Engage Employees Part 4: Is PMS Rating a Tool to Engage and Retain People?

Photo: Courtesy eremedia.com

In one of the earlier posts “Is Socialism at Work Killing business?”, I saw several comments why this was good in theory and how in practice when there was a war for talent it was almost impossible to differentiate. This reminded me of several situations when my clients wanted to be liberal with ratings in order to engage employees and retain them.

Let us examine some facts and situations:

1. Positive Impact of PMS Rating on Engagement

In several client organizations we had observed that performance ratings had a positive (or negative) impact for 6 to 8 weeks only. After this period people were back to the same level of engagement (or disengagement) as that before the ratings. The attrition was postponed by a few months or at best by a year. If the latter happened, HR achieved its goals of lowering attrition and so did the line mangers. But were these people productive? No, they were not productive. From a shareholders perspective and from a customer perspective they did not deliver as well as they ought to have delivered.

2. PMS Rating and Attrition

In another analysis we found that the attrition had no correlation with the undeserved high ratings. If people were disengaged and had a better opportunity with another organization, they would leave even if they were given a rating higher than that they deserved. However, if they were mediocre and could not find a job they would continue with the business. If they were people managers, they epitomized felicitation of non-performance leading to disengagement and mediocrity in the team.

3. PMS Rating, Performance and Attrition – A Case Study

In one of the consulting firms, PMS rating was rampantly used as a lever to engage employees and retain them. This led to a culture of work avoidance leading to an inefficient, non-responsive and loss making firm, despite having the best of the talent in the industry. There was no incentive to perform. In fact they reached a situation where team members, who were fresh from institutes and those with up to 5 years of experience, worked the hardest. Most of the Project Managers, Directors and even Partners were busy managing their managers rather than managing their performance or adding value to their clients or to their teams.   There was a profound belief amongst people that they needed to work hard for the first 3-5 years till they were promoted to Project Manager level. They felt after becoming a Project Manager life was “cool” and there was no need to work.

Any business in any industry and in almost any country had to work really hard to make losses in 2005-07 period.  This firm made it happen despite the best talent they employed and a great brand name they had. This is the far reaching consequence of using performance rating as a tool to solve the problems in the short term.

Did they manage to engage and retain employees with all the frivolous ratings that they came handed out? I understand that their engagement scores were in bottom quartile and their attrition was the highest in the industry.

With reducing lives of leaders and HR professionals in any organization, the focus on solving the problems in the short term is significantly high. Taking tough calls, even if we lose some good talent, becomes difficult if the long term orientation is missing. We can’t blame our fellow leaders in the industry and our HR fraternity as short term-ism is a global phenomenon. But the benefit of an undeserved performance rating is just too short to merit a consideration even in this world of short term-ism.

Now, if pay (Post: Pay More and Disengage Employees), promotion (Post: Promote and Part), and performance ratings do not lead to engagement, what engages employees? 

Let us discuss "what engages employees?" next week.

Engage Employees Part 3: Promote and Part

In the last post we discussed about “pay more and disengage”. Now, let us consider can we use promotion as a tool to engage employees?

Let us consider the following:

1. Promote and Disengage Employees:

A Communication and technology client during my consulting days positioned careers as a differentiator. While the company was growing at a rapid stride, it was easy to promote people and provide larger roles. As the growth slowed down, promotions led to change in designation and compensation without a material change in role. We observed that all those promoted without a role change demonstrated an increase in engagement for a year and then the engagement dipped even below the level of engagement before the promotion.

2. Promote beyond the level of Incompetence

This was more than a decade ago. One of my team members was very high performer and was a high potential. But we strongly felt that he was not ready for the next role. However, he threatened to resign and we did not want to lose him. We promoted him. In about a year’s time he resigned. When I called him to discuss the reasons, he said that he resigned because he was promoted. I insisted that he told me more. He said that a year ago he felt wanted by the firm, loved by the team members and respected by the clients. With the promotion the expectations from all the three stakeholders changed dramatically and he found it difficult to meet the new set of expectations. Therefore, he felt that none of the stakeholders respected him any longer. He felt he was in a fix as he could not request us to demote him. After that episode I preferred to lose people rather than promote them, as that would eventually lead to a loss in any case.

3. Promote and Sack People

As in example 1 above, another client promoted people leading to higher salaries and better designation, without a role change. This did not give people an opportunity to increase their value add to the organization. In turn, they did not add value to themselves. When the market stagnated as these employees did not add value concomitant to their hierarchy and the compensation they received they were the first ones to be asked to go. As they did not add value to themselves, they did not find an appropriate job in the market. They had to settle for less, impacting their self esteem.

So, those who thought that they can use promotion as a tool to engage and retain employees could be up for a rude shock. You may end up disengaging employees, exiting them and impacting their self esteem for a long time.

Even while they stay, they stay disengaged. They do not help the business.

Should you then not promote? You should definitely promote. Promotions should be based on:

1. Performance and Potential

2. Availability of a bigger role

3. Readiness for the role.

Such promotions will engage employees who are promoted and motivate others to strive harder. This would be good for people and good for business. Therefore, this would be sustainable, even if you lose a few in the bargain. 

If Pay and promotion should not be used as tools to engage and retain employees, should PMS be used as a tool to engage employees? Let us discuss next week.

Engage Employees Part 1: Why engage employees? Just stay focussed on business.

I have been seeing significant discussion on employee engagement and the futility of it. I completely agree with all those who think we should not engage employees and instead stay focussed on business.

I recall meeting the Managing Director of a large cement manufacturing company during my consulting days, who told me that cement was produced by kilns and not people. He told me that investing in employee engagement was good for businesses where factor of production was  people- typically service industry. I told him that I completely agreed with him and requested him to educate me if he had patented kilns that his competitors did not have access to. I further asked him if that was the reason- his company was making huge profits while the others were not. He went on to explain to me that the kilns were manufactured by four companies in the world and all the cement manufacturers had similar kilns. He further explained that kilns ran on their own for 300 days and at that level of production plants made a loss while at 345 days of production plants became highly profitable. On asking him if all the plants of his company were operating at 345 days, he answered in the negative. When I wanted to know the difference between high performing plants compared to others, he told me it was people. He further said that while they hired people with similar qualifications and experience, the motivation levels and passion, especially of plant leadership team, made the big difference. Needless to say that he went ahead with a program to engage employees, including leaders.  The employee engagement program was a result of MD’s focus on business and to ensure consistent and sustained plant performance.

Clearly, there has to be a business reason to engage employees. We should remember that hr is owned by business and not by HR. Therefore any intervention that does not address business issues will not stick.

As we discussed in earlier posts, PMS is a business tool and differentiation is key to high performing organization. At the same time this could generate significant heat and friction between the employees and leaders; and leaders and the board representing the shareholders interest. This calls for some cushioning effect to convert the friction into passion and motivation which will help sustain high performance over a long time. Employee engagement provides the cushioning effect.

There is enough debate on whether business performance is correlated with employee engagement or which one is a lead factor and which one is a lag factor. But there is enough research and experience to demonstrate that engagement is a lead factor and performance is a lag factor.

If a bottleneck in business can be identified, quantifying the business benefit of employee engagement becomes easier.

A word of caution: Engagement without strong performance management could lead to a country club culture. Engagement does not mean keeping employees happy, it means keeping employees motivated and passionate about work.