The most common purpose for performance ratings is to create a consistent way to implement a pay for performance philosophy. The company can differentiate rewards based on performance levels using company-wide guidelines. As an increase in compensation has a significant impact on retention, the organization is essentially investing in retention of its best performers. Pay for performance is a retention strategy.

However, performance ratings can be used for many other purposes as well, if the organization has an effective talent management function. When high performers can be tracked, it is easy to place them into succession planning and accelerated development plans. Various performance levels can receive the most suitable developmental investment. Low performers can be tracked to ensure that their managers actively coach them or put them on performance improvement plans.

If the company decides to go through restructuring, performance ratings can be helpful data points in addition to other considerations in moving or eliminating positions. Organizations often spend extra effort to maintain their top talent, while low performers are most at risk of getting removed.

When organizations develop assessments and business impact studies, many of them analyze the top performer profile to create guidelines for selection, training and other areas of business. Performance ratings make identifying this group very easy.

For all these reasons, it is critical that managers assess the true performance of their employees. The performance ratings should reflect how they stand against their organization’s performance standards, and also how they compare against the rest of the population. Calibration sessions where managers meet to discuss and compare the performance ratings they have given to each others’ direct reports can be helpful in creating more consistent standards and reducing rater bias.

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Gallup has tried to ask the question in different ways, removing the word “best” or the word “friend”. When they did, it lost its predictive nature. So let’s look at it this way. What if your best friend really worked with you – wouldn’t work be different? Wouldn’t you be more excited to go to work? Or, what if you loved your company so much that you wanted all your best friends to work there because you thought it would be unfair of you not to try to give them the same chance you have.

Employees who report having a best friend at work are twice as engaged as their coworkers without a BFF at work. The same ratio shows in retention, loyalty, and recommending the company and its products.

I’m convinced, you say. But how can we get more Best Friends at Work?

The bottom line is to create an environment conducive to relationship building. Is your new employee orientation welcoming? Do you have places for your employees and teams to gather to socialize during breaks? Do your team members know each other beyond the title and job description? Does your company organize social events? Are you utilizing the social media to connect with the Millenials?

Don’t be shy – your Best Friend is out there!

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John Kotter has a beautiful 8-step change framework:

1. Create a sense of urgency
2. Build a guiding team
3. Create the change vision and strategy
4. Communicate to build understanding and buy-in
5. Empower people to act
6. Create short term wins
7. Don’t let up
8. Make it stick

The first six deal with building momentum. In a nutshell, you have to have a crystal clear vision of what you want to achieve with your change and then describe it vividly to everyone involved until there is no one left who has doubts. You have to make it concrete, practical and easy.  If there is a concern, ambiguity or concern, your job is to remove it or mitigate it. You will replace doubt with hope, and eventually hope with conviction and excitement.

Change is slow, when you don’t have a critical mass of people trying the new thing. Driving change is very much like marketing. You create awareness by communication. You penetrate the consciousness by using as many channels as possible. You create interest by influencing opinion leaders. You persuade people to try it the first time and ensure that the first experience is positive. You make it easy, so they do it again. You want to make it a habit. You facilitate positive word-of-mouth feedback. You want them to tell their friends that it was OK.

Change is slow if nobody knows about it. It’s slow if it’s hard to try the new way of doing things, or if the old way is easier. Change will be slow, if everyone around you is sticking to old habits.

Sometimes change can be utterly contagious: Just watch this youtube by Derek Sivers.

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NO – You can’t motivate people with money.

A well known motivation theory by Herzberg categorizes motivational factors into two categories: Motivators and dissatisfiers, also known as hygiene factors. Motivators such as career development and meaningful work can increase the employees’ motivation. Hygiene factors can only reach a neutral level of satisfaction. If they are good, nobody thinks about them. If they are lacking, they cause dissatisfaction. Compensation falls into this category.

YES – You can motivate people with money

You could say that it is possible to increase motivation with money, if you are in the area of dissatisfaction – if they are underpaid. You can improve the compensation, until you reach the neutral level. After that, pay becomes a non-issue.

There is also one exception to the pay-reward connection. Some research suggests that in work that is repetitive and doesn’t require much thinking or judgment, pay actually has a direct link to performance. How many of today’s employees have jobs like that?

What’s the point of pay for performance then?

We pay our best performers because we want to KEEP them. Increase in compensation significantly increases the intent to stay. When the organization is dishing out rewards, the operative question should be: Who do we want to keep? Pay for performance is often expected by employees as well. They feel that it is fair that those who contribute the most should be rewarded the most. It is essential that what is perceived as good performance by management is perceived as good performance by the employee base. Clear performance standards are one of the strongest drivers of performance.

If you can’t motivate people with money, then what?

That’s another story, read here.

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If you are looking for expertise, your investment will be higher, but so should the ROI. Look for a strategic partner who wants to understand your business situation and the results you want to achieve. If you are just looking for extra bandwidth, you will most likely have a lower cost, but you will be the one driving the process and bringing in most of the ideas.

Training providers have solutions on the continuum from off-the-shelf products to totally customized projects. In between, it is also possible to start with a standard package that is tailored to your organization’s needs. A training solution can be standardized to drive lower costs; or due to a highly successful and strictly protected formula. Conversely, customized doesn’t always equal the highest quality, but it does mean that it will be made to your specifications. What you need to determine is how unique are the training needs of your target audience.

When you look for a training partner, you want them to be able to grow with you. If you set up offices in other states, or other countries, will they be able to scale their operations to follow you there? Does their business model allow certifying internal trainers within your own organization; if that’s the way you want to do it? Do they have the language capabilities and the cultural competence to serve you in your international locations? Don’t overlook your local vendors – you want to be a good citizen in your community.

Does your training provider have experience with your type of organization? Do they know the industry terminology? Have they dealt with your size of company before? The implementation of projects in small businesses is different than in large corporations.

My most value-add solution providers were selected through a rigorous RFP process. You may not need to do it for every little workshop, but when you look for long term strategic relationships, set clear criteria and don’t jump into contracts before you have done your due diligence. The on-going business results will be worth it.

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The performance axis is often based on the organization’s annual performance management process, and the low-medium-high categories align with the performance rating scale. To make investments in talent more meaningful, the expectation is that managers are challenged to use consistent performance standards, so that not every employee falls into one category. Another consideration is to make sure that performance is not only evaluated based on pure results, but also on behaviors: How the results were achieved. Otherwise the organization runs the risk that people who leave behind dead bodies to reach their goals are viewed as top performers – a recipe for becoming a morgue.

The Corporate Leadership Council has developed a simple model for assessing potential. It has three elements that need to be evaluated: Ability, engagement and aspiration.

Ability encompasses the inherent talent and the skills acquired in the employee. When assessing leaders, these often include business acumen, technical and functional expertise, and leadership skills. When assessing potential as part of ability it means looking at the learning agility of the employee: How fast can they grasp new and complex concepts? Are they able to take on stretch assignments and unfamiliar responsibilities? How far can they reach?

Engagement is another component of potential. Does this employee LOVE this organization? How dedicated are they? How high is the emotional attachment? We are looking for passion. Lukewarm employees will not go as far as champions.

The last element is aspiration. You cannot push a rope. The employee’s drive and ambition is a key determinant of where their career will take them. They will be asked for personal sacrifices from time to time. Relocation is often part of the career path. High potentials actively manage their own careers.

Based on trusted dialogues with employees and objective discussions among the leadership team, the 9-box exercise can give a good snapshot of the talent pool of the organization. The next step is to act on that information.

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Engagement is certainly a key driver in retention. Strongly engaged employees are 87% less likely to leave the organization than strongly disengaged employees. That is why many companies choose to focus on driving engagement and reap the rewards in improved retention as a side effect.

A CLC study observed that when satisfaction with total compensation increased, the intent to stay improved by 21%. A similar impact on discretionary effort was only 9%. When employees make career choices, and choose which company to work for, they use a more rational approach, looking at the financial benefits, career and developmental opportunities. When it comes to engagement, emotional attachment is a stronger driver.

The quality of their supervisor is a factor in retention as well. The CLC study showed that the manager creates the environment where the rational and emotional attachment is formed – or not formed. Thus, the manager’s indirect impact is critical.

Managers play a role as triggering factors as well. Often, an employee’s dissatisfaction with the workplace may be dormant, until a defining moment. A triggering event can be a missed opportunity such as a promotion or an interesting project, or a conflict situation where the manager is involved. Star players sometimes get ‘rewarded’ with more and more high stakes work, until they reach a breaking point in their personal lives.

Smart organizations analyze their employee population to determine which factors are behind their challenges. Engagement surveys proactively reveal where action is needed. Exit surveys show what the highest priorities are to address, and may also provide a clue to the most common triggering factors.

Organizations can also create a retention problem by having an inefficient selection process. If the new hires don’t have a realistic view of the job expectations, work environment and the culture, they are likely to be disappointed and leave early. A robust selection process with assessments and structured interviews assures a culture fit and longer term hires.

With existing employees, annual reviews can be turned into stay interviews, as research shows these dialogues drive retention. The managers should probe for employee satisfaction, career aspirations, and look for opportunities to remove obstacles.

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As managers are more focused on execution, and getting things done through their team members, I insist that the two core skills for a manager are always performance management and employee development. The right way to identify developmental priorities is to do a competency analysis, but I assure you, these two core competencies will be there. Performance management would include skills like goal setting, informal feedback, coaching, corrective dialogues and evaluating performance. Goal setting also means the ability to link the vision and the organizational goals to the day-to-day work of the team members. Employee development encompasses interviewing skills, career dialogues, development planning and coaching. Just having these two fundamentals covered guarantees a solid management base for execution. The other competencies vary based on organization culture and strategic priorities.

Leadership is all about change. Great leaders must be able to envision the future and articulate it with clarity so that the vision is so compelling that they can rally the troops to support the strategic moves that are critical for the organization. To be able to envision the future, they have to be comfortable with a certain level of ambiguity and willing to take calculated risks. The execution piece is still there: They must know how to manage the organization culture and its processes to guarantee that the results are met.

Whether it’s the leader or the manager, they must continuously build their functional, operational and business acumen to earn and maintain their credibility. Complexity increases as they climb the management ladder.

Many companies struggle with their middle management development. This is the twilight zone where both management and leadership skills are required. It is the testing ground on who will make it to the highest levels of leadership. Middle managers must balance both short term execution and long term change leadership priorities, while demands and complexity are increasing for them. They must get very good at the management fundamentals while starting to adapt to the higher level leadership skills.

It’s not a question of management OR leadership, it’s a question of how much of each. Which management and leadership competencies are important in your organization?

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Working remote doesn’t work for every job. Remote work is ideal in these conditions:

• Knowledge work. If your employee spends most of the day processing information or sharing expertise with others, remote work could be a good choice. If their work is production or service, you most likely need the person’s physical presence.
• The focus is on results, not on face time. If the progress is measured by milestones and deadlines, go for it. If daily presence with external or internal customers is needed, think again.
• Ability to work independently. If the employee works independently at the office, why not in the home office? However, if the person requires a lot of supervision or the help of peers, remote work may not be such a great idea.

How to make virtual work go smoothly for the organization, the manager and the employee?

1. Set clear goals and expectations. How will you measure progress? How do you expect to track time?
2. Set a communication schedule. If you had weekly meetings at the office, you should have them on the phone or video. Integrate the remote team members into the team and company meetings. In times of change or uncertainty, increase the frequency of communication. Remember that your remote team members don’t necessarily hear the office gossip, so you need to keep them in the loop in another way.
3. Use technology. In addition to phone and conference calls, there is slide and desktop sharing technology to facilitate team meetings. Video conferencing services can be free or fancy. Discussion groups, chats, instant messaging all bring team members closer. Use recording, if time zones are an issue. The important thing is to not to exclude the remote team members.
4. Create face time. It is incredible how much better people work together once they have met each other once. For project teams, do everything you can to get them together. Go and visit your remote team members or allow them to travel and visit your office to build relationships.
5. Facilitate informal relationships. In addition to business as usual, allocate some time to let people get to know each other personally. Share pictures and stories. Again, people work better together when they have a human connection.
6. Manage remote careers. Remote employees sometimes get overlooked in career planning. Coach them to highlight their results and achievements, network internally and be visible, even if not physically.

Virtual employees will increase as a proportion of the future talent pool. Embrace the trend and get smart about your virtual talent.

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Employees love to learn and grow, and new challenges are a key driver for employee engagement and retention. Gradually increasing the responsibilities is also the only way to develop new leaders. There is no way to get to the top just by sitting in a class. As organizations identify target leadership positions, they determine what critical experiences are required to be competent in those positions. The talent pool feeding into those positions is then intentionally exposed to those experiences by assignments and career ladders.

Although the sink-or-swim approach may work out in the end, more effective development and better business results can be achieved when a novice in the new assignment gets to test the new skills with the guidance of a more experienced coach. It can be the own manager, an assigned mentor or a more senior peer. At first, there will be a lot of advice and checking in, with less, or different, mentoring when confidence builds.

Apart from open positions to move up talent on the ladder, there are other assignments that work well for developing and challenging the workforce. Assignments can include leadership or membership in a taskforce, acting in the manager’s role in his or her absence, or an individual project such as business process improvement. Shorter job rotations are useful as well, for example, filling in during a leave of absence or job switching.

One obvious benefit of using assignments for development is that they have an acute business alignment. There is little need to justify time or money needed to get them done, a challenge sometimes faced with training. The sense of urgency and the ‘what’s in it for me’ is right there. What’s left is to help the employee draw the lessons learned from the experience before stepping into the next challenge.

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