With a fifth of the UK’s largest firms claiming to have no performance management systems in place, how can organisations expect to get the best from their workforces?
A fifth of the UK’s largest employers have no formal performance management system in place, according to exclusive research by Personnel Today and HR software supplier, PeopleSoft.
Some 19 per cent of organisations with more than 5,000 staff confessed they are without any form of performance management at all in the online poll of around 900 businesses.
That figure rose to almost half – 46 per cent – of employers with fewer than 100 staff, and 27 per cent overall.
The statistics suggest that efforts to improve business performance by linking people management practices to the bottom line are more rhetoric than reality.
“It is easy to assume that most organisations – especially larger ones – are carrying out so-called high-performance personnel practices, but the reality is that many of these organisations don’t have even the basic tools in place to bring about the alignment of people management and business performance,” said Angela Baron, the Chartered Institute of Personnel and Development’s (CIPD) adviser on organisation and resourcing.
Despite widespread recognition of the need to align people practices with the strategic needs of the business, as outlined in the recent Kingsmill report, the survey found only a tiny fraction had taken steps to integrate performance management systems into business processes.
Only 11 per cent have the kind of computerised system that would allow HR and line managers to pull off and manipulate people management information to support business goals. Almost half the respondents still use paper trails to run their performance management systems, and the vast majority of these find it difficult to extract any useful information.
The survey presented mixed messages about how far organisations are linking their performance management systems to organisational objectives. While 83 per cent of respondents said this was a feature of their performance management systems, it was not clear how they achieved it in practice.
Only 57 per cent, for example, said their systems monitored organisational objectives, while 87 per cent concentrated on personal development priorities. Almost 90 per cent said they used targets set locally between the appraiser and the individual, rather than those governed by business needs, to assess performance. And only 1 per cent said they used competencies – generally regarded as the key to delivering effective performance management.
“The key challenge for performance management systems is focusing on the culture of the organisation and competencies to make that clear link between business objectives and what people are doing on a day-to-day basis,” said Lena Baillie, manager of the Performance Management Forum.
Baillie believes that the failure to do this successfully is what is driving many organisations to abandon their attempts at performance management.
While ’employee motivation’ remains top of the list of objectives for performance management systems, according to the survey, organisations are failing to achieve this and are actually having the opposite effect.
“A lot of organisations struggle with appraisals and are getting it wrong in terms of ratings systems,” Baillie said. “People are coming up with something quite subjective rather than carrying out an analysis of their competency framework.”
The CIPD’s Angela Baron said she was surprised by the negligible use of competencies. “People don’t like the term compe- tencies anymore – it has become over-hyped and covers so many definitions. They are tending to move towards ‘capability’ – a much friendlier term.”
The survey highlighted other gaps between aspirations and reality. For example, while 71 per cent said that identifying skills gaps was a major objective for their systems, only 38 per cent said they monitor the specific knowledge or skills staff possess (such as computer skills or foreign languages), and only 24 per cent monitor anticipated future skills gaps.
While improving productivity is a key goal for 61 per cent of respondents (75 per cent of those with fewer than 100 workers), only 37 per cent use it as a performance measure. And while half said staff retention is an important goal, only 12 per cent incorporate staff turnover as a performance measure.
Despite the high profile of leadership issues in the business community and the buzz around ‘talent management’, the evidence from the survey shows that this is not a priority for most performance management systems.
Less than half said succession planning was a main objective of their performance management system, and only 39 per cent identify senior management development as a goal. In line with this, only 40 per cent said ‘identifying future leaders’ was one of the main uses for the information they gather.
Linking performance management and pay is another key debate. According to the results of the poll, just under half of organisations do this, although that figure rose to almost three-quarters for the banking and finance sector and 63 per cent for central government.
Peter Cools, a director at PeopleSoft, said many employers were struggling to align appraisals with business objectives. “Companies that are leading the way in performance management systems are using the technology to provide continuous human capital support to the business at a strategic level, rather than just as isolated HR events,” he said.
While the alignment purists would see linking pay to performance as a key component of the high-performance workplace, both Baron and Baillie see it as something to be avoided.
“As soon as you go down the reward route, the results become more subjective because people are fighting to say what they want to say – it becomes much more tricky to manage,” ex-plained Baillie.
Despite the apparent gaps between HR rhetoric and reality, Baron believes the secret of an effective performance management system is very simple.
“It is about giving line managers the tools to do their jobs properly, making sure people know what is expected of them and are developed to ensure they can meet business goals.
“If line managers are not signed up to this, then performance management is not going to be delivered effectively – that is why so many companies abandon it,” said Baron.