Part 1 – Performance Appraisal Framework

…establish a true picture of performance first, and don’t ever let compensation concerns affect the view of performance.

Recently on GaryNorth.com, a member asked about how to approach his upcoming six month performance appraisal, and for a framework for the appraisal.  Here is a detailed response:

When I accepted my job about six months ago we agreed that I would have a performance review every six months…

Excellent.

The performance review, or appraisal, or efficiency report, or whatever it’s labeled, is the single best tool any employee has to persuade an employer of one’s value; and persuade in detail, based on hard, recent evidence. Whether oral or written, It’s the opportunity to obtain the customer’s acknowledgement (i.e., the party on the other side of the employment bargain) of the value one has delivered, in anticipation of, and with affect upon the reward.

Further, because it’s all about value delivered recently, it naturally leads to the discussion of forth-coming value: what is about to be delivered if certain conditions are met. Conditions such as performance improvement based upon additional resources, training, or development. But that discussion can only occur if both parties use the review as a tool for improvement.

See where this is going?

I’ll call this: the primary purpose of any review: improved performance. Other things are important, but are only incidental in accomplishing this primary purpose.

…help me develop a framework to think through it.

Assumptions:

1. You’re in this employment for the long run, as long as it remains a good employment bargain. “Good” means high value: Value = Benefits (to you) – Cost (to you); but also for your employer.

2. You want (a) to make it work, and (b) to grow. Your employer wants to make it work, and to grow.

3. You have an idealized goal and implied objectives to be met by this employment, generally envisioned as the CFO role. (“Idealized” means in concept, but not formally documented, reviewed, and validated.) Your employer also has a goal and objectives, probably also idealized and poorly documented.

General Observations:

1. Your performance is satisfactory to date, as evidenced by your continued employment, and the forth-coming “guaranteed minimum” bonus. They’d like to keep you around.

2. You are earning credibility as evidenced by your principals’ increasingly leaning on you to resolve more and more issues. They are beginning to trust you.

3. You’ve got a lot of management skills to learn, as you’re just learning many “front office” business processes, especially Manpower related processes, issues, methods, and techniques. They may be proficient with management skills, but have not consistently demonstrated such in the trenches.

4. Communication within the management team is minimal, as evidenced by the comments you’ve related in prior threads, and your general apprehension of the motives of management. (Note: “minimal” means the communication is sufficient to get the job done, but falls short of general open discussion of the many aspects of business improvement.)

Is the above accurate?

If so, read on…

You’ve asked for “a framework,” so I’ll focus primarily on just that in Part One. But, you’ve also asked other questions that are implementation and strategy issues, so I’ll also render a viewpoint question-by-question.

But, first…

Caveat Emptor

What follows will be of limited immediate value for the upcoming performance review (mid-week), as a lot is involved, and three or four days is insufficient time to prepare for one’s first review. Nonetheless, I’ll give you the core elements to start a foundation.

Assuming you act on it now to start a foundation, greater value will be realized in six months. Assuming you build and strengthen that foundation going forward, the information will continue to deliver increasing value in years to come, as your personal performance review acumen becomes second-nature.

So use what you can this week, but keep this handy, and target full implementation next performance review.

The Framework

As a general rule, one of the best things one may do is to consider each and every performance review – formal or informal – within the framework of employee selection, evaluation, and compensation mental models. They frame every discussion of performance, compensation, and improvement of the employment bargain. By framing the review of performance with these models, one may fully understand the holistic value of that performance and related issues.

Start with a review of the following mental models, as they may frame the selection, evaluation, and compensation discussion:

Performance/Selection Models

1. Identification – The concept that the primary job of the manager is to identify those individuals who can accomplish satisfactory results on a particular job, within the constraints of the input resources and the environmental context in which the job is set. How to use: get to the core issue – what is the boss’ view of your performance in the contest of those “satisfactory results.”

2. Job Fusion Triangle – The concept that a job is impacted by three principal forces: person (i.e., you), situation, and others. Reference this discussion: http://www.garynorth.com/members/forum/openthread.cfm?forum=21&ThreadID=25581#126386 How to use: list your view of your impact on your job, the firm’s situation, and the others you work with and affect. Review with your spouse; then discuss during the performance review.

3. Job Match Diagram – A model which shows the relationship, or match, between an individual (i.e., you) and the job. How to use: determine the amount of overlap of your performance to that required of your job. 100% overlap is a perfect performance. The compliment of less than 100% is targeted for personal and job-related development. Read: development plan.

4. Evaluation Fusion Triangle – Three bases used for evaluating people: traits, activities, and results. How to use: list your view of yourjob-related traits, activities, and results. Review with your spouse; then discuss during the performance review.

5. Algebraic Results – The concept that organizational results are a composite of contributions, both plus and minus. How to use: list your view of your contributions, both plus and minus. Review with your spouse; then discuss during the performance review.

Emphasis added occasionally to the above. Source: Harold S. Hook’s Model-Netics coursewww.MainEventManagement.com

6. Three dimensions of the business management: Customer (the firm’s customers), employees (the firm’s people), business (internal processes and results). (Source: EDS.) This is related to the Job Fusion Triangle, but is more expansive. How to use: summarized your view of your impact in these three dimensions. Review with your spouse; then discuss during the performance review.

Last, but not least, for every issue you “… discuss during the performance review”, apply the three questions of every AAR: “What didn’t go well?” “What did go well?” “What to do next time?” Record these for review, and as input to a development plan.

Compensation Models

7. Compensation Fusion Triangle – A model which includes the three factors which must be considered in developing a compensation program: internal equity, external equity, and job performance. Reference this discussion: http://www.garynorth.com/members/forum/openthread.cfm?forum=21&ThreadID=25703 How to use: list your view of these three factors in the context of your job and you. Jhnzr has advised on sources of “external equity.” As Controller, you have inside information on “internal equity.” Review with your spouse; then discuss during the compensation review, NOT the performance review. (See advice below regarding separating the discussions.)

8. Compensation Scale – The foundation principle of compensation in the free enterprise system is that contribution will be equated to compensation – and the scale represents the balance between contribution and compensation. There are five components (five R’s) used to implement the contribution/compensation equation: record, responsibilities, results, reward, and reference. Reference this discussion: http://www.garynorth.com/members/forum/openthread.cfm?forum=21&ThreadID=25703 How to use: summarized your view of the five factors vis-a-vis your employment bargain. Review with your spouse; then discuss during the compensation review, NOT the performance review. (See advice below regarding separating the discussions.)

9. Interview Pentagon – A five part interview guide: job, self, others, company, and compensation. How to use: use this to outline the discussion flow – agenda – in the compensation review. Summarize your view of the five factors vis-a-vis your employment bargain. Review with your spouse; then discuss during the compensation review, NOT the performance review.

10. Recruiting Diamond – The four steps in the recruiting process: picture, locate, compare, and sell. How to use: frame your business case(es) with these four steps:

a. Picture the problem and envisioned resolution.

b. Locate alternative solutions.

c. Compare solutions.

d. Sell best solution.

That is, consider each business case with this framework; and sell. For example, use this to close on compensation discussions. Throughout all of this, the Value Formula is paramount. Review business cases with your spouse; then use as needed to sell.

Emphasis added occasionally to the above. Source: Harold S. Hook’s Model-Netics coursewww.MainEventManagement.com

That’s quite a lot of stuff, right? Actually, it’s a small subset of mental models framing management; that subset germane to your present problem.

Your Questions

“What is the best approach?”

Always, always, always: Clearly and distinctly separate the performance review from the compensation discussion. That is, establish a true picture of performance first, and don’t ever let compensation concerns affect the view of performance. Then, when that view of performance is settled with your principals, engage in any compensation discussions as a follow-on issue and effort.

This is the inherent benefit delivered by the separate models, above.

This approach forces all parties to objectively compensate a settled level of performance, and make sound business decisions regarding that compensation, rather than perform to match a level of compensation. Do you see the [personal] risk in performing to a level of compensation?

“What are the risks?”

Good question. But, I’ll answer a different question, with a list of threats:

1. One-way communication; which results in misunderstanding.

2. Ultimatums, which trap you. (And, if your boss is like Harry, he’ll accept the “or else” just to lessen his number of “problem children.”)

3. Any perception of “owing,” in lieu of a perception of earning.

4. Loss of credibility, which results in loss of trust.

“What do I have to lose by asking for a healthy raise?”

“Face,” if you fail to make a sound business case for the raise. (Face = credibility, in this context. Credibility relates to trust.) Otherwise, there’s little to lose. Use the framework above, to frame the business case. (Oral, written, whatever; just make it sound.)

“Or should I simply put the issue on the table and let my employer know I will expect to negotiate at the one-year mark?”

“Expect.”

Perspective (again): The Northbound Train

“The idea that management programs should embody a philosophy which is understood throughout the organization; and which will produce a strong feeling of clear directions and movement. Philosophy refers to the organization’s expectations, values, rewards, and objectives.” (Emphasis added. Source: Harold S. Hook’s Model-Netics coursewww.MainEventManagement.com )

If you’re going south on expectations, and he’s going north on expectations, you’re liable to have a collision; else, a parting of the ways. What are his (i.e., the firm’s) expectations? Are yours aligned? If not, why not? Better still, how will you and he reconcile differences? (Yes, that’s a trick question. The answer can be found within: Value = Benefits – Cost.)

Because this firm practices minimal communication, you have the opportunity to control (or frame) the conversation. But, if you do, be subtle in approach. We don’t want to spook our benefactors.

“I recently read an article by Dr. North in which he recommends sometimes foregoing negotiating higher pay but putting the employer on notice that you intend to negotiate this once you have proven yourself.”

Once you and the firm establish the true view of your performance as a given fact, and theirs (as the party on the other side of the employment bargain), then the when and how of compensation changes can be negotiated and planned. Essentially, this will be you and they working through Value (realized by the firm) = Benefits (i.e., your performance – the given fact) – Cost (i.e., your compensation and associated costs). The models above help frame this discussion and negotiations. (And of course, in the background is that same value formula from your perspective, applied to your career.)

“I think I have proven myself in six months, but my employer might see it differently.”

I’ll say this a bit differently: you have proven that you can handle the responsibilities to date. That is, so far, in terms of scope, time, and resources. Your employer will communicate his view of how well you’ve handled them, as part of the formal and informal performance review. Your approach during those reviews should be to ensure quality communication, else you won’t get accurate information that you can use in the value discussions.

“Maybe I just need to ask.”

Do you remember this: “…your greatest value added will be getting to the truth.” (From: http://www.garynorth.com/members/forum/openthread.cfm?forum=21&ThreadID=34868#172824)

“Value added” applies to your side of the employment bargain also. In this light, what do your think you ought to do?

End of Part One.

Part Two will address “Implementation.”

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