Honest Appraisals

Truth hurts -- but, for a company, avoiding it at performance- management time hurts even more.
Now, HR executives are finding ways to hold all employees to the same standards in appraisal
processes.

By Julie Liedman

Much has been said, and written, about how the dreaded performance-appraisal process can be simplified --
through online administration; through uncomplicated, one-page documents as opposed to some of the
tomes out there today; even through continuous or frequent short discussions rather than major once-a-year
sit-downs.

Now comes word in human resource circles of an emerging trend that does just the opposite. It's a
movement that requires more layers, and more detailed and probing discussions.

While it might be an outgrowth of forced rankings -- Jack Welch's infamous "rank and yank" approach at
General Electric; although, in this case, a kinder, gentler version of the concept -- the trend reflects a desire
on the part of human resource executives to "get it right" when it comes to performance appraisals, for the
employee's sake as well as the organization's.

"There's a large problem in many organizations where there's no standard by which all employees are
measured," says Mark Albrecht, vice president of talent management for Salary.com, which recently
unveiled a performance-review survey showing a perception gap between employers and employees
regarding the effectiveness of performance reviews.

The 2006 Performance Review Survey, as it is called, represents a cross-section of employees and business
representatives from across the United States, and includes responses from more than 2,000 employees and
330 HR professionals proportionally represented across company sizes, from less than 50 employees to
organizations with more than 1,000 employees.

"It's one supervisor's rating system versus another supervisor's rating system," says Albrecht. "They might
benchmark salaries -- they pay the same for the same job -- but different managers might expect different
things of their employees. There's no standard.

"Also," he adds, "all of us have a tendency to be biased toward people who are like us. Managers frequently
hire people like themselves. So managers have to be able to filter that aspect out when it comes to
performance appraisals. It's not easy to drop biases, or personal dislikes of certain people, for whatever
reason."

Dick Grote, author, performance appraisal specialist and president of Dallas-based Grote Consulting Corp.,
says it's even more basic than that.

"Managers are really pulled in two conflicting directions when they do performance appraisals," says
Grote. "On one hand, they want to tell their people the truth about how well they're doing. On the other
hand, they want to be good to their people, particularly in the area of compensation. They want to give
them as much as they can.

"These desires are inherently in conflict. If you tell the truth -- you're a good, solid performer; I rate you a 3
-- then you can't give as big a salary increase as you could if you gave that person a 4 or a 5.

"But the difference between a salary increase for a 4 instead of a 3 is not enough to feed a family of four at
McDonald's," he says, "so every little bit you can do, you're going to do.
"This often leads to what I call the Lake Wobegon Effect," says Grote, referring to the fictional town of
Lake Wobegon from the radio series A Prairie Home Companion, where, according to Garrison Keillor,
"all the women are strong, all the men are good-looking and all the children are above average." In a
similar way, says Grote, performance appraisals tend to rate most people above average.

"The numbers are skewed in a positive direction," he says, "so not only are people not getting told the truth
-- the honest, tough-minded information about how they're doing -- but the organization suffers, too. There
isn't any differentiation. As a result, we don't know who our best performers are.

"Everybody's above average."

Heart of the Problem

The problem stems from the way performance appraisals traditionally have been conducted.

"In a good system, it begins with performance-planning conversations at the beginning of the year," says
Grote. "Your employees want to know, 'What do you expect of me?' So you sit down with them and talk
about goals, competencies, company values, expectations and how they'll be measured. Then at the end of
the year, the employees ask, 'How am I doing?' "

Therein lies the rub. That question can be answered in two ways, Grote says.

Typically, an employee is answered with an absolute comparison of how good a job he or she did against
the goals, objectives and competencies that were discussed at the beginning of the year.

Now, however, companies are beginning to answer the "How am I doing?" question with a relative
comparison -- that is, telling the employee how good a job he or she did compared with how others did.

"If a manager's standards are low, it's easy to say all of his or her people exceeded expectations," says
Grote. "But if you're asking on a relative basis who your top 20 percent are, who your middle 70 percent
are, who the bottom 10 percent are, you could still have good performers -- on a team of all-stars."

Put another way: An employee could have a goal of, say, 100 units and achieve only 98 in the given period
of time. On an absolute basis, that employee failed; but on a relative basis, the employee might have
achieved more than anyone else in the department; so, on a relative basis, that employee is the best there is.

"It's a different way of looking at things," Grote says.

"And that's what organizations are looking at more and more now. They're bringing in the expectation that
managers will not only look at how employees did on an absolute basis, but are also starting to look at them
on a relative basis, too.

"That's how they figure out who the stars are."

It's done by holding so-called "calibration sessions" in which supervisors who have finished written
appraisals on their direct reports meet with fellow supervisors and, in a very nuts-and-bolts way, discuss
how the decisions were made.

Grote gave this example: "Someone might say, 'You gave George a 4, meaning he's superior, but I know
George. He works for you, but there have been times I've interacted with him. He's a good guy, but not
superior. How did you come up with that?' "
It's a difficult concept for people to wrap their heads around, he admits.

Such peer-to-peer discussion is "relatively new," he says, "but it's definitely an emerging trend. There is
great concern at the highest levels of HR that we have accuracy in the assessment of people and that we
have the talent bench strength we need."

That's certainly the case at Sara Lee Food and Beverage, a division of Sara Lee Corp., the Chicago-based
global company with $15.9 billion in revenue that manufactures and markets food and beverages, apparel
and household products. The company has more than 100,000 employees -- 25,000 of them in the Food and
Beverage division. Head-to-head calibration sessions are part of every assessment there.

"It adds to the credibility of the process," says Brad Patrick, senior vice president of HR for Sara Lee Food
and Beverage.

"It requires hours and hours of discussion and it's heavily facilitated by HR professionals," Patrick says.
"For instance, someone will rate Sarah as 'defines and improves business processes' and the people in the
room will discuss what that means, but with the emphasis on how she performs as opposed to what it
means.

"It's supported by common definitions, but someone might say, 'Can you tell me more how she defines and
improves' as opposed to 'she works hard?' We all have definitions in front of us, but we talk specifically
about Sarah. There are specific examples. Maybe she works 20 hours a day. That can be good or bad. It can
mean she's horribly organized, which is not good, or it can mean that she's driven, which can be good.

"It's a new concept for here," says Patrick. "It used to be that every manager did appraisals and simply
submitted them. Now, after they're written, we have two weeks of calibration sessions. We want the
process to encourage performance. We want everyone to understand what great performance looks like. So,
there's constant calibration rolling up from one level to the next level [of the organization]."

According to Patrick, individual supervisors do the appraisals and the calibration sessions cascade through
the business. "By the time it gets to the senior level, the ratings are credible," he says. "People feel
confident about that. It eliminates the need to spend energy on how credible the performance ratings are, so
we can focus on personal development and career moves instead of 'Are you sure that's right?' "

Managing Talent

The performance-appraisal process, which looks back by recognizing past performance, often goes hand-
in-hand with talent management, a process that looks forward by developing people. While matters of
compensation usually are linked to performance appraisals, they are not ordinarily linked to talent
management.

They are not, for instance, at Commerce Bancorp, where calibrated performance appraisals and talent-
management sessions are done at different times of the year. For the Cherry Hill, N.J.-based company with
more than 400 banks, $45.3 billion in assets and some 14,000 employees, it's working well, says Graceann
Migliaccio, Commerce's senior vice president of human resources, who was just completing the annual
performance appraisal process.

Migliaccio likens the calibration discussions to peeling back the layers of an onion. "We discuss each role
and what its value is to the organization," she says. The result is a more thorough understanding of how
each employee contributes to the whole and provides a reliable picture of the company's talent pool.

The process also gives the right message to employees, she says. "Six months ago, when we talked about
talent, we moved a very highly rated person to a different job. We wanted to develop him, so we gave him
a different position, new experiences -- and a salary increase to make sure he got the message of how
valuable we think he is.

"Now we are doing year-end performance appraisals and he's in for another increase. But at a calibration
session, someone asked why we were giving him another raise when he just got one six months ago? We
had already given him the money message, and someone pointed out that development and opportunity are
just as important. ... The decision was to not give him another increase.

"The correction mechanism of having peer department heads challenge something is invaluable,"
Migliaccio says. "It's almost like coaching. Peer managers helped the manager explain to the employee,
'We're not giving you a raise because we want to focus on skill mastery in the new job.' Managers might be
reticent to deliver a message like that, but with HR involved, we can coach them on how to tell the
employee."

At Commerce, the performance-management process is tied to compensation, while the talent-management

process is not -- but both share calibration as part of the formula.

"Talent planning is just as important, but without money as part of it, there's less pressure and more
opportunity to speak honestly and frankly," says Migliaccio.

"It starts with the creation of a mission for the group doing the planning, then they come back and discuss
relevant competencies, and then they rate how people are doing in their jobs, using those competencies,"
she says. "It's a dialogue among peers evaluating talent on the same criteria. Nothing is at stake except
development and growth.

"Six months later, money is at stake, and they look at what has changed since six months ago. It's all done
as peers. There's constant calibration aimed at fairness and equitability.

"We might see a higher performer not getting what we think he or she should," says Migliaccio. "Or we
might see someone else and say, 'I thought we said during the talent planning that this person had issues.
Why are we being so generous now?' It's a continuum."

May 16, 2007

Copyright 2007© LRP Publications