Performance Management

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Performance Management

• Case Morgan Stanley

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Todays Objectives

• Discuss Performance Management as one of the keys
  to getting HR and HR practices right
• Evaluate one professional service firms efforts
  to change performance management system to
  support key strategic imperatives
• Discuss the use of 360 systems and other
  innovations in performance feedback.

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Morgan Stanley
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Morgan Stanley

• In 1997, Morgan Stanley Group, Inc. and Dean
  Witter, Discover Co. merge
• 2000 Forbes ranks Morgan Stanley as 11th in its
  annual ranking of the biggest companies in
  corporate America called the Global 500.
• 7th place overall in Assets,
• 18th place in Net Profits,
• 28th place in Market Value and
• 29th place in Sales, resulting in an overall
  ranking of 11th place.

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Morgan Stanley

• 2000 Fortune magazine, for the second year in a
  row, ranks Morgan Stanley the 3 securities firm
  in their "America's Most Admired Companies" list.
  
• 2000 Business Week names ". Morgan Stanley ranks
  in 7th in The 50 Best Performers" of Corporate
  America, the highest ranking of any company in
  the financial industry

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Mack on Morgan Stanley People
To get the right people, youve got to have the
right values. We need to be able to attract the
best people and keep them. I believe that the
people who come to Morgan Stanley dont just want
money, they want a career. They want to be
challenged and they want to be part of a
team. John
Mack President, Morgan-Stanley
Do you agree or disagree with this?
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Morgan Stanley Mission Statement
Our goal is to be the worlds best investment
bank and the firm of choice for our clients, our
people, and our shareholders. We will succeed by
meeting the global needs of our clients--both
providers and users of capital--at a level of
performance which is exceptional. This commitment
to add maximum value will be characterized by
extraordinary effort and innovation, and by
conducting ourselves with absolute integrity.
Morgan Stanleys people are the source of our
competitive advantage. We will distinguish
ourselves by creating an environment that fosters
teamwork and innovation, by developing and
utilizing our employees abilities to the
fullest, and by treating each other with respect
and dignity.
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Goals for the New Performance System

• Enhance professional development of all employees
• Greater objectivity and fairness evaluate
  performance on criteria that broadly define
  desired behavior
• Increase real-time feedback
• Recognize superior, long-term professional
  performance
• Provide primary basis for annual comp/promotion
  decisions
• More substantive annual performance appraisals
• Encourage teamwork
• Increase feedback across departments and
  divisions
• Increase consistency and confidentiality of the
  process

Are these realistic?
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Characteristics of PM
(Baron Kreps, 1999)

• Who/what is evaluated?
• Who performs (and who has input into) the
  evaluation?
• Time frame short or long
• Objective/formulaic versus subjective/impressionis
  tic
• Relative versus absolute performance
• Forced distribution versus unspecified
  percentages
• Multi-source versus single-source evaluation
• Multi-criterion versus single summary statistic
• Fine versus coarse performance distinctions

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Morgan Stanley 360 Criteria

• Marketing/Professional Skills
• problem solving, initiative, communication,
  versatility
• Management and Leadership
• People management, development, coaching,
  fairness
• Commercial Orientation
• Client relationships, revenue contribution, deal
  execution
• Teamwork/One Firm Contribution
• Cross-division projects, business team activity,
  recruitment

Are these the right dimensions?
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Performance Management and Measurement
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The Sad Truth

• The experience of performance appraisal systems
  of all kinds over at least a century of trying in
  government and business has been uniformly bad.
• (Wall Street Journal, Nov. 19, 1996)
• A 1996 Institute of Management Accountants survey
  found only 15 of respondents measurement
  systems were effective at supporting top
  managements business objectives 43 of
  respondents felt their systems did a poor job in
  this regard.

Why should this be the case?
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Deming on Performance Ratings

• Performance evaluations leave people bitter,
  despondent, dejected, some even depressed, all
  unfit for work for weeks after rating, unable to
  comprehend why they are inferior. It is unfair,
  as it ascribes to the people in a group
  differences that may be caused totally by the
  system that they work in... People ask how I
  grade my students. I give them all an A. How
  do I know who will be great? How do I know what
  they will do in future years?

Do you agree with him?
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Functions of Performance Evaluation
(Baron Kreps, 1999)

• Evaluation to improve job matching
• Communication of organizational values and
  objectives
• Information for self-improvement
• Training and career development
• Pay (and promotion) for performance
• Information for hiring strategies (validation
  criterion)
• Validation of other HR practices
• Retention and reductions in force
• Cultural development
• Effects on those doing the evaluating

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Procedural Justice Employees Concerns
(Baron Kreps, 1999)

• Evaluated should have some impact on the process
• participate in setting standards by which they
  are being judged
• opportunity to present their own case (especially
  important with subjective evaluations)
• rights to appeal
• Evaluator should be seen as informed and neutral
• Evaluator should be seen as having benevolent
  intentions
• Criteria that are used should be salient to job
  performance (face validity)
• The process should reinforce the individuals
  social standing in the group, not diminish it

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Procedure The Supervisors Concerns
(Baron Kreps, 1999)

• How time consuming is the process?
• How costly is it in terms of relations with those
  being evaluated and others in the organization
  (e.g., emotional strain)?
• Are evaluators properly prepared to carry out and
  deliver the evaluations?
• Other issues
• rating inflation
• no distinctions
• communication

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Problems in Performance Rating

• Halo
• Stereotypes
• Overweight negative information
• Lack of sufficient observation
• Memory primacy/recency
• Leniency
• Central tendency
• Justification for salary
• Reticence to write things down

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360º Feedback and Measurement

• If you only have a hammer, you tend to see every
  problem as a nail.
• Abraham Maslow

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360º Feedback and Measurement
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Companies Using 360 Feedback

• Alcoa
• American Airlines
• ATT
• American Express
• Boeing
• General Electric
• Glaxo
• General Mills
• Hewlett-Packard
• Intel
• Monsanto

• Merck
• Herman Miller
• J.P. Morgan
• Motorola
• Procter Gamble
• Levi Strauss
• 3M
• UPS
• Federal Express
• Compaq

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360 assessment example The results
Detailed Results Pages
Coaching/Mentoring Developing others talent and
capability for independent responsibility.
Engaging others in meaningful roles, and
providing resources/latitude for getting the job
done Question 1 Provides resources necessary
for others to work in a truly self-directed
manner and to gain appropriate visibility.
Overall Rating
4.9
Manager
Direct Reports
Others
1
2
3
4
5
6
7
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Benefits of 360 Degree Appraisal

• Validity and accuracy
• Better acceptance by people rated
• Promotes equity
• Legal protection
• Diversity
• Useful when spans of control are large
• Better for knowledge workers
• More appropriate for team-based system
• Appropriate for empowered cultures

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360 Reviews An Illustration

• Employee and supervisor agree on set of 6-12
  reviewers (peers, customers, etc.)
• Reviewers complete appraisal form.
• Consultant compiles the results and shares the
  results with the employee and the supervisor.
• Results are discussed and development plan is
  agreed upon.

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Common Pitfalls

• Lack of safeguards
• Over reliance on technology
• Administrative overhead
• Incongruence with culture
• Incongruence with other systems
• Cronyism in selection of raters
• Lack of training
• Lack of supervisor action and follow-up
• Results in too much data
• Not linked to success factors

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Safeguards for 360 Appraisal at Intel

• Absolute assurance of respondent anonymity
• Respondent accountability (feedback)
• Policies to prevent gaming the system
• Use of statistical procedures for outliers
• Identification and quantification of biases
• Identification of possible collusion

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Whats (Legally) Defensible in USA?

• Standards based on job analysis
• Standards communicated to employees
• Evaluations based on specific dimensions
• Dimensions defined in behavioral terms and
  supported by objective, observable evidence
• Raters should be trained and validated
• When possible, more than one rater is used.
• Appraisal fits the cycle of work
• Documentation of extreme ratings is done
• Formal appeal process is available

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Effective Performance Appraisal

• Ensure the appraisal process is strategically
  useful (tied to key success factors).
• Ensure that performance management (measures and
  processes) complement other HR levers being used.
  
• Involve those being rated in the development of
  the rating scheme.
• Make sure that the process is related to job
  performance and meets legal requirements.
• Performance feedback should be behaviorally
  specific, not dispositional.
• Train the raters on evaluation and feedback and
  evaluate them on their evaluations.

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Aligning What How with Why
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Takeaways Morgan Stanley

• Be clear about the role of the performance
  management system development, evaluation,
  cultural transmission/change? Dont confuse
  these.
• Ensure that the system is aligned with the
  business strategy and key success factors.
• Measurement itself has powerful effects
• Whats measured is what gets attended to.
• Who does the measuring and how can profoundly
  shape employee attitudes, behavior, and
  performance.
• Dont let measurement overwhelm common sense.
  Performance evaluation is not a substitute for
  trust or judgment.