With the corporate bonus culture under fire and productivity top of boardroom agendas, effective performance management is once again a business priority across the public and private sector. Yet many organisations measure and manage performance in a piecemeal way, often held back by inadequate infrastructure and the limitations of their performance metrics.
This Briefing Paper assesses the practicalities of effective performance management in HR and payroll, and argues that:
- There’s a gulf between management theory and common practice. In principle, performance management is a top-down discipline where board-level objectives provide the framework for activity across the company. In practice, it’s more often run as a series of discrete, disjointed activities.
- Taking a coordinated approach requires a reappraisal of your metrics; a coherent infrastructure to manage individual processes and workflows; and a vision that sees performance management as one component of an overall talent management strategy.
- A performance measurement system is only as strong as the metrics that underpin it, and many organisations continue to rely on yardsticks that are inward-looking and narrowly focused. For example:
- In HR, conventional recruitment metrics focus on factors such as ‘days-to-hire’ – which is important in its own right for trend analysis, but serves only a limited purpose unless it’s supported by metrics such as direct and indirect costs, quality of hires, or first-year retention rates.
- In payroll, cost analysis varies widely, accuracy metrics sometimes fail to assess the cause of errors, and assumptions around metrics such as quality of service can be misleading.
- While HR and Payroll functions rely heavily on benchmarks, they should be approached with some caution, taking account of a wide range of contextual factors that can make it hard to compare like with like. In addition, it’s not always worth making the investment to pursue ‘world-class’ benchmarks: in many cases, ‘industry standard’ may be enough.
- The IT infrastructure that supports effective performance management needs to scale from individual employee assessment to enterprise-wide planning. Vendors’ capability varies in areas such as the richness of products and services they offer; how easily they can be adapted to meet customers’ specific needs; the ease of integration with other HR software or services; and the extent to which they’ve embraced the software as a service (SaaS) model.