Please note that the third party’s privacy policy and security practices may differ from Summit Brokerage Services, Inc., Summit Financial Group, Inc. and its subsidiaries’ standards. We assume no responsibility for nor do we control, endorse or guarantee any aspect of your use of the linked site.

Stay Connected

Personalized Industry Newsfeed For You

Thank you. You are now subscribed.

Close