How to measure employee performance and why it matters

When assessing the performance of a business you need to examine and manage the performance of its individuals.

For all the talk of business being socially responsible and environmentally aware there are certain primary reasons that businesses exist – to produce shareholder return and to satisfy demand for products or services. For these key aims to happen, employees need to ‘perform’. This means evaluating performance.

According to Mike Bourne, professor in business performance at Cranfield School of Management: “Performance is a total minefield,” because, “you’re then trying to define the difference between mid and top performance, and then whether it’s desirable to focus on just one, or all of these people.”

Business experts now argue that typical measures of performance – the so-called objective approach; measuring things like number of new customers acquired that month, days without sickness, returned orders – i.e. things are seem outwardly ‘explainable’ – are no longer useful purely on their own.

Fear of the usurper

Phil Jones, CEO of strategic performance consultancy Excitant says: “When we recently analysed 20 global CEOs we found the so-called ‘top performers’ were not actually moving the company along at all, because those defined as ‘top performers’ were actually protecting their own status, and not pushing information downwards to line managers for fear of being usurped.”

He argues that many firms actually set targets that are too easily achievable for those at the top, such that when they do inevitably achieve them, it perpetuates the notion they are regarded as high performers when, in fact, they might not actually be so.

By comparison, he says other firms set targets that are too difficult for those in the middle to achieve, to ensure these people stay ‘mid-performers’.

So how should performance be measured? Thanks to what Jones and others have observed, some thinkers (and companies) are now beginning to consider measuring performance differently – according to more subjective measures – things like attitude, cooperation, friendliness, openness – elements more based on judgement and intuition than hard facts.

This methodology might appear less specific, but it is now even pervading the normally tough targets-driven approach to performance measurement found in sales.

Increasing credibility

“If a sales person can demonstrate they have the capacity to understand the client’s requirements and the ability to provide them with what they need, our risk equation reduces,” says Andy Sadler, vice-president of sales at Artisan – a provider of intelligence tools for other salespeople. “As clients feel more comfortable and confident, the sales person’s credibility increases, and the client is more likely to keep investing.”

Firms such as eBay are already measuring performance by viewing it as a relational, rather than fixed concept – i.e. a person’s performance is only ‘relative’ to that attained by those around them in the same company. The auction site insists this is because teams change, and that any individual who hopes to rise through its ranks should only be judged compared to who is there now, not on previous teams’ performance.

Other companies are also measuring performance against sets of behaviours. Cisco, for example, will not reward strong sales performance if it is found that team dynamics or the company’s ethics were harmed. “A strong commitment to ethics is critical to our continued success as a company,” says Richard Roberts, Cisco’s UK MD, partner and commercial sales.

“The message for each employee at Cisco is clear: any success that is not achieved ethically is no success at all. Cisco employees can even contact our specially designated ethics office, which operates 24 hours a day in 150 languages.”

Replacing performance

But what these enlightened companies do goes very much against the grain of what is considered normal. According to a McKinsey study, only 30% of businesses have actually moved beyond measuring performance and instead look at measuring ‘capability’ – a concept many believe should replace ‘performance’.

According to some experts, capability is about ‘potential’, which is a better indicator of an organisation’s ability to move forward.

For those who still want to measure ‘performance’ as it is typically defined, there are still lots of tools, although elements that should arguably be added to the mix are net-promoter scores, and customer feedback scores.

Organisations such as Best Companies and Top Employers also provide industry benchmarks for employers, because perhaps the most important measure of performance for some is how they perform relative to their peers.

For other companies, such as DHL, one of its performance metrics is whether it is able to hire a set percentage (85%) of its managers from its own internal talent – as this means performance in terms of hiring the right people to start with, is high.

It just goes to show that ‘performance’ is not yet an easily definable thing – and so measuring it can’t be either. But it is also clear that whatever metric is used, as long as it’s relevant and consistent year after year, it will always be possible to see whether things are really improving or not.