Let’s be clear about employee appraisals and performance management
The following post is from the McKinsey website. In this episode of the McKinsey Podcast, Lucia Rahilly of McKinsey Publishing speaks with McKinsey Partner Bryan Hancock and Senior Partner Bill Schaninger about the role managers can and should play in regularly training their employees, designing fair compensation systems, and managing positive and challenging conversations.
Managing employee performance successfully requires real support for managers and a recognized fair process.
Lucia Rahilly: Welcome to the McKinsey Podcast. I’m Lucia Rahilly, replacing regular podcast host Simon London. Today, we discuss new research on a highly controversial topic that affects us all, from leaders to managers: performance management, or how we define, evaluate, and reward success at work, including the much-dreaded, often-ridiculed, and, in recent years, sometimes dismissed annual performance review. Today I’m joined by Bryan Hancock and Bill Schaninger, both leaders of McKinsey’s Organizational Practice and co-authors of a recent McKinsey Quarterly article on equity in performance management. Bryan, Bill, welcome to the podcast.
Bryan Hancock: Thanks for the invitation.
Bill Schaninger: Good afternoon.
Lucia Rahilly: Let’s start with a straight face. We all know plenty of people for whom at least some aspects of the performance management process are quite painful. Many of us have colleagues who suffer from a variant of seasonal affective disorder that begins to manifest in the fall and magically disappears at the end of the ratings season. In what ways do you think companies are failing in fundamental processes like feedback and evaluation? Bill, let’s start with you.
Bill Schaninger: One of the most interesting things we discovered when analyzing various clients was that many of them said they were quitting their jobs. And we said, «Well, come on. We’ve got to have some way of keeping track.» But when we looked at it in depth, we found a couple of basic things.
For the last decade and a half, companies have become obsessed with tools and processes: the magic nine-box grid, the magic rating scale, the magic form, or, in terms of processes, the fixation with the annual process. What was always missing was the role of the individual manager. The humorous title of one of our articles was: «Putting the Manager Back in Performance Management.»
You’ll see a trend in many of the topics we cover: there’s still no substitute for direct feedback and coaching delivered daily, not just annually. We’re sure to have plenty of horror stories. But where we see it working well is because you work for someone who takes the time to ask, «How’s it going? Have you thought about this? I saw that.» It’s about that crucial relationship between employee and manager.
Bryan Hancock: Our research shows that the vast majority of CEOs don’t find the performance management process that useful in identifying top performers. More than half of those surveyed believe their managers didn’t conduct the performance appraisal properly.
So, we have a process where those receiving the appraisal believe they didn’t conduct it properly, and CEOs don’t find it useful. Yet we’re stuck in this annual feedback loop because in some companies, it’s the only time they can force managers to give feedback. That’s why they say it’s worth having at least an annual conversation.
Why Regular Employee Feedback Is More Important Than Ever
Lucia Rahilly: This has been going on for decades. Performance management isn’t a new concept. Why now? Why are companies reprioritizing core processes now? And why do we think we can fix it now?
Bill Schaninger: It’s probably two things at once. First, when a number of clients eliminated ratings, they ran into the real problem that, at least in North America and Western Europe, you really need some kind of documented administrative evaluation of the year to make hiring decisions, or you treat everyone exactly the same. There’s just a basic legal version of «you need something.»
When we looked at those who made the big deal of «Oh, we’re getting rid of that,» if you asked them even a little, they would resort to «ghost» ratings. They engaged in conversations that were a calibration that was really a rating; at its core, that was the administrative function.
They recognized that they needed something. But everyone said, «We can’t do what we were doing before.» That started to become a purely administrative outcome. If you go back 25 years, that takes us back to the mid-90s, we had reengineering. It was a lean process orientation. There were massive budget cuts and real headcount reductions during the 90s. Then came the era of electronic HR in the late 90s, early 2000s. That was the rise of self-service. After that, we saw another round of massive cuts and, increasingly, a transition to centers of excellence and distributed systems.
So, by and large, the people who used to «feed the beast» or who had a span of control, like the HR partner, who were small enough to offer coaching, weren’t there. Whose turn was it? The manager. Then, managers became overwhelmed by the growing bureaucracy of the process. And they started writing everything down. That’s the reality.
No one was getting what they wanted. Most people like to know how they’re doing. Can you imagine playing an entire season of soccer, football, or baseball without ever knowing the score? I was recently at an eight-year-old boys’ lacrosse game where, in theory, they didn’t keep score. You know who was keeping score? The parents and the kids. Everyone else was keeping score, except for them, because we like to know how it’s going.
There’s been a wave of people saying, «Don’t make this painful. But if I get something useful out of it, I’m willing to invest in it.» This starts more with the day-to-day and less with the annual (Chart 1).
Bryan Hancock: There’s a structural factor driving the changing nature of work that, in part, explains why performance management has become such a hot topic. As more knowledge-based and interdependent jobs become available, there are fewer jobs where you get feedback on whether you’ve done a good job.
If you’re a salesperson, not in solution selling but in traditional door-to-door sales, the fact that you’ve sold a product is itself a form of feedback. At the end of the day, you can reflect and ask yourself, «Am I succeeding as a salesperson?» Because you have the objective feedback. The same is true if I operate in a factory and there are multiple factories in the network producing the same product, and my productivity is the lowest. I can look back and say, «I understand that, objectively, we’re making fewer products, we have a higher defect rate, or it’s more expensive to operate my factory.»
But when it comes to the head of strategy or the head of digital design, these are inherently more interdependent roles. These are roles where feedback may not come naturally. In the end, you may feel like you’re doing great, and your boss isn’t.
Lucia Rahilly: To compound this, I imagine the labor market has been extremely tight in knowledge sectors. It seems there might be a correlation between supply and demand in the labor market and the need to provide developmental feedback, at least, to employees to improve their performance, because you have to compete.
Bryan Hancock: There’s a reason: the staff shortage in the labor market makes people afraid to give negative feedback, especially during the year. They don’t want to lose their people. They don’t want to lose this valuable resource. In some cases, it’s not that they’re worried about losing them outside their companies, but about losing them from the team. Someone might think, «That person is very difficult. I’m going to transfer.» As a manager, you know you can’t replace that person, so you minimize feedback during the year. For you, removing ratings means, «Ha! Another reason for someone not to be angry with me, to not leave.»
But at the same time, you’re not developing that person. You’re not advancing them. You’re protecting them from the downside, but you never really see the upside of a good ongoing conversation about performance management.
Bill Schaninger: And you’re still missing the opportunity. A lot of the conversations we have are organized around an annual process. Most of the annual processes we have in companies are driven by the financial system, driven by accounting standards. They force you to close the books annually. The talent budget is literally an artifact of just plugging it into the financial system. If this was 1950 or 1960, and the annual plan still mattered a lot, and you knew exactly what your job would be, and you’d do the same thing every day—because it was «planned,» and you thought, «Well, let’s cap it off»—then perhaps a static job description and annual review would be fine, although it’s not likely.
But in an environment where work is increasingly fragmented into a week, a couple of days, a month, and is much more dynamic, with much faster cycles, with project-based work, different people, different clients, it’s unacceptable. Because it’s, again, like going to a game and thinking, «I don’t know how good it is.» You show up the next day, you’re playing a different game, and you still don’t get a score.
That’s the challenge: as much as we hear about everything digital and agility, the common denominators are pace and the implementation and redeployment of staff in different combinations. If you want employees to feel good about their work, they need mutual reinforcement. Most people don’t wake up and think, «Yeah, I’m going to assume I’m doing great.»
How to Integrate Equity into Performance Management
Lucia Rahilly: Bryan, you mentioned equity. Equity is a really controversial concept. How do you optimize a metric so rooted in subjective experience? In other words, what can companies do to make their processes fairer?
Bryan Hancock: Part of what we discovered in our research is what drives perceived fairness in the performance management process (Exhibit 2). One of the factors that drives fairness is understanding how what you’re doing fits into the bigger picture: «I understand how this links to the department or the overall strategy.»
The second equity factor is its ongoing component. «My manager has an ongoing conversation with me about my performance, so I’m not surprised. I know what I’m working on and how it fits in. My manager has the conversation with me.»
The third equity component refers to differentiated compensation, and in particular, two types of differentiation. One type of differentiated compensation is ensuring that those who slack off don’t earn the same as others. Because that’s not fair.
They’re not contributing their fair share. And the other is that we recognize, and fairly, those who are performing disproportionately well, recognizing Steph Curry and Klay Thompson on the team. Yes, they should be earning a little more, and recognizing that increases the perception of equity for everyone.
For companies, when they get these three elements right, the perception of equity of the overall performance management process increases (Exhibit 3).
Lucia Rahilly: Could you give me an example of a company that’s doing these things well, or at least a couple of them? Take, for example, people feeling that their work and contributions are important and that they align with business objectives. How is this reflected in practice?
Bill Schaninger: We spend a lot of time studying organizational health. Some of its components relate to things like strategic clarity and role clarity. But if you think about that chain, it almost always starts with questions like, «What is the long-term future of this company? Do I consider it meaningful?» Basically, «Are we doing something that I consider important?» You think, «Okay, that’s a great idea. What’s our plan?» And the plan should be quite detailed: Here are the milestones. Here are the objectives. Here are the goals. I just said «goals» and «objectives,» which are part of the annual goal-setting exercise.
To have even the slightest hint of fairness, you need to start with these two things: «I like our long-term plan. I understand our plan. I know how success will be evaluated,» and then, «and I know what my part is.» It’s obvious, classic role clarity, which means: «I know what you’re asking me to do. I know what the good stuff means, when it needs to be done, who I have to work with, and what I can decide for myself.» When you have that, they at least feel like they have a fighting chance. It’s almost like the hygiene factor.
And then you get to the other thing Bryan was talking about, which is that good traditional managers show up and advise: «Hey, try this. Have you thought about it? Oh, that didn’t turn out well. What do you think?» You know you have a fighting chance, because this doesn’t have to be easy. With the increasing pressure to perform, you might expect the goal-setting part to feel pretty flexible. We’ve seen organizations do a much better job, especially in professional services, where you see project-based work, IT departments that have adopted agile working methods, anywhere they’ve been allowed to break it down. It’s much easier to make an immediate connection between what’s being done today and its impact on the business. It’s also an attack, again, on the long, static job description. It’s very difficult to connect with it. You’ll see things fluctuate, flow, and change. That’s an important part: the sense of meaning. It’s been linked to millennials.
Millennials are labeled with a lot of things, like, «I want my work to be meaningful. I expect someone to care about my development.» If you were to translate those statements, and what Bryan was mentioning as equity issues, into plain language: «I’d like to know that someone cares about me. I’d like to know that the things I’m working on are important. And I’d like to know how they’re going, so I have a chance to succeed.» Well, who wouldn’t want that? It’s no wonder the data was so clearly biased, indicating that if this doesn’t seem fair, it won’t translate into any improvement in individual or organizational performance.
Lucia Rahilly: You’re relating this to millennials. But, in fact, it seems like what you’re clarifying applies to all demographic groups.
Bill Schaninger: Everyone wants it.
Lucia Rahilly: So what’s different now? Is it the cadence and complexity of working in teams, the shifting of priorities, agile decision-making, rapid prototyping, and those kinds of environments?
Bill Schaninger: Millennials have been given a voice because they’re an easy group to talk about. But I think work has been broken down into smaller chunks. And there’s so much noise out there that I think it’s hard to ignore it now. Employees have almost been given a voice to say, «This needs to improve for us, too.»
Bryan Hancock: As we see roles changing—and there are more knowledge-based roles, more interdependent roles—it’s becoming increasingly important for us to define what we’re working on and why it’s important. It’s even more important to have an ongoing conversation that explains the difference in compensation.
I really think it’s about greater interdependence. If we go back to Glengarry Glen Ross, we have the phrase, «Coffee is for closers.» It’s not like the person turned around and said, «But I’m a closer.» No, he knew where he was on the sales list. He knew to send that coffee back. He got it. There are so many people today who don’t get it. They hear, «Hey, dude, coffee is for closers.» And they think, «Yeah, that’s me! I get it!» That’s where the disconnect lies, because we’ve become more interdependent. Natural sources of feedback don’t exist. Other things I would say have advanced a bit are data and analytics, which allow you to more objectively determine whether you’re doing a good job or not. The best example of this is in sports. If you look at advanced baseball statistics that can help with analytics, they can indicate where you are in wins above replacement. Now, it’s really understood in an advanced way: «Okay, what am I supposed to do? Well, I’m not supposed to steal bases, because stolen bases are, in fact, a negative thing.» I know where I’m supposed to be on the field because the analytics tell me. Now, I understand, in a different way, what I’m supposed to do and how it relates to the main mission of getting more players on base, avoiding unforced outs.
So, you know what the manager is supposed to do. If you’re a role player on an NBA team, they tell you what role you’re supposed to play. And then, compensation actually depends on this. There are players now being paid much better and much differently than they were paid before, because people understand their value. And everyone sees that the new system is fair. But it took some changes to get there.
Time-Consuming Performance Reviews and How to Adopt a Modern Approach
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Employee Engagement
HR professionals debate employee performance.
Are you still using a traditional approach to performance reviews?
This could be hurting HR, managers, and employees, and undermining their success.
Highly inefficient and complex, the traditional performance review process leaves HR… Overwhelmed with tedious tasks and unable to focus on more important priorities.
Nearly half of companies still conduct annual or semi-annual reviews,
according to the Society for Human Resource Management (SHRM). And too often, they fail to engage in meaningful conversations about performance among themselves. This represents a major problem for several reasons.
First, conducting annual reviews costs a lot of money in terms of lost work hours, according to Gallup.
Companies with 10,000 employees spend between $2.4 million and $35 million annually conducting these reviews, with little return. And a third of the time, the traditional approach worsens performance, they emphasize.
The traditional review process undermines engagement and morale. «Only 14% of employees fully agree that their performance reviews inspire them to improve,» Gallup writes.
«In other words, if performance reviews were a drug, they wouldn’t meet FDA approval for efficacy.» And 95% of managers are dissatisfied with their company’s performance appraisal system.
In short, the traditional performance appraisal process is not only tedious but also ineffective.
Increasing employee engagement requires an updated approach. Let’s analyze the reasons and how to change the way your company manages performance appraisals.
Table of Contents
- The Challenges of Traditional Performance Appraisals
- The Advantages of a Modern Approach
- Frequently Asked Questions About Performance Appraisals
The Challenges of Traditional Performance Appraisals
HR professionals gather to discuss employee performance appraisals. Credit: Sora Shimazaki/Pexels
By the 1960s, nearly 90% of American companies were using performance appraisals, write Peter Cappelli and Anna Tavis in the Harvard Business Review. Techniques like forced ranking, pioneered in the 1980s by Jack Welch, undermined morale and created a sense of unfair competition. The typical manager spent nearly five weeks a year on performance reviews and hated them.
Here’s why managers, HR, and employees find traditional performance reviews a frustrating waste of time.
Tedious and Time-Consuming Processes
HR experts often highlight the enormous amount of time traditional performance appraisals require. These evaluations often derail the efforts of HR and other managers, forcing them to abandon more productive tasks.
This time-consuming process forces overburdened HR teams to manage numerous tedious tasks:
Manually entering employee data
Managing employee records, filing, and organizing paperwork
Planning appraisal questions and rubrics
Ensuring managers meet with employees
Personally reviewing each appraisal and collecting feedback
Furthermore, these complex processes are not designed to meet the needs of today’s fast-paced business environment.
In many companies, goals and operations can change substantially quarter to quarter.
A streamlined process allows companies to develop employees in response to these changing goals.
Negative Effects on Engagement and Morale
Too often, traditional performance reviews have a negative impact on motivation and morale. They can assign a number or rank to each employee, which feels dehumanizing, as The Wall Street Journal writes.
Instead of increasing employee engagement, traditional reviews reduce it. People want to be seen as their whole, authentic selves, not reduced to a number.
Conflating Incompatible Topics
The traditional approach combines too many topics into a single awkward discussion.
It’s difficult to have open, trust-based conversations about development while also making decisions about pay and promotions, as Cappelli and Tavis point out.
Managers find these conversations difficult to manage and stressful. And employees are too distracted by the important topic of pay and promotions to focus on their growth.
Inaccuracy
Furthermore, managers using a traditional process struggle to remember the key points they need to cover.
They have to rack their brains to remember conversation topics from six to twelve months ago. This leads to a lot of inaccuracy in traditional performance appraisals.
The Prevalence of Bias
Similarly, the traditional appraisal process is rife with bias. «Every human being alive today is a terribly unreliable evaluator of other human beings,» says Marcus Buckingham of the ADP Research Institute. Managers, like all humans, have biases. They frequently reward those who think, act, or are most like them, even unintentionally.
Stanford researchers have found that responses to open-ended questions often reflect managers’ biases more than employee performance. Poor performance in previous appraisal periods can affect the current appraisal, even if the employee has improved substantially.
Systems that track quantitative data have a major advantage over the traditional method in this regard. By tracking actual results, they avoid relying solely on opinions.
Lack of Relevance
When employees only receive a comprehensive appraisal once a year, the feedback often feels completely disconnected from their current work. In some cases, it’s downright unfair and can undermine agility.
«Annual performance reviews are immutable, tied to goals set in January, and often not reviewed until December, when appraisal time rolls around,» says Allen Smith, J.D., in an article for SHRM.
Meanwhile, in rapidly changing environments, employees must set new goals throughout the year. As a result, the feedback provided in traditional appraisals can feel largely irrelevant.
Incompatibility with Remote Work
Only 16% of companies have adapted their performance management approach to remote work, SHRM reports.
Evaluating a remote employee once or twice a year will create a lack of clarity about their role and expectations. It also fosters a disconnect between the manager and the team.
With their inherent bias, cumbersome nature, and negative effects on morale and growth, it’s no wonder traditional performance reviews sometimes do more harm than good.
So, let’s explore the benefits of adopting an updated approach and how to get started.
The Benefits of a Modern Approach
An employer conducts a performance review for their employee.
In 2012, Adobe abandoned its bureaucratic approach to performance reviews to pioneer a new method.
Instead of annual reviews, its managers held frequent one-on-one meetings. Meanwhile, Deloitte opted to offer quarterly «performance snapshots.»
These initiatives have begun to gain popularity in recent years, marking a better way forward.
Improving the performance review process will significantly benefit HR managers and leaders.
A modern approach will save HR teams and managers time and effort, while increasing accuracy and engagement.
Facilitated by the right software tools, it will also provide the guidance managers need.
With these solutions, they will deliver clear and comprehensive evaluations that will truly drive employee growth.
Reducing Tedious Tasks for HR and Managers
“Evaluations are too time-consuming,” writes Victor Lipman in Forbes. “The top complaint about performance reviews (from 31% of managers and 26% of employees) is that they take too long.”
From a management perspective, finding a more efficient way to fairly evaluate performance is critical, he adds.
With a modern approach that leverages software, many forms can be automatically completed.
Managers and employees receive automated prompts to complete their evaluations and schedule a meeting.
In addition, the system analyzes the results. This way, HR can focus on higher-level tasks, such as addressing biases or developing training initiatives.
Providing the necessary guidance for managers
Managers no longer have to worry about whether they remember all the key points of an appraisal. By using a comprehensive set of performance management tools, they will have several ways to refresh their memory:
– Data on goal achievement
– Records of instant feedback provided during the appraisal period
– Journal notes on the employee’s progress
– Data from previous appraisals to compare and assess progress
In addition, appraisal tools will provide clear guidance on how to evaluate employees.
Ensure More Frequent (and Timely) Feedback
Instead of annual reviews, the modern approach focuses on continuous feedback and development.
Today, 28% of companies conduct quarterly performance reviews, according to a Workhuman survey.
And smart companies ensure their managers also hold weekly meetings with their direct reports.
These changes respond to the changing nature of work.
Today, individual goals change much more rapidly than they did decades ago, rooted in projects that end within the quarter.
Referring strictly to annual goals no longer works, as Amy Leschke-Kahle writes in MIT Sloan Management Review.
By providing immediate feedback throughout the week, managers can help their teams become more agile. They’ll also spot and resolve errors immediately, optimizing performance.
Managers can still hold year-end meetings, but they should simply be a recap of the year.
With weekly feedback, employees are 5.2 times more likely to say their manager provides them with valuable information, Gallup notes. And they are 3.2 times more likely to be motivated to excel at their jobs.
Adopt a Growth Mindset
Receiving solid performance feedback will foster a growth mindset among employees, HR experts emphasize.
A modern evaluation process celebrates achievements and provides crucial information when needed, accelerating growth.
With timely feedback, employees are motivated to take their performance to the next level.
Giving Employees Responsibility for Their Growth
Similarly, modern approaches to performance evaluations give employees greater autonomy over their personal growth.
These conversations are more of a dialogue than a lecture. Employees have the opportunity to have input on how they need to develop.
Additionally, they work together with managers to design new goals and a plan to achieve them.
Separating Compensation from Development
A modern performance review process doesn’t simultaneously address discussions about compensation and development.
As Gallup recommends, conversations about performance and discussions about compensation and promotions should be conducted separately. This allows employees to fully focus on development during their performance review, rather than being distracted.
Maintaining Standardized Growth Measures
Having a clear system for quantifying performance results remains critical.
Having standardized criteria and protocols ensures an equitable approach to compensation and promotions.
For example, Adobe has implemented four standardized questions for managers to ask at quarterly meetings, SHRM notes.
Leveraging Software in Performance Appraisals
Using the right software tools will help managers and HR professionals accurately assess performance. For example, Primalogik’s performance management platform collects data that can inform these evaluations.
Primalogik’s performance appraisal software also generates questions focused on employees’ individual goals and roles. By streamlining the process in this way, the burden on HR is eased.
In turn, HR can monitor the process to ensure each employee receives a fair and thorough evaluation.
By comparing managers’ responses with performance data, the software will even help detect biases. HR can take steps to correct them.
The software also allows managers to document ongoing feedback. Both managers and HR can then review it.
Of course, not all feedback will be provided through these tools. But using them frequently will provide a clear record of employees’ challenges, successes, and improvement efforts.
Frequently Asked Questions About Performance Reviews
Below are some frequently asked questions about performance reviews.
Can 360-degree reviews be used instead of performance appraisals?
Experts do not recommend replacing performance appraisals with 360-degree feedback. Why? 360-degree feedback is designed to encourage development. It should not directly influence decisions such as promotions and salaries.
Can a new issue be raised in a performance appraisal?
Never wait for a performance appraisal to raise an issue. However, if you’ve identified a problem during preparation, you should definitely raise it. If it’s a long-term issue, work to improve your management practices so it doesn’t get overlooked in the future. Also, be careful not to unfairly penalize employees for an issue you haven’t raised before.
Should leaders receive performance reviews?
Conducting performance reviews for leaders is an excellent business practice. HR could conduct the reviews with senior management. When employees see leaders go through the process, they’ll be more motivated to participate.
You now have a solid understanding of how to adapt your performance review process to changing business needs. Using the right tools will streamline the process, increasing employee engagement and promoting your success. This way, your managers, HR staff, and leaders can focus on what matters most: developing talent to propel your organization to the next level.
See firsthand how the right software can benefit your performance appraisal process, or even help you modernize it. Request a demo of our product today.
Factors to Consider When Evaluating a Company’s Management
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Our millions of readers come from all over the world and from all walks of life. Some are learning about finance and investing for the first time, while others are seasoned investors, entrepreneurs, professionals, financial advisors, and executives looking to improve their knowledge and skills. No matter who they are, we’re here to help.
The author is Adam Hayes.
Most investors are aware of the importance of a company having a good management team.
The problem is that evaluating management is difficult. Many aspects of the job are intangible.
It’s clear that investors can’t always be confident about a company by examining financial statements alone.
Crises such as Enron, WorldCom, and IMClone have demonstrated the importance of highlighting a company’s qualitative aspects.
Key Takeaways
When evaluating a stock investment, understanding the quality and capability of a company’s management is key to estimating future success and profitability.
However, analyzing stock price alone can give false signals.
In fact, several high-performing companies, such as Enron and Worldcom, saw their stock prices soar despite corrupt and inept management operating behind the scenes.
Analyze indirect metrics, such as the seniority of executives and the type of compensation they receive, as well as factors such as stock buybacks, to evaluate management performance.
Factors for Evaluating Company Management
Sound management is the backbone of any successful company.
Employees are also very important, but it is management that ultimately makes the strategic decisions. We can think of management as the captain of a ship.
While they don’t typically steer the ship, managers direct others to take care of all the factors that ensure its safe journey.
In theory, the management of a publicly traded company is charged with creating value for shareholders.
Therefore, management must have the business acumen necessary to run a company for the benefit of its owners. Of course, it is unrealistic to believe that management only thinks about shareholders.
Managers are people too, and like everyone else, they seek their own benefit.
Problems arise when managers’ interests diverge from those of shareholders.
The theory that explains this trend is called agency theory.
This theory states that conflicts will arise unless management compensation is somehow linked to shareholder interests. Don’t be naive to think that the board of directors will always come to the aid of shareholders. Management must have a real reason to benefit them.
Stock price doesn’t always reflect good management.
Some argue that qualitative factors are useless because management’s true value will be reflected in results and stock price. While this has some long-term truth, good short-term performance doesn’t guarantee good management.
The best example is the dot-com bust. For a while, everyone was talking about how new entrepreneurs were going to be game-changers.
Stock price was considered a sure indicator of success. However, the market behaves strangely in the short term. Good stock performance alone doesn’t mean that management can be assumed to be of high quality.
Tenure
A good indicator is the length of time the CEO and senior management have been with the company.
A great example is General Electric, whose former CEO, Jack Welch, worked at the company for about 20 years before retiring. Many consider him one of the greatest managers of all time.
Warren Buffett has also highlighted Berkshire Hathaway’s excellent track record in executive retention. One of Buffett’s investment criteria is to look for strong, stable management that will stay with their companies for the long term.
Strategy and Objectives
Ask yourself: What kind of goals has management set for the company? Does the company have a mission statement? How concise is the mission statement?
A good mission statement establishes objectives for management, employees, shareholders, and even partners.
It’s a bad sign when companies fill their mission statements with the latest buzzwords and corporate jargon.
Note
Good management is reflected in transparency in decision-making and a commitment to long-term growth, not just short-term profits.
Management Buyouts and Share Buybacks
If managers buy shares in their own companies, it’s usually because they know something that ordinary investors don’t.
Management buyouts often demonstrate to investors that management is willing to invest in stocks.
The key is to pay attention to how long management holds the shares.
Selling shares to make a quick buck is one thing; investing for the long term is another.
The same can be said for share buybacks.
If you ask a company’s management about buybacks, they’ll likely tell you that a buyback is the logical use of the company’s resources.
After all, the goal of a company’s management is to maximize shareholder returns.
A buyback increases shareholder value if the company is truly undervalued.
Compensation
Top executives earn six or seven figures a year, and with good reason. Good management pays for itself time and again by increasing shareholder value. However, determining what level of compensation is too high is difficult.
One aspect to consider is that executives in different industries are paid different amounts. For example, CEOs in the banking industry earn more than $20 million a year, while a CEO of a retail or food service company may earn only $1 million. As a general rule, it’s wise to ensure that CEOs in the same industries are compensated similarly.
You should be suspicious if a manager earns an exorbitant amount of money while the company is suffering.
If a manager truly cares about long-term shareholders, would they be paying themselves exorbitant amounts of money in tough times?
It all comes down to the agency problem. If a CEO earns millions of dollars when the company goes bankrupt, what incentive does he have to do a good job?
You can’t talk about compensation without mentioning stock options.
A few years ago, many praised options as the solution to ensuring management increased shareholder value.
The theory sounds good, but it doesn’t work so well in practice.
It’s true that options link compensation to performance, but not necessarily to the benefit of long-term investors.
Many executives simply did whatever was necessary to drive up the stock price so they could vest their options and make a quick buck.
Investors realized the accounts had been manipulated, so stock prices plummeted while management earned millions. Furthermore, stock options aren’t free, so the money has to come from somewhere, usually from dilution of existing shareholders’ shares.
As with stock ownership, check to see if management is using the options as a way to enrich themselves or if they are actually tied to long-term value growth. You can sometimes find this in the notes to the financial statements.
If not, look up Form 14A in the EDGAR database. Form 14A will include, among other factors, information about the officers’ backgrounds, their compensation (including option grants), and stock ownership.
Why is it difficult to evaluate a company’s management?
Evaluating management is difficult because many aspects of effective leadership are intangible, such as decision-making, strategic vision, and integrity, which are not reflected in financial statements.
Furthermore, strong stock performance is not always a sign of good management.
It can be influenced by market trends, industry cycles, or temporary economic conditions.
Therefore, investors must consider other factors, such as length of service, consistency in decision-making, and long-term alignment with shareholder interests, to assess the quality of management.
What should investors look for in a company’s management team?
Investors should consider several factors beyond stock performance, such as length of service, compensation structure, insider buying, and the company’s strategic objectives.
Managers with long tenure and reasonable compensation aligned with shareholder interests tend to be more stable.
Investors should also consider actions such as stock buybacks, which indicate confidence in the company, and mission statements that reflect realistic and achievable goals rather than corporate jargon.
Together, these factors provide insight into management’s commitment to creating sustainable value.
How can investors know if management’s objectives align with shareholder interests?
One way to assess whether management’s objectives align with shareholder interests is to examine management’s compensation structure and equity ownership.
If managers receive a significant portion of their compensation in stock options or purchased shares, they have a vested interest in the company’s long-term success.
Conversely, if management compensation is excessively high while the company underperforms, this may indicate a lack of alignment.
In Summary
There is no single template for evaluating a company’s management, but the topics covered in this article will give you some ideas for analyzing it.
Examining quarterly financial results is important, but it doesn’t reflect everything. Spend some time researching the people who fill those financial statements with numbers.
6 Performance Appraisal Methods Every Manager Should Know
The following contribution is from the ThriveSparrow website, which defines itself as follows: Imagine a world where work is more than just a daily routine. At ThriveSparrow, we are driven by a mission to make that world a reality. We want to help companies like yours create a thriving culture that puts people first.
We understand the challenges you face, especially in the wake of COVID-19. Building a high-performance culture is now more crucial than ever. That’s why we’ve developed a platform that acts as your company’s secret weapon: an operating system that reveals hidden insights into your employees’ alignment with your vision.
The author is Grace Smith, a Content Marketing Specialist at ThriveSparrow. With eight years of experience in research and writing, she thrives on transforming complex ideas into compelling narratives. Always willing to explore new paths, her commitment to innovation and continuous learning keeps her content fresh and impactful.
Key Performance Methods
Performance Appraisal Methods Managers Can Use
Recent studies have shown that 85% of employees who receive weekly performance appraisals show greater engagement.
Notably, these performance appraisals provide clear and concrete feedback to employees, supported by relevant examples.
What contributes to the clarity of these performance appraisals is the use of efficient appraisal metrics that accurately measure employee performance.
If employees feel their performance appraisal is unfair, this reduces their engagement and productivity.
To ensure accurate performance appraisals, it is critical to properly assess and measure employee performance.
Key Performance Methods for Measuring
Employee performance is a crucial factor influencing the functioning of an organization. Improving employee skills and optimizing their performance not only sharpens individual capabilities but also gives the organization a competitive advantage.
Below are some key performance metrics essential for measuring employee effectiveness.
#1 Level of Engagement
Employee engagement has always been closely linked to employee performance, and they have always been proportional to each other. The higher the level of engagement, the greater the performance demonstrated by the employee.
Therefore, to efficiently evaluate an employee’s performance, an important aspect to consider is their level of workplace engagement. This metric considers several factors, such as initiative, enthusiasm, and commitment to colleagues.
#2 Work Efficiency
Work efficiency can be simply described as the amount of work an employee can accomplish in a given time.
Observing employee work efficiency over time and measuring its pattern provides managers with insight into the quality of work. In addition to measuring employee performance, it is also an excellent way to identify potential areas for improvement.
#3 Absenteeism Rate
Generally, we know that employees who perform well and are satisfied with their work environment don’t take unnecessary absences.
Therefore, absenteeism is an excellent way to identify whether an employee is working efficiently. A high absenteeism rate could indicate various problems, such as low motivation, burnout, or dissatisfaction with working conditions.
Managers can identify the root causes of problems more effectively by monitoring absenteeism and looking for trends and possible reasons.
Implementing flexible work schedules, encouraging work-life balance, offering wellness programs, and creating open communication channels to openly address employee issues are some ways to reduce absenteeism.
#4 Time Management
Meeting deadlines requires good time management. Employees with good time management skills can focus on their goals and avoid distractions.
Meeting goals, completing tasks on time, and using time-tracking technologies can help managers evaluate their employees’ time management.
Time management training, clear expectations, and organizational and planning tools can help staff be more productive.
#5 Teamwork
Effective teamwork is measured by how effectively employees communicate, cooperate, and contribute to collective efforts. It requires open communication, mutual respect, shared responsibility, and the active contribution of all members.
Managers can assess teamwork through peer reviews, team project results, and feedback from team members.
#6 Revenue per employee
Revenue per employee is a critical metric that measures an employee’s contribution to company revenue. It is useful for assessing individual productivity and overall business efficiency.
Streamlining business processes, enhancing sales techniques, and refining customer service strategies are ways to achieve significant improvements in this area. Therefore, by regularly monitoring this metric, companies can measure growth, adjust resource allocation, and compare themselves against industry standards.
#7 Overtime
Achieving goals or managing extra work may require overtime, but excessive overtime can indicate inefficiency, poor workload management, or understaffing.
Managers can identify workload mismatches, optimize resource utilization, and prevent burnout by monitoring overtime.
To reduce overtime, managers could make certain adjustments to work assignments, hire more staff, improve processes, and implement productivity training.
#8 Quality of Work
Employee performance is evaluated based on the correctness, usefulness, and overall quality of their work.
Some of the key attributes of quality work are attention to detail, compliance with regulations, and customer satisfaction.
Managers can evaluate work quality by considering objective and subjective criteria such as feedback from the organization’s various stakeholders.
Providing clear instructions, consistent feedback, and training opportunities is crucial to helping employees maintain high-quality performance. Furthermore, fostering a quality-, growth-, and accountability-oriented mindset can significantly improve a company’s workplace standards.
Performance Appraisal Methods Managers Can Use
Managers have access to a wealth of data on their employees’ performance, but evaluating it effectively requires several methods. Here’s a list of them.
- OKRs (Objectives and Key Results)
Implementing Objectives and Key Results (OKRs) is an effective way to help your team align their personal ambitions with your company’s strategic goals.
Start by setting clear, challenging, yet achievable objectives and choose key metrics to measure progress. Regularly review and adjust these OKRs to ensure they remain relevant and aligned with changing business needs.
This method not only clarifies roles and focuses efforts, but also improves accountability, allowing your team to understand how their individual contributions fit into the company’s overall goals and fosters collaboration.
- Skills Gap Analysis
A skills gap analysis is a vital tool for aligning your team’s competencies with the organization’s needs. Here’s how you can implement it effectively:
Assess Current Skills: Compare your team’s current skills with the skills required for their roles. Use skills assessments to identify gaps.
Collect Data: Gather information through performance evaluations, skills tests, and feedback from supervisors and peers. Development Plan: Based on identified skill gaps, create targeted training and development programs. This will help employees grow and meet their job requirements more effectively.
This approach not only promotes personal development but also aligns your team’s capabilities with the company’s long-term goals.
- Employee Net Promoter Score (eNPS)
The Employee Net Promoter Score (NPS) is an effective tool for measuring customer satisfaction and loyalty by asking customers how likely they are to recommend a company’s services or products. In the context of a performance review, the NPS can shed light on employee performance, especially in customer-facing roles.
That’s the eNPS.
The Employee Net Promoter Score (eNPS) measures employee satisfaction and loyalty by asking them how likely they are to recommend their workplace to others.
This metric is especially useful for assessing internal morale and engagement. Analyzing the eNPS alongside direct employee feedback can reveal insights into areas such as management effectiveness, workplace culture, and team dynamics.
Low eNPS scores may indicate a need for organizational improvements, while high scores typically reflect a positive and healthy work environment. Incorporating eNPS into performance reviews can motivate employees to improve their contributions to the workplace, benefiting the entire organization.
- Customer and Peer Feedback
Customer and peer feedback provides a comprehensive view of an employee’s performance.
Customer feedback evaluates customer interactions and problem-solving, while peer feedback focuses on teamwork, communication, and overall contributions.
To ensure authenticity, feedback should be collected anonymously through surveys, performance reviews, or informal conversations. This comprehensive feedback helps managers identify employee strengths and areas for improvement and facilitates fair and transparent performance evaluations.
- 9-Box Grid
The 9-Box Grid is a talent management tool that categorizes employees based on their current performance and future growth potential. This method places employees on a grid, evaluating them both for their current contributions and their ability to take on larger roles.
Managers use this tool to identify high-performing employees ready for advancement, recognize employees who excel in their current roles, and support those who need further development, thereby optimizing succession planning and leadership development.
- 360° Performance Reviews
360° performance reviews gather information from various sources within the organization, such as the employee’s environment, providing a comprehensive view of performance and areas for development.
With this type of feedback, managers can assess an employee’s strengths, weaknesses, and leadership qualities by combining comments from various sources.
Learn about the qualities that define a good leader here.
Raise Your Employees’ Performance
The only way to raise your employees’ performance is to accurately measure their current performance. Failure to do so can result in an inaccurate evaluation, which in turn could lower employee morale. So, how do you ensure you’re evaluating your employees correctly?
Use reliable performance management software like ThriveSparrow to understand what your employees expect from the appraisal, then adapt your procedures accordingly. Try this foolproof plan and you’ll be amazed by the results!
10 Essential Metrics for Managerial Effectiveness
The following contribution is from Visier’s portal, which is defined as follows: Visier reveals the human truth.
Keep your talent strategies agile in a dynamic industry. Stay ahead of the curve in finding and retaining exceptional talent with visibility into your hiring funnel, key success factors, and exit risk.
Author: Ian Cook. VP, Product Management at Visier
Analyze ten key metrics for managerial effectiveness that will help your organization motivate talent and reduce the attrition rate of high performers.
Ten Managerial Effectiveness Metrics You Need to Know
Popular Topics
Culture, Leadership, Product & Innovation, Future of Work, People Analytics 101
The role of front-line managers has changed dramatically in recent years. From pandemic-driven changes in the workplace to the continued evolution of how work is done with emerging technologies like generative AI (GAI), managers are constantly forced to confront change head-on.
In the technology sector, in particular, competitive threats loom large.
With processing power increasing exponentially, the race to be first has become increasingly challenging.
Behind the scenes, competitors are continually working on new advancements that can offer performance or cost advantages.
But staying ahead of the competition doesn’t have to be a thankless and exhausting task. There’s a way to motivate your high-performing employees to excel, while also motivating them: it starts with tracking manager effectiveness metrics.
Measuring Manager Effectiveness to Drive Engagement and Peak Performance
Managers play a crucial role in shaping employee engagement and retention, which goes a long way toward fostering an effective leadership culture.
The role of a manager is critical to business success. Managers who recruit well and develop and retain top talent through their ability to lead, motivate, and empower their teams will have a direct impact on achieving strategic objectives and business results.
Furthermore, today’s managers must be able to effectively leverage AI tools to positively impact productivity, strategic objectives, and business results.
To achieve this, your staff needs strong guidance and development: a high level of challenge but a low level of skills will generate anxiety, while a high level of challenge and a high level of skills will likely generate flow.
In addition to learning and development programs, you need managers who help people succeed and can guide them through challenging projects, which is key to innovation and staying ahead of the competition.
In the long run, this not only benefits engagement but also retention.
The old saying is true: «People quit their bosses, not their jobs.» And conversely, people tend to stay with those who help them improve their skills.
Therefore, it’s important to use effectiveness metrics that help you answer questions like:
– Which managers retain the highest performers?
– Which managers develop the best employees?
– Which managers drive the highest levels of productivity?
From there, you can seek to develop more managers like them, talk to those who need to improve, and ensure your best managers are managing your most critical teams.
10 Must-Have Manager Effectiveness Metrics to Stay Ahead of the Competition
- Manager Engagement Index
Employee engagement is a critical element of high team performance. Gallup reports that employee engagement indexes are recovering from an 11-year low in early 2024, rising from 30% to 32% this year. While it still falls short of the 2020 peak of 36%, it represents an improvement. Managers have a significant impact on employee engagement.
Why you need to track it:
A manager who pushes people to achieve goals without regard for the overall well-being of the team will only exacerbate burnout issues. On the contrary, manager-coaches who take the time to ask people about their needs (and then respond appropriately) can help them gain control over their work lives and promote employee well-being.
Supervisors are the key link between the organization and the employee. They are not the only factor influencing employee engagement, but they are critical because of their opportunity to understand and support employee engagement at the individual level. Most engagement survey processes include a specific series of questions that analyze how employees perceive their supervisor. It is important to understand and use this score to gain a complete picture of the manager’s effectiveness.
How to obtain it:
The most common way to determine a manager’s level of engagement is to calculate the average scores for a series of survey questions related to the relationship with the supervisor.
Warning signs to take action:
When a manager’s engagement level is significantly lower than that of similar work groups in the organization, this indicates that the manager is not meeting objectives.
Analyzing this level alongside the turnover or absence rates of high-performing employees will give you a good idea of the impact the manager is having on the team.
A low level of engagement, coupled with high rates of resignation or absence, means that measures are needed to improve the dynamics of that work group. It’s also worth investigating based solely on the low level of engagement, as this may be the first indication that resignations and absences will occur.
- Resignation Rate of High-Performing Employees
Resignation and turnover are rarely desirable in organizations. But this is especially true when they occur among high-performing employees. The good news: According to The Adecco Group, 83% of employees plan to stay with their companies this year. Even so, talent retention should remain a priority for competitive employers.
Why you need to track it:
A general turnover metric, which also incorporates the turnover of underperforming employees, is too broad to support quality decisions about good management skills. Instead, examine the quit rate of high performers to see if specific managers or work units are losing more high performers than others.
Strong, capable managers who view employees as assets can help organizations manage retention issues, such as turnover contagion, by encouraging high performers to stay with the organization longer.
How to get it:
Choose a time period (e.g., the last 12 months).
Count all high performers who resigned.
Calculate the average headcount of high performers.
Divide the number of high performers who resigned by the average headcount of high performers.
Note: If your organization is experiencing staffing shortages, you may also be concerned about retaining strong performers. In this case, you can also incorporate high-performing staff turnover patterns into the analysis.
Warning signs for action:
When the attrition rate of high-performing staff is higher than the overall attrition rate, it indicates a problem that needs to be addressed.
If you are losing high-performing staff more rapidly than your overall workforce, it means the overall quality of talent is declining, which will likely lead to productivity and quality issues in the future.
If certain managers’ rates are substantially higher than others’, this indicates that all is not well in that workforce. While it would be overly simplistic to assume the manager is the sole cause, it is an indicator that further research and analysis is needed.
- Employee Experience
Employee experience is closely linked to engagement, retention, and productivity. Managers play a critical role in establishing an environment where employees feel valued and can see a clear connection between their contributions and the success of both their departments and the organizations they work for.
Why monitoring is necessary:
In manufacturing environments, a manager’s success can be measured based on concrete results, such as the number of units produced. However, this metric isn’t the whole picture in knowledge work, where the synergy between team activity and business results can be more elusive.
It’s possible to identify the connection between creative and intellectual work and business results. Better managers generate more engaged employees, better equipped to achieve key results, such as improved customer experience.
How to achieve this:
To better understand the connection between people and business results, consider using an analytics platform that pulls data from multiple sources to generate holistic insights based on employee and company data. This way, you can see how leveraging different levers of employee experience produces different outcomes, such as better customer service.
Warning signs:
Consistent expressions of frustration within a workgroup through an employee experience platform could indicate that the manager is limiting the team’s ability to better serve customers. If there’s a potential relationship between these complaints and low NPS scores, it’s time to discuss the findings with the manager.
Get Visier’s new guide: 5 Habits of Effective Managers
- Promotion Rate
Development opportunities are one of the things employees value most about the organizations they work for. In fact, Gallup has identified development as one of the top drivers of employee engagement.
Why you need to track it:
Traditional promotion metrics simply analyze how many people in a group have received a promotion. This doesn’t indicate whether they were promoted within the group or from elsewhere. To understand whether a manager is good at talent development, you need to understand how many of their employees were promoted, both within their team and externally.
To do this, analyze promotions made, which calculates the number of people promoted from a specific work group and provides real insight into the manager’s ability to develop staff with advancement potential.
By analyzing promotions made across your organization, you can see the managers and work units with more people promoted than average. This indicates which managers are most effective at developing talent.
How to get it:
– Choose a time period.
– Identify all the people who were promoted within that period.
– Assign that promotion event to their location or work unit at the beginning of the period. This will be the location from which they were promoted, not the location they were promoted to.
– Divide the number of promotions by the work group’s average headcount to create a rate.
Modern career paths are more like playgrounds than ladders, which means the right moves can also contribute to advancement over time. With this in mind, also consider lateral moves as an indicator of whether a manager is giving team members the opportunity to take on more demanding tasks and learn new skills.
Warning signs to take action:
Managers who consistently have a low or zero promotion rate may be talent grabbers.
These individuals hold team members back to ensure their goals are met, to the detriment of the employee and the organization as a whole.
A low or zero rate compared to others should be a reason to investigate further and clearly identify why this manager is unable to develop staff who can advance in the organization.
- Direct Compensation Variance from Plan
Organizations budget for personnel costs just like other aspects of their business. And, as with other aspects of business, these costs can be quite variable, meaning actual expenses can vary from what was planned.
Why Tracking Is Necessary:
An organization’s staff spending in professional services or technology firms ranges from 60 to 80 cents of every dollar. Even with the best financial controls, managers play a key role in managing one-time and off-cycle increases in base pay, as well as in the use of variable or supplemental pay to incentivize employees or cover peaks in demand.
A manager’s primary role is to get the job done with available resources, whether financial or human. Understanding the alignment between a work unit’s personnel costs and the plan provides insight into the manager’s performance in resource use.
How to Obtain It:
This analysis requires the ability to integrate and align planning and analysis. Here’s how to calculate the variance in direct compensation from plan:
Align your planning and analysis to use the same basis for modeling personnel costs (e.g., direct compensation for both includes base salary, variable salary, supplemental pay, etc.).
Publish the planned direct compensation for each work unit.
Calculate your actual direct compensation from the salary data.
Subtract the actual values from your plan.
Convert the sum of the differences into a percentage variance (e.g., $10 over $100 of plan costs is a 10% variance).
Red Flags:
Managers shouldn’t be expected to consistently meet their plan targets accurately. This level of accuracy suggests an over-focus on costs. If you find a variance above the plan for several months, or if the variance is greater than 2-3%, it’s time to conduct a more detailed analysis of the cause. For example, is the variance due to large increases in base pay for new hires or high supplemental payments due to increased workload? A variance doesn’t always indicate a negative situation, but it does indicate that the problem needs to be thoroughly analyzed.
- Delivery on Schedule
Whether it’s an internal deliverable that’s part of the process of creating or distributing goods and services, or the actual delivery of those goods and services to customers, delivery on schedule is an important metric.
Why you need to track it:
Rather than establishing structures outside the workflow, good managers develop the practice as they go. However, this can create new challenges, especially when projects have an undefined scope. The delivery on schedule metric helps assess how the manager is currently structuring the work.
How to obtain it:
Identify the scope and deadline of the current mission.
Identify the amount of work completed and the elapsed time.
Calculate the percentage of completion by deadline.
Warning signs to take action:
A common theme in projects with cost overruns indicates that a manager might be struggling to get team members to agree to meet a delivery date. Additionally, if you notice that the team isn’t meeting goals, but employees are working overtime, you should discuss the issue with the manager and team members to dig deeper, as there are many factors that could be contributing to the problem.
You should also consider the difficulty level of the project, as some are more complex than others. If different projects are categorized by difficulty when entering data into the project management system, your perspective will be much more complete.
- Days of Absence per Full-Time Equivalent (FTE)
Workplace absenteeism has a high cost. In fact, according to Forbes, it can reach $600 billion annually. Managing absenteeism is critical for any manager, who has the opportunity to influence it, both positively and negatively.
Why it needs to be monitored:
Workplace absenteeism is often a latent problem that, when monitored, can provide a clear view of which managers are demanding too much from their staff or have engagement issues. There is a level of absenteeism that is considered normal. For example, sick leave is given. Monitoring this metric allows you to identify patterns that don’t match expectations and understand what causes this abnormal behavior.
How to obtain it:
Select a time period.
Count the number of absence days during that period.
Calculate the number of full-time equivalents working in each work group.
Divide the number of absence days by the number of FTEs. This gives you a «normalized» or common score that can be compared across work groups.
Red flags:
There are two clear indicators that a work group’s behavior is not effective and that further investigation is required. The first is a consistently higher level of absenteeism than the average for similar work groups. Absenteeism rates increase with age, so it’s necessary to check if one group is considerably older than another. However, in general, absenteeism patterns should be consistent across groups performing similar jobs with a similar demographic.
The second warning sign is an increase in absenteeism.
Monthly fluctuations are likely. However, a steadily increasing trend in absenteeism is an indicator that a workforce may be overworked, disengaged, or looking to leave the organization. Why? The most common way to get time for an interview is to fake a sick day.
- Coaching Equity
We’ve already addressed the importance of development for current employees, but not everyone feels they have equal access to development opportunities.
When managers are perceived as preventing employees from accessing these opportunities, employee engagement, retention, and productivity are compromised.
Why you need to monitor it:
As the manager’s role becomes more coaching-oriented, organizations must also be aware of the potential for affinity bias, a mental shortcut that leads people to favor others for sharing similar characteristics. For example, men tend to hire men more often, and women tend to hire women more often. It’s important to avoid a situation where a similar dynamic arises in coaching relationships.
How to fix it:
This problem may be more prevalent in certain areas of the organization than others, and people analytics can help employers determine where this type of bias is creating a problem. Evaluate the time spent coaching for each report and then break down the average time spent coaching based on attributes such as gender and seniority.
Red flags to act on:
If a manager has low engagement scores among people from underrepresented groups, it could be an indicator of affinity bias. Based on this information, you can begin to implement interventions where they are most needed.
- Variance in Labor Utilization
Since labor costs represent a significant percentage of most companies’ budgets today, effectively tracking the impact of actual hours used and hours that should have been used for various types of production and customer service can help managers determine whether their human resources are being used most effectively and where adjustments or improvements might be needed.
Why Tracking Is Necessary:
Skilled manager-coaches who understand employees’ strengths and motivations are a critical asset. They can assess the interdependencies of tasks and skills and ensure they are prepared to meet project objectives. The labor utilization variance will help you evaluate whether the manager is effective in utilizing talent.
How to Obtain It:
Identify the total person-hours assigned to the assignment.
Identify the person-hours actually delivered to the project.
Calculate the percentage variance between actual and assigned hours. For example, 110 actual hours vs. 100 assigned hours = +10% variance.
Note: The same calculation can be performed based on days if this is easier to track than hours.
Red Flags:
If you notice team members regularly having to put in more hours than expected, it could indicate that the assignment manager is struggling to assign the right tasks or plan complex projects.
- AI and GenAI-Related Metrics
Today’s managers must learn how to leverage AI to improve their work and their team’s performance. AI gives them instant access to insights and offers opportunities to increase efficiency, allowing them to focus on more strategic priorities. AI also offers new and more efficient ways for managers to assess staff performance. AI can provide more accurate and data-driven insights, help automate tasks, and enable more personalized approaches to performance management and staff development.
Why You Need to Monitor It:
As companies rapidly incorporate AI tools into their workforces, it’s important to understand their impact on effectiveness, productivity, and efficiency. Quantifying the value of AI investments from a management perspective can help identify areas of opportunity for refinement and optimization, as well as risks that need to be managed.
How to Get It:
Relevant key performance indicators (KPIs) are important for measuring the impact of AI on productivity, engagement, and business operations. Once implemented, AI-based analytics tools (such as Vee) can be used alongside other data sources, such as user feedback, to provide quantitative and qualitative insights.
Warning signs for action:
AI tools are known to «deceive» or provide false information, and they can also exhibit biases, so it’s important to monitor and evaluate results. Data privacy concerns are also an issue, both in terms of data breaches and unauthorized access. Since these tools are very new, it’s important to monitor their user adoption to ensure they’re being used correctly and to monitor their potential impact on employee skills and competencies.
Bringing it all together
The role of managers within technology organizations is crucial to the organization’s performance. Tech companies often rely heavily on the knowledge and engagement of their staff. As the person with the closest relationship with employees, the manager plays a critical role in helping their team reach its full potential.
Monitoring manager effectiveness is important to the overall process of managing productivity and ensuring organizational effectiveness. It is also one of the most difficult questions to answer. For example, a high resignation rate is a bad sign, but it is not automatically caused by the manager; a circumstantial circumstance, such as cutting a group’s bonuses for financial reasons, could be the cause.
When analyzing manager effectiveness, it is important to use metrics to narrow down areas of focus and potential problems. At the same time, remember that metrics are not the answer, but rather a guide to better understanding how the human dynamics in your organization drive or hinder organizational success.
By monitoring and analyzing manager effectiveness, you will be well positioned to identify the strengths of your people management team and where further analysis is needed. By combining these insights with recruiting optimization, you can drive strategy and achieve better business results through talented and engaged people.
More on Manager Effectiveness
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