5 Ways HR and the C-Suite Can Optimize Performance Metrics

The traditional performance review is taking heat from all sides these days.

More than 9 in 10 managers say they're unhappy with the traditional review process, which they call "biased and unreliable," according to a Gartner study. And more than half of employees believe their annual reviews are inaccurate and say those reviews don't motivate them.

U.S. managers spend more than 210 hours each year focusing on performance management tasks, with mixed results. Is there a better way to measure employee performance without relying on managers' subjective opinions? That's where performance statistics enter the picture and can be a cornerstone of any employee evaluation process.

"The primary upside of using performance statistics to measure employees is to allow for an objective measurement of performance and impact," says Jennie Yang, vice president of people and culture at 15Five, an HR software company in Missoula, Mont. "The downside is that if a manager is not enabled or trained on providing role clarity to their team members, setting goals or mitigating bias, individual team members may not have clear goals, and potential bias could creep in when evaluating performance."

Yang says her organization uses performance data, such as completion percentage of manager-set quarterly OKRs (objectives and key results). But to increase impact, the company goes beyond that with its periodic "Best-Self Review."

"Every employee and their manager both qualitatively rate the areas where the employee needs to improve in order to drive business outcomes, and they rate how the employee contributes to core company values," Yang says. "This creates a more holistic view of employee performance and impact, and actually improves performance rather than simply rating it."

Put Guardrails on Performance Statistics

How can HR leaders and C-suite executives get on the same—and the correct—path when it comes to employee performance metrics?

It all starts with building a holistic employee performance evaluation where statistics are a key component, but they're not driving the entire process.

"Reliance on performance metrics varies greatly based on a number of factors," says Greg Barnett, chief people scientist at Top Workplaces, an employee recognition company in Ponte Vedra Beach, Fla. "When performance stats are available, they should be considered an important data point in evaluating employee value, but they should not be the only data point."

Barnett calls for placing limits  on performance statistics as the sole means of employee evaluations for several reasons: 

• For the sake of accuracy. While companies want to accurately quantify performance, they often struggle with data accuracy and data cleanliness. "If a company is using performance stats as the sole measure of valuing an employee, then they have to make sure those metrics are flawless," Barnett says. "Unfortunately, they rarely are, which means performance judgments may be inaccurate because the data they are based on is incorrect."
• For the employee's sake. Nuance and performance metrics come bundled together, and that's a problem for managers. "Those nuances are hidden when focusing solely on the numbers," Barnett notes. "Solely focusing on performance stats could lead managers to draw conclusions based on external factors, rather than employee factors."
• For context's sake. Likewise, important context can be missed when buried in metrics. "A sole focus on performance stats means the value is about the outcome instead of the actual behaviors that led to the outcome," Barnett says.
  

The Way Forward with Performance Metrics

Performance statistics are best used as simple, role-based key performance indicators (KPIs)—a measure of success that demonstrates how the employee is delivering quantifiable results against broader objectives.

"In that context, performance statistics are a useful way to evaluate employee performance, but they don't necessarily consider all areas that an employee could be adding value to the company," says David Ciccarelli, founder and CEO at Voices, a voiceover services company in Ontario, Canada. "Depending on what is being evaluated, performance statistics might capture areas like the employee's soft skills, or ways that they might contribute to the company that aren't directly related to their role."

Using that outlook as a base, here are five steps to optimize employee performance metrics:

1. Be transparent—and fair.

Executives should be clearly communicating their organization's strategic direction and corporate objectives.

"Those objectives cascade down through the organization with managers, and individual contributors determine how their work will support the stated objectives," Ciccarelli says. "The upside is that when structured right, performance statistics are a quantifiable way to track impact and progress. Performance metrics that should be avoided are those that the individual has no influence over."

2. Use a specific barometer.

Performance statistic programs are used best when tied to a quarterly or annual bonus.

"We typically have two corporate objectives and two functional area objectives that are specific to the individual's role," Ciccarelli notes. "These functional objectives, which we can use performance statistics to measure, are tied to 10 to 25 percent of the employee's annual bonus. It's very meaningful for employees to understand how they can influence the results."

3. Take a blended approach.

Team member value should be a blend of quantitative targets, leadership behaviors and 360-degree peer feedback.

"An employee may be rewarded for meeting performance targets only. However, it could be at the expense of how they treat their peers and direct reports," says Joanna Cooper, general manager at Daimler Truck North America. "It becomes a low-trust and potentially high-turnover area, both of which interfere with the maximum effectiveness of the team."

When done effectively, the measurements can be used to position employees in areas of promotion readiness, leadership growth potential or to identify appropriately positioned employees, Cooper says.

"Linking this to merit is also a way to align and provide value," she notes.

4. Make the experience meaningful.

Don't let performance metrics overshadow the employee experience, which is just as important as any data point.

"One of the CEOs I was working with wondered why his regional vice president was unsatisfied," says Danny Gutknecht, CEO at Pathways, a Phoenix-based talent development company. "The CEO said the manager's division is exceeding its goals, yet the vice president didn't seem to be completely engaged."

Gutknecht asked the CEO, "What does the vice president think about her performance, capacities and passions and how they can be tapped?"

The CEO responded, "Good point. I guess I've convinced myself I've been too busy to ask, but I'll be much busier if she leaves."

The CEO put performance metrics aside and sat down to listen to the vice president, discovering she had a detailed view of how to make her division much better. Once implemented, the vice president's vision for her territory exponentially improved the company and other divisions.

"When you tap meaning, you tap human ingenuity," Gutknecht says.

5. Adjust performance metrics for remote employees.

Evaluating team member performance in a remote working environment calls for some tweaks and adjustments. Start by rolling a feedback feature into a standard employee performance evaluation.

For example, remote staffers can complete regular surveys about their work accomplishments, both on their efforts as individuals and on their perception of overall team performance (including all strengths and weaknesses on both counts). The more unfiltered and purer the survey responses, the better.

Additionally, make sure to cover KPIs. That gives remote workers a "set list" of goals to accomplish that relate directly to their designated work responsibilities. For instance, a sales specialist's KPI could be closing 15 deals per quarter.

For management and HR, especially, "clear oversight and constant coaching are needed to build a successful metrics-based employee performance evaluation experience," Cooper says.

Behaviors and Results

Performance statistics can include a combination of behaviors and results—but pay attention to the mix.

Using this combination "succeeds as a measurement given that it is a reflection of what the organization values," Yang says. "If an organization only values results and could care less about behaviors, then that could show up as a toxic, competitive work environment.

"However," she adds, "if an organization values both behaviors and results, it demonstrates a company commitment and culture that how you go about your work and collaborate with others is as important as the results you create."

Brian O'Connell is a freelance writer based in Bucks County, Pa. A former Wall Street trader, he is the author of the books CNBC Creating Wealth (John Wiley & Sons) and The Career Survival Guide (McGraw-Hill).