Leveling Up Performance Management

Performance management can elicit anxiety across an organization and conjure up thoughts of tedious performance reviews, messy rating scales, and dubious employee self-assessments. However, in an increasingly competitive talent market, effective performance management can be a powerful tool for developing employees and aligning their performance to company-wide objectives. 

We recently convened CFOs and CHROs in The Circle to learn how high-growth companies drive more effective performance management in a discussion led by three leaders with scar tissue on the topic: Tanja Nitschke (former HR leader at Eventbrite, Twitter, and Groupon), Marc Friend (former CFO at Sunbasket, advisor, investor, and board member), and Somya Mathur Kouma (Principal at Qualtrics who has been a human capital consultant for 15+ years).

Here are the key Takeaways from the conversation:

Think Beyond Performance Reviews

While reviews are essential to performance management, they are only a piece of the puzzle. Performance management should be a year-round process that helps your company to: 

• Establish accountability for good work
• Enable teams to set and achieve goals and make agile strategy changes 
• Drive more future-oriented discussions
• Bring out the best in people
• Gather input to make informed decisions on development, promotions,  managing performance issues, and rewarding and retaining top-performers

Before actually measuring performance, CFOs and CHROs need to partner closely to align on the outcomes they are trying to achieve. “As a CFO, I am trying to tie performance and compensation to firm-wide OKRs and objectives in order to create alignment,” explained Marc. “Meanwhile, people leaders are thinking about how to keep employees motivated and give them the feedback they need to feel confident about their work.” Both outcomes are important and necessary to create a lasting culture of high performance.

Leaders should also place more importance on employee development in light of shifting employee expectations:

“Employees today have greater employment optionality and are seeking meaning in their jobs. It’s not enough for companies to provide a bigger paycheck; employees want to know that their employer is investing in their career development and making them more employable and marketable in their field.” – Somya Mathur Kouma, Principal at Qualtrics 

Examined from that lens, performance management becomes less about evaluating individual performance and more about optimizing human potential, says Somya. “You need to find that connective tissue between your business outcomes and employees’ personal goals, and put the right people leaders in place who care about helping others actualize their potential,” she said.

Performance Review Tactics to Consider 

Whether you conduct formal annual reviews or a more fluid, ongoing process, leaders will need to recalibrate their performance management strategy regularly. Tanja recommended three tactics to use throughout the year:

1. Performance management is not a once-a-year endeavor. Feedback needs to be continuous throughout the year.  1:1’s, check-ins, team OKR reviews, and project retros are methods to provide feedback all year round.
2. Time performance reviews with company goals and OKRs. Annual plans are often broken up into smaller goals and OKRs throughout the year. The timing of those performance goals should dictate when performance reviews are scheduled. “When I was at a public company, we measured business performance and set new goals quarterly that lined up with the annual plan, so that’s when we would do our employee performance check-ins to make a tighter connection between company and individual performance,” said Tanja. “It became an opportunity for employees to reflect back on how they impacted our collective performance and look forward to what each individual and team needed to change in order to meet the overall company goals.”
3. Let employees drive more of the review process. Employee self-assessment should feel less like a formality and more like an opportunity for employees to meaningfully reflect and learn how to continue developing their skills and impact. “It’s impactful when employees build that muscle of regularly reflecting on their achievements and identifying areas for strength and improvement,” Tanja explained. “Managers take on more of a coaching role through this approach, as the conversation is largely employee-driven with managers asking questions and guiding the path forward.”
4. Establish recalibration sessions with managers. Managers also need to be regularly coached on how to be consistent in their employee assessments and conduct impactful performance conversations. Tanja recommended hosting calibration sessions multiple times per year specifically for managers. “The purpose of these sessions is to establish common language around performance and ensure org-wide fairness and consistency when benchmarking employee performance assessments. However, it also becomes a powerful leadership development exercise where more inexperienced managers can learn and practice how to discuss performance so that they feel more prepared for those conversations” said Tanja.

“Performance management is a journey that requires a lot of behavior change. It’s not just an HR or a finance initiative but a business imperative. ” – Tanja Nitschke, former people leader at Eventbrite, Twitter, and Groupon

Separating Compensation, Development, and Performance 

There’s a debate to be had around whether it makes sense for leaders to combine or separate performance, compensation, and employee development discussions during review cycles. On the one hand, linking performance and compensation can provide greater pay transparency to employees. However, when performance reviews are tied directly to OKRs and compensation, employees may be too focused on “managing the metrics” rather than thinking about how they can create value for the business.

When it comes to reviewing performance and compensation, creating some separation can be beneficial, said Marc:

“Create some separation with time and space. Do your performance reviews at the end of the quarter, report on them at the beginning of the next quarter, and wait until the end of the following quarter to do compensation. This way, you gain trust from your employees by being transparent about how individual performance is impacting their compensation. However, you’re still making those two components very distinct.” – Marc Friend, former CFO of Sunbasket

With employee development, leaders might want to consider creating an entirely separate review process, either through informal check-ins with their direct reports or a more holistic plan around development. In either case, it’s important to give employees a clear understanding of how they are progressing against near and long term career goals and highlight ways in which they are doing so as they work on company goals. 

Managing Performance During Volatility

In a challenging economic climate, leaders may face more pressure to evaluate and improve performance. “One traditional approach for companies seeking to improve profitability has been to reduce headcount and proportionally raise salaries to retain exceptional performers,” explained Marc. 

Spot bonuses for top performers can be an effective measure. However, if your company doesn’t have the budget, or doesn’t want to reduce headcount to pay for additional bonuses, it’s still important to invest in the success of your top performers. “Try to find the overlap between what those employees are interested in and what the business needs are and give them exposure to those opportunities,” said Tanja. “Sometimes it’s just a matter of leadership recognizing employees and saying ‘I see you, I hear you, and I want to talk about what matters to you.’” 

With under-performers, tough conversations and headcount reductions may be necessary. However, Tanja advised finance and people leaders to take the opportunity to diagnose underlying factors impacting individual performance. “I don’t believe most employees don’t strive for mediocrity in their job,” said Tanja. “Sometimes it may be necessary to part ways with an underperforming employee – you’re addressing the performance issue impacting the business and likely supporting the employee to be in a better spot for themselves.”

The Takeaway:

Finance and people leaders have an opportunity to transform annual reviews into a meaningful performance management philosophy and practice. Linking performance management to OKRs or annual planning processes creates and environment that provides ample feedback, a culture of transparency and process for accountability. The result of this shift can be an improvement in retention, culture, and long-term business outcomes.

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