How2 understand and select a best practice performance management model / process
Approach No 1 - Competency based approaches to developing employees
Some questions and answers, which can help you to decide whether a competency approach will add value to your training initiatives:
What is meant by a competency based approach to training?
Competencies define the behaviours that individuals need in order to perform a job effectively. The job itself defines the set of deliverables to a specific standard that has to be met. Two individuals can be trained to the same level of ability in a skill. When placed in the same real situation the same two people will achieve different levels of success. Competency based training integrates the behaviours and skills needed to perform at the highest level.
What has instigated a move towards a competency approach?
Several factors have contributed to this:
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The need to be able to directly link an individual’s performance to achieving key company objectives
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The need for development programmes to enable individuals to improve the way in which they carry out their jobs over a sustained period
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The requirement to clearly identify and assess an individual’s ability to meet expectations
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The benefit of having a methodology which has the versatility to be used for recruitment, career and management development, pay and performance and change management
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The failure of traditional approaches to deliver the necessary changes in attitude and behaviour of individuals appropriate to the environment in which they operate.
What does a competency approach involve?
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Reviewing your company’s key objectives, mission and purpose
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Identifying and defining competencies in key roles
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Designing training modules to develop competencies to meet required outcomes
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Determining a programme of activities for individuals to demonstrate improvements in job performance
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Developing ways of monitoring and assessing competency standards over time.
Competency driven HR management
Many organisations are finding that their traditional human resource systems based on formal job grading, prescribed salary ranges and bureaucratic appraisal systems are becoming restrictive and may actually constrain the achievement of business performance goals. To be successful, businesses require flexible organisation structures, teamwork and cooperation; they need lean, well-motivated, multi-skilled workforces.
Organisations need to answer these questions:
- Which roles are really critical to achieving the business goals now and in the future?
- What skills and characteristics will be required by people in these roles in the future to drive the business forward?
- How do these differ from the skills and characteristics, which people have now?
- What makes an individual effective within the organisation?
- What can be done to bridge the gaps?
- We have developed an approach based on the concept of competencies, which allows organisations to determine the answers to these questions and to manage the business accordingly. The model illustrated here provides a framework for the full range of human resource processes from organisation planning through to recruitment, development and remuneration.
What do we mean by competency?
Three elements, essential to translate business plans and objectives into achievement:
- Personal competencies: the personal characteristics and orientation, which determine individual effectiveness. These will reflect the preferred and developing values, business and leadership practices within the organisational context.
- Organisational competencies: the knowledge and skills required to perform a role to a fully effective level, in particular, professional / technical competencies and business competencies.
- Key task performance areas: the specific goals and objectives, together with performance measures, for which the individual or team is responsible.
What we can do for you?
Clients may have already developed a competency framework, or still be in the planning stage. We have no standard model. Since each organisation’s needs are unique, our approach is developed with the client. The outcomes will be specific to the client’s culture and business environment. The process itself is a significant part of the organisation’s development and learning.
Step 1 Know where you are going
In business terms, what are the vision and the goals of the organisation? What organisation structure will be needed to deliver it? What is the human resource strategy?
Step 2 Who are the key players?
Identify the roles that will make the greatest difference between business success and failure. All roles are obviously important, but start with the ones which will have the most impact.
Step 3 What competencies will be needed for future success?
Obtain and analyse data on Personal Competencies, Organisational Competencies and Key Task Performance Areas, using techniques such as repertory grid and critical incident interviewing, observation of activity and performance. Start with the key players, and only then extend across the organisation, by job family or hierarchical level.
Step 4 Review and gain commitment
Review the results with the appropriate management team and / or project group. Ensure understanding and commitment to the concepts and the process. Train internal staff in the techniques required for full implementation.
Step 5 What should you reward?
Ensure that the compensation and benefits systems are aligned with the business plan, and that they take due account of the competencies and business results critical to delivering the organisation’s overall vision and goals.
Step 6 Profile each future role
Develop role and team profiles based on the competencies and objectives. Identify the level of each competency that is applicable to that role.
Step 7 Profile each individual and team
Create an inventory of competency profiles of your employees using appraisal (including self report), assessment (including 360 degree feedback) and analysis techniques. For maximum benefit this process can be computerised.
Step 8 Match person and role profiles
Compare the individual and team profiles with the future requirements of each role. A positive gap may indicate an individual or team ready for greater opportunity. A negative gap highlights the need for education, training and development, or recruitment.
Approach No 2 – Linking performance to pay
The annual salary review in 1979 in a multi-national company caused some disquiet amongst the local managers and they turned to me with a request to review the whole process and report back to them, all within the space of a couple of days.
Essentially they asked me to develop a salary plan for them, which had the following features:
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It had to help strengthen the boss / subordinate relationship
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It had to reward performance
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It had to be forward-looking
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It had to have flexibility in both terms of timing of increases and the amount of money awarded
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It had to be competitive in terms of the company’s preferred position in the market place.
Over the next 48 hours I burned much midnight oil in developing what became known as START (Salary Target and Reward Technique), introduced into the organisation in July 1979.
START was simply a continuation of the aim the Company had always maintained, namely to treat individual salaries as a private matter between boss and subordinate, whilst at the same time rewarding performance and paying salaries at a competitive level. A key feature of the scheme was that whereas in the past, salary increases had normally occurred on a fixed 12-monthly basis, salary increases under START could be given at any time, subject to performance reviews being undertaken by line managers. These could be awarded more frequently than every twelve months or less frequently.
The overall levels of salaries paid to senior staff were to a certain extent determined by comparisons within the company, but more particularly by comparisons with other companies taking part in the HAY remuneration surveys. This survey gives an insight into the salary practices of many of the major companies operating in the United Kingdom today and the company aimed to set salaries at similar levels to the top paying 25 per cent of those companies.
In Figure 1 below the company’s pay practice as it was in 1979 (the broken red line) is compared with the HAY Upper Quartile, (the blue line).
Figure 1 – Pay practice v pay policy
The point at which the two lines appear to converge is also the break point between junior staff who received overtime, and senior staff, who did not. Historically this had caused a number of problems when the company wanted to promote junior staff to senior staff.
Senior staff at that time were being paid in excess of the company’s avowed policy position, of matching the upper quartile, so one of the problems we were faced with was how to bring the practice line into a position where it was ‘attacking’ the policy line (from below) and at the same time still encourage staff to perform.
Predicting future movement in pay and related matters
The answer lay in predicting the pace at which salaries were likely to increase in the next 12 months, the rate at which inflation was likely to increase (at that time it was increasing by around 23 per cent per annum), and the likely settlement levels in the main bargaining groups in the Country.
Benefits of START
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There were benefits accruing to the company and to its staff by introducing START, i.e., the company abandoned the annual review, replacing it with a much more flexible system, whereby all increases were performance related and could be given at virtually any time, subject to following a few simple rules
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The point of decision about each employee’s pay moved closer to him / her and to his / her boss
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Employees began to recognise that through their own efforts they could receive tangible increases in pay
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Pay itself, offered a powerful ongoing message to each employee that their contribution was valued
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Employees performing well received increases more frequently than before
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Money for pay increases was used more selectively
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Spreading increases throughout the year took the strain off cash-flow but budgeting was more difficult
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The system encouraged managers to counsel poor performers more frequently with the objective of improving their performance
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It encouraged the development of mutually agreed goals between boss and subordinate
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It became possible to reward performance in a much more timely manner than before
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The Managing Director was full of support for introducing START. Unfortunately he told his counterpart in another subsidiary, about it and he immediately requested something similar. However, the Group Personnel Director had reservations and I was told not to apply it anywhere else in the UK for at least the first year of operation
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To overcome this stumbling block we ‘ghosted’ the system in the 2nd subsidiary for the first year, i.e. we provided all the reports necessary for line managers but didn’t implement any increases during that first year.
The elements that help to make up START are job descriptions, which are described and evaluated by trained company employees. The company uses the Hay Guide Chart Profile Method of Evaluation.
Participating with Hay in their multi-company survey on salaries and other terms and conditions enabled the company to compare its position with other participants and so develop its salary policy. The company also participated from time to time with other salary surveys, both national and local. From all this work it was possible to construct a salary structure and a salary planning guide.
Salary structures have a tendency to move upwards. Elements that contribute to this upward movement are inflation, the market place and bargaining groups. At the same time constraints such as the company’s ability to pay and Government legislation can constrain that upward movement.
The company also had in place a system of performance appraisal and staff were accustomed to having a formal annual appraisal interview when performance in the job was discussed with managers and staff perceptions and ambitions for the future identified.
Just as this was done on a one-to-one basis, individual treatment was one of the keys to performance-orientated salaries. Through discussions between each manager and subordinate the company continued to promote and encourage each employee to improve his / her performance and so determine the extent of his / her reward.
The second key was a forward-looking, responsive, totally adjustable (in terms of either time or money – or both), market- related payment system – START.
Salary increases under START are individual and confidential. Increases take into account anticipated economic adjustments in the salary structure to ensure continuing competitive salary relationships together with individual growth in the salary performance range.
The economic accrual is the rate at which the salary structure is increasing in pounds per month. Growth is the movement through the salary range reflecting individual performance.
The timing interval is the number of months, which have elapsed since the date of the last increase.
A typical salary structure is shown in Figure 2. The vertical axis is in £ per annum, the horizontal axis represents job evaluation points converted into grades. It will be observed that there is a fairly wide salary range for each grade and each grade overlaps its neighbouring grade.
Figure 2 – a typical salary structure
In Figure 3 below we have taken one of these grades. It has been divided up into five zones representing levels of performance. These are used as a guide when establishing target salaries.
Figure 3 – a grade showing its performance zones
Introducing this START system into the company prompted certain questions from the staff. Some of the questions are listed below together with the answers.
Question: How does START differ from the system which has been used over the last few years?
Answer: It differs essentially in that, over the last few years, you have been accustomed to receiving an increase in salary once every 12 months and at about the same time each year your performance has been reviewed by your manager. START is better because it’s more flexible. Your performance will be reviewed on an ongoing basis, meaning you can receive increases in salary at any point in time, i.e. more often than every 12 months, or less often.
Question: Is it possible under this scheme not to receive an increase every 12 months?
Answer: Yes. If your performance is very poor then no increase will be forthcoming, although you should be aware of this through assessment and counselling by your boss.
Question: Is it possible under the scheme, never to receive an increase again?
Answer: No. Assuming that you continue in employment with the company you will receive increases from time to time, which at least reflect movements in economics.
Question: How is the company going to forecast changes in the economic rate and forecast how much it will set aside for growth?
Answer: We have available to us all sorts of statistics from all sorts of sources, which will essentially tell us what has happened in the past. The further ahead we look the more difficult is the task of predicting where we are likely to go. However, as time passes and we near the date to which we have predicted numbers, we can soon discern the accuracy or otherwise of those predictions. If there is a major discrepancy between what is actually going to happen and our prediction, then we can adjust the elements in the START formula and work out economic and growth ratios accordingly.
Question: What assurance do I have that my Manager is going to treat me the same as other employees?
Answer: Every manager has to operate within the company’s salary policy.
Question: Do salaries decrease if performance levels deteriorate?
Answer: No. What will happen is that the rate at which additional salary is accrued will slow down and increased counselling will be required to improve your performance level. Even with a sizeable demotion, money will not be deducted but increases may not occur for some time.
Question: Does the introduction of START mean that formal performance assessments will occur more frequently to coincide with salary reviews?
Answer: The formal assessment is an administrative procedure, which shows the quality of the company’s human resources available at a fixed point in time. However, more formal assessments on an ongoing basis will occur and those may be reflected in salary increases at any time.
Conclusion
In 1980 / 1981 the company was experiencing technical problems with its newly commissioned rolling mill; it was making losses and announced several hundred redundancies. I was asked to prepare a ‘STOP’ programme but instead suggested a moratorium on any increases whilst allowing the accrual system to continue to operate.
The greatest benefit resulting from introducing the START system was that having introduced it in 1979 when the company was making huge losses and the staff were thoroughly demoralised, it operated, virtually unchanged, for the following seventeen years, until March 1997, saving the company money in each and every year.
In March 1997, the company used the experience gained from measuring performance over the years and developed an even more focused performance measurement tool. Today the company is profitable and the staff, whilst continuing to be challenged to perform are happier and committed to their future success.