Nobody Can Fail Your Performance Management System | Marc Effron

Your performance management system closes on time every year. Nobody has ever asked what it's for — and it turns out your lawyers answered that question years ago, by default.

A manager can run eleven people for fourteen months, never have the hard conversation, and still be rated a solid four. Every other system in your company has a consequence attached. Yours is the only management system in the building that nobody can fail.

Jackson O. Lynch and Scott Morris are joined by Marc Effron, President of The Talent Strategy Group and author of One Page Talent Management and 8 Steps to High Performance. His firm rebuilds performance management for large global companies seven or eight times a year.

In this episode:

• Why a performance management system can run flawlessly for twenty years and still leave your CEO unable to name who is actually performing
• The three forces holding it in place — the calendar, the undefined role of the manager, and a rating scale that can't tell anyone apart
• Why goals set in April cost you two quarters of performance, and what goal calibration fixes that end-of-year calibration can't
• Marc's case for a three-point scale, and why "meets expectations" is a label nobody will ever accept
• The solutions order — effective, efficient, defensible — and why starting with defensible guarantees you never reach effective

The Climb — four moves you can make Monday:

Ask your employment counsel which parts of your performance review process are actually legally required. 

Message ten people and ask, in two words, what performance management is for at your company. 

Write one sentence naming what the system exists to produce, and take it to your CEO. 

Then listen to the answer — because a CEO who names an outcome the system doesn't serve is handing you a design problem you own, and a CEO who can't name one is a different problem entirely.

Marc's version of that sentence: the purpose of performance management is to elevate company financial performance.

Nobody is defending the current design. You don't have to win this decision back. You just have to make it.

Marc Effron: talentstrategygroup.com — all research free.

Most CHROs are operating without a written mandate and find out too late to fix it quietly. Take ten minutes and check yours: mytalentsherpa.com/clarity

Transcript

Copy

No, your performance system works exactly as it's designed. It closes on time every year, and no one has ever asked what it's for. Stay with us, because you're about to find out who's been answering that question on your behalf.

Hey there, senior leader, and welcome to the Talent Sherpa Podcast. This is the podcast that helps HR executives move beyond the support function and become business-first, the right hand that their CEO cannot run the company without. Because, as you know, the top chair is not an HR job anymore. It is a brand new identity. And I'm your host, Jackson Lynch, and this is Episode 160, and it's Thursday. So joining me today is my co-host, Scott Morris. He's a former CHRO with all the scar tissue to prove it, and he's the founder of Propulsion AI. One other thing to know about Scott is that he has been rated a four every year since 1988, and he has never once been told why. And Scott, today we have someone joining us who has spent more time inside this particular problem than the two of us combined.

I'm excited for the episode, Jackson. Today is for the person who owns performance management and has never once asked what it's supposed to produce. Now, from the outside, it looks like a design problem with an obvious fix. But if you're running it from the inside, it's a process that touches every employee, feeds compensation, and carries a legal shadow that nobody can quite describe. Changing it means negotiating with like four other functions, each of whom think that they own a piece of it.

So here's what we're going to get to today. We're going to show you why a performance system can run flawlessly for 20 years and still leave your CEO unable to name who is actually performing. We're going to show you how the purpose of that system got set, and why the answer is stranger than you would ever suspect.

And we're going to give you four moves that put the decision back in your hands, starting with a question that you can ask tomorrow before lunch.

So let's start with the state of play. Third week of the cycle, and you are sitting with one of your division leaders. You're working through ratings for 11 people, and everyone lands on, you guessed it, a three or a four. So you stop on one name, somebody whose numbers have been soft since last spring, and you ask how that conversation went. And your division leader looks up and says, "Yeah, I've been meaning to have that one." Meaning to.

And you know what? I've got a pet peeve about this one, Jackson. The goals that are in front of you were written in January, and nobody ever opened them. At least not more than once. Two of them are copied from last year. One of them says "support the transformation," or some nonsense like that. You know, you can read all 11 and not even learn a single thing about what any of those people are supposed to be producing. No outcomes.

Yeah, so you fix the thing that you can fix. That's what's right in front of you. So one leader at a time. The problem is, it doesn't scale, and it totally does not improve the system.

And you know what? Nobody says out loud in that room, you know, the division leader is going to get rated too. Somebody's going to sit down in six weeks and give them a number. And, you know, nowhere on that form, in any field, is there a question about whether the 11 people reporting to them knew what they were really supposed to do, or whether they heard anything about those goals more than once when they were first presented, or originally signed, or whatever.

And status updates don't count on that. Yeah, nothing happens. And that's the part we all need to sit with, because nothing happens to that leader. They keep the rating, they keep the bonus, the file says solid contributor, and then next January, like the swallows returning to San Juan Capistrano, they copy the goals forward again. Every other thing in that company, by the way, has a consequence attached to it. If you miss a forecast, something's going to happen. You slip a covenant, something's going to happen probably pretty fast. You run 11 people for 14 months without telling one of them the truth, and you're a solid four.

And you know, I think this is why you and I both have come to really hate the way traditional performance management works, because you're the only one running a management system in that building that nobody can fail.

Well, and the wasted hours are real too, Scott. And they're probably the cheap part of all this. The expensive part arrives the day that your CEO is asking who's actually performing and who isn't going to make it. And they will ask. The honest answer is that you ran an entire process in a system across the entire company for a year. You closed the cycle, you filed almost every form, you got really excited that you were 90% complete, but nothing that you did can actually tell you the answer to their question.

It's a huge problem. And so I think it's time for an oxygen check.

Look, when you're climbing at altitude, the first thing you lose is your judgment, because you're running out of oxygen. And you don't realize it until too late. Same thing here. Okay, here's how you might be thinking about this, and why that thinking is going to cause you a problem. When your performance management system got built, nobody's first question was what has to change in the business. It was what gets documented, what needs to be consistent, what needs to survive anybody who questions a number that they don't like. And so you built that system to be sound, to be compliant. And then you measured whether it ran or not. But those aren't the things that really truly matter.

So try this. Pick a number that your CEO gets asked about at every single board meeting. Got the number? If moving that number were the only reason that the performance management system existed, what part of your system would you keep? Go through it. The scale, the calibration meeting, the November deadline. Name the one piece that would survive, or the two pieces. For most people, there just isn't one, and that's the finding.

But here's the problem. Your system as it's currently designed was never asked to raise performance. That's the biggest problem. Nobody wrote it down as the job, and so it never became the job. And it's going to close on time for another decade and answer nothing that your CEO wants to know. Look, you can't out-execute your way through this problem, which means that more effort isn't the fix. You've got to get your head around it first.

That's why we want you to stay with us. And that's exactly why we have someone with us today who has spent his whole career on the other side of that question. His name is Marc Effron. Marc is the president of The Talent Strategy Group. And if you've ever sat through a Talent Management Institute session and had someone take the science seriously instead of the fashion, there's a pretty good chance that it was his. He wrote One Page Talent Management with Miriam Ort, and 8 Steps to High Performance, both of which have been longstanding members of the bestsellers list at Harvard Business Review Press. His firm runs, I think, seven or eight different performance management redesigns a year for large global companies. And I want to say this here on the pod, because it's true, and I've never said it to him over a microphone before. Marc, you are one of three people who has most shaped how I think about this work. So I'm totally excited to have you here. Welcome to the show.

Thank you, gentlemen. Happy to be here talking about one of my favorite topics.

So let's dive into this. You've run seven or eight of these a year for years, and we just spent 10 minutes or so describing what we think is broken. Critique us. What do you think we got wrong, and what did we leave out?

You got nothing wrong. Let me just pile on a bit. Performance management should be the process that every business leader and every CEO absolutely loves, if performance management is strategy execution. If you go to the CEO and say, "Hey, I've got a better way, a more disciplined way, a more guaranteed way for you to execute strategy, are you interested in the conversation around that?" Typical CEO should say, "You have my attention. What have you got?" But we don't. We say, "Okay, there's a process. You've got to follow it, because we're HR, and that's what you do. You do what we say you do." Yeah, I think we've lost people's attention at that point.

So why don't we start by saying, yeah, the science is actually really clear around goal setting, and around coaching elevating performance. The structure is really clear around, if we have goals that are at least relatively linked, that we'll probably be doing stuff that actually matters to the organization. We know that coaching works. We can come up with a fair review process. Nobody likes it. We can come up with one that's relatively fair. But we don't do any of those things. We don't set goals well. We don't coach. We come up with obscure, complex, or no review processes. We don't train our managers well. We don't expect HR to be experts in it. So all the stuff that can actually make us good at a process that should elevate performance, we don't spend time doing.

And none of these things are big lifts. I mean, it takes effort, it takes focus, it takes maybe even a tiny bit of money, maybe even not that, but we're not talking huge intellectual hurdles to get this stuff done. So I think the starting point is, we know exactly what to do. In fact, I rewrote an article last week on this called The Hard Work of Great Performance Management. And if you went to somebody and said, "Look, I've got this process, it isn't working, I know exactly how it should work, but yet every year it doesn't work. What should I do?" Why don't you just do the things that you know work? And that's my advice to most companies. Is why don't we just do the stuff that we know? Do you want to set better goals? Yeah, let's do that.

So in many cases, this is a — oh, it's a little bit about process. So if you have a crappy process, let's help with the process. In most cases, it's about disciplined execution, and really helping leaders to say, hey, better goals are going to help all of us. Better goals are actually going to make the process more fair, because we're not evaluating Marc and Jackson on completely different standards at the end of the year if we're setting goals well. And we should have a performance lift that benefits everybody if we're doing that well. So my starting point is, we know what makes performance management work well. Most organizations are doing none of the above.

So, Marc, let's dive into what the challenge is, because there are three forces, and not one of them belongs to a villain. That's what makes some of this hard. First one's the calendar. And the second is what we've decided a manager is. And the third one is the rating scale itself, which can't tell anybody apart practically. So let's take those in order.

So if we start with the calendar, let's start here. It is amazing how often goals are set in the second quarter of the year. Now, the question is, what the heck were you doing the first quarter of the year? Because if you knew what you were doing the first quarter of the year, you probably should have written that down and said, "That's my goal." That goes to lack of discipline.

We all know, because we're experienced corporate folks, that the senior team had goals in August, because that's what they're planning. So they had their offsite in July. They went to a very nice place, they had some good dinners, they spent a day, and they came up with the goals. And then the CFO went off, made sure there was money for everything. That was done by the end of August. Beginning of September, they had their goals locked in. Yet for some reason, we didn't start doing anything about that until March. And there's lots of good excuses why we didn't do it. But we still end up not telling people what they should focus on until second quarter.

So I would start with, the place the calendar goes wrong is at the very beginning of the calendar, where we don't tell people what to focus on until it's far too late to have them focus on it. If you believe that better quality goals focus performance, elevate performance, and sustain performance, you should want someone to have those goals as early as they possibly can. And if they have them in April, then you should assume that they have not focused or elevated or sustained performance for those four months as much as they could have. I'll start there.

Marc, you've hit, I think, the first problem. If employees aren't getting anything until April, like a full quarter is already gone. Now we're down to whatever they're going to execute, they're going to try and do in three quarters. And we all know how the fourth quarter goes, because we're starting to do the ramp-up of evaluation. So basically we're down to two quarters. And along the way in between, you've got a manager who — like, I think there's a varied definition here for the role of a manager, which leads us to the second force, which is span of control and what the manager actually needs to do. Can you talk about that a little bit? Nobody really, I don't think, spends time on whether that manager is coaching, or whether that manager is an individual contributor who has direct reports.

Yes, so many issues underneath that, Scott. Let's start with, do we have players, player-coaches, or coaches? And are we clear about that? Because once we decide on that, then we can say, hey, your responsibility as a coach is this. Your responsibility as a player-coach is this. But most of the time it's gray. And it's, yeah, you should do a bunch of stuff. It's like, well, help me out with the top three, because if you expect me to have big individual deliverables, then I'm going to spend 80% of my time on that, because that's where my bonus comes from. And yeah, I'll talk to some of these people you put underneath me on the org chart, but you know, I ain't getting paid for that. You need to make clear where's the money coming from. If the money is coming from managing people better, I'm going to spend more time doing that.

So, exactly to your point, Scott, clarity on "am I a manager," and if so, what does a manager do, is essential. And just a related tangent, but I always say, look, I only really care about three things from a manager. I want you to set brilliant goals. I want you to actively and transparently coach for performance and behaviors. And I want you to build successors for your key roles. If you do nothing else in people management, I'm happy, because those three things are going to take care of most of the other stuff around engagement and wellness and all the other stuff that we in HR like to blather on about.

But in most organizations, we aren't clear with managers about that. And or, if for some reason you are clear, we then make the process either obtuse or complex and say, "Well, it's a GROW coaching model. We're going to put you on a four-hour GROW class." You're going to need to — instead of saying, look, you're going to make sure that everybody in your team knows the three most important things to get done this year, and we're going to have some validation that those are the three most important things. And then once a quarter, sit down with somebody for 20 minutes and just give them a little bit of insight about if they're on track or off track, and what they could do to be even better going forward. You don't need to put stuff in a system. I'm going to ask them if you have the conversation. Not you — I don't care if you think you've had it, I care if they think you've had it. So I'm going to ask them, the customer, if you had it, and that's all you need to do. Set some goals, coach people.

"I know, but I have one-on-ones." Yeah, I know you have one-on-ones. That's not what we're talking about. We're talking about taking a pause and saying, you had some goals, let's see how you're doing. Now, that should take 20 minutes once a quarter. If you have 20 direct reports, you can find 20 minutes once a quarter for 20 direct reports. So part of that again goes to, can we make the process easy enough that even the busiest manager won't roll their eyes when we say, hey, it's going to be helpful if you do X or Y.

I worked for a CEO who built into every manager's goal set that at least 75% of their team's goals had to be hit. And so the manager was on the hook for it. And I thought that was an incredibly smart thing for him to ask for. And we built that into a system.

I love that. Yeah, let me push on what Marc said there, because I think I probably got this idea from him. But we thought this was so important at one of the companies I was CHRO at. I had my HR business partners actually do a couple things. If anyone who's listened to the show for any length of time knows, I love audits, because if it's important to you, you need to check.

So I would have HRBPs do a handful of things. One, they would send out very, very quick one- or two-question surveys that say, "I know the three things I'm accountable for," and "In the last seven days, my manager talked to me about performance against those." And we would send those out randomly and regularly, and that became a noise. Because what you want to have happen, you need to have measuring, you need to have visibility to it.

The other thing that we did that was really helpful is, rather than managing the compliance angle of it — did you do these things? — is we actually audited whether we did them well. And to Marc's point, we didn't read what was written down, because honestly, that's a defensibility claim. That's nice and it's helpful, but only for the people you're probably going to try to fire. What we really wanted to do is have real live conversations where we asked, "Walk me through the conversation and help me understand what you got from it." And that provided feedback for both folks.

And yet here we're sitting here, right? So the calendar piece is almost all driven from "we need to get this done by this time for compensation purposes," and everything is built around that. But the most important things don't have a calendar function to them, and we don't have a measurement for. And then we talk about what is the manager for, and in reality, we make broad assumptions about spans of control, and that's usually a financial exercise, and it's because someone has done some sort of benchmarking report without really thinking about what do we want the manager to do. You know, a manager who has 15 direct reports is workable for someone whose entire job is developing 15 people, but it's downright impossible if that same person is also carrying a bag and trying to manage a territory. And the same ratios are there and the same expectations are there, but they're completely different jobs. I know, Scott, you think about this.

Well, I mean, we make a product that helps with it. But I'll tell you this: if the manager's carrying a bag and you want them to coach as well, I guarantee you what's getting prioritized. In fact, Marc, I think you just said it, right? If the coaching happens after the real work happens, then the manager who never did it, like, they still did their job. There's just nothing to enforce on that.

Yeah.

So the third one I think here, the third force is the one, to me, it closes the door on the entire state of play. And Marc, it's one that you've talked about a lot. Why does everybody land in the middle of a five-point scale? And why do we even have a five-point scale if we only ever use it —

Let's start here. Let's start with the no-ratings crowd. I'm so glad that we came back from craziness advanced by charlatans, and I saw some good HR people actually lose their jobs over those types of decisions. A new CEO would come in and go, "Can you show me the performance ratings for this group?" They're like, "Oh, we didn't use ratings." They're like, "You're out. Somebody get me some performance ratings right now." So, one, let's get back to sanity. Ratings aren't good, ratings aren't evil. Ratings are just a helpful way of separating people into a category, just like we do in anything else on Yelp or anywhere. So ratings are fine.

There's also absolutely no science that says that any one scale is better than any other scale. So everybody has their preferences. That's great. When people are arguing over this, I always say, go to the CEO, ask her or him what their favorite scale is. There's your scale. Fantastic.

Third, I'm wearing a shirt your viewers probably can't see out that corner of the video that says "It Meets Expectations." No one is ever going to be happy with that label. Dress that up any way you want to. No one. I don't want to meet expectations. What a stupid label. I have no desire to do that. And so don't expect ratings to make people happy. It's not called happiness management, it's called performance management. And so if we're accurately assessing people, then we should be fine.

Now, let's get to the heartier question. Most of the time what we see — and we do tons of audits of performance management systems, so we see the actual ratings — on a five-point scale, most folks are fours or fives. I wish they were threes or fours. Most of the time they're fours or fives. That's because there is tons of attribution bias, group attribution bias. Just like we all think we're a little bit better than we actually are, managers think their teams are just a little bit better than they actually are. So managers aren't trying to screw the system saying all my team is fours and fives. They genuinely believe that all their teams are fours and fives.

Part of that goes to, were goals set properly? Because if goals are set properly, you should end up with a distribution where some people exceeded, some people failed, and the vast majority of people did a fine job — which is why I like a three-point scale, by the way. But also it's because — so goal setting is probably the primary reason that we see overrating. Manager attribution bias is probably the second big reason. Lack of calibration at the end of the year. And for those of your listeners who don't know what that is, just literally sitting around a table and having Scott's team's ratings and Jackson's team's ratings and Marc's team's ratings, and saying, "Hey, how do our best compare?" Because maybe my best doesn't look too good after you tell me about your guys' bests. What were the goals? How did they do? What were their behaviors? And actually calibrate backwards. So lack of calibration also results in that.

So I think there's lots of ways that we end up with that. But also, it's a reason I love a three-point scale, and we teach this — or I talk about it all the time. But let's assume that we can all identify the people who had an absolutely brilliant year. We all knew who they were. We saw them. Yeah, Susie had a great year. And we all know the people who had a pretty challenged year. It's like, "Uh, it wasn't Bob's best year, was it?" Great. So let's say there's 15% of people we can all say, "Oh man, wow, great year." And 10% of people are like, "Yeah, not their best." And the rest of us are in the middle. It was a fine year. We showed up, we behaved well, we were good teammates, got along generally well.

Great year, top rating. Exceptional year — middle rating, great year, bottom rating, challenged year, or something similar. You can fine-tune within those categories with comp. Stop fine-tuning with the rating, because you probably can't slice people into 12 categories in the middle. Because that's all we're doing. We're simply taking a curve of people and saying, "I'm going to draw a line here. That feels like the right place. I'm going to draw a line here. That feels like the right place." It's a completely arbitrary line. Let's stop drawing those lines.

Yeah, and in my experience, Marc, one of the funny parts is that we draw those lines. We spend more money in the meetings with salaries drawing the lines than the difference in pay that's going to be an offshoot of it, right? And to your earlier point, we were doing all of this to try to avoid pissing people off. And the reality is, no one wants to be average. Even Lake Wobegon had — all the women were beautiful and all the kids were above average.

But you and I have a little different experience though on the rating piece. I will give you that the initial ratings come in inflated. Once we actually input them into a calibration meeting, I think we have a different challenge, and that is that we kind of pull into the middle. And I think one of the gravity pieces to that is you have two people that are sitting in the room next to each other. One gives out a four. They're going to have to explain why the four was. Same person on a two. Nobody has to explain a three. Because it's too cumbersome and it doesn't change anything. And the distribution measures, I think, exactly one thing: who has to do it in paperwork. And a slightly higher raise across a broader kind of peanut butter spread.

But you know, Jackson, I think something that's related to that — Marc, when I heard you a second ago, you were talking about calibration at the end of the year. For our listeners who heard that and said, "Wait, why aren't we calibrating at the beginning of the year before the process even starts?" Is that where you drive organizations, or is the calibration at the end really the best way to do it?

We love goal calibration. Whenever we design performance management for an organization, we always recommend goal calibration, which is just what it sounds like. Let's say that we're each on the same finance team. We're going to sit down at the beginning of the year and say, "Hey, I'm working on A, B, C, and D." And if you listen and go, "Cool," then great, we go to the next person. It's not PowerPoint. This is not 38 pages. This is literally, "I'm working on this, these are my big four."

Now, if Scott says, "Hey, Marc, actually, I've worked on A before, we should talk. I could probably help you out with that." Cool. If Jackson says, "Hey, Marc, on B, that dovetails into a deliverable to me. Your timing seems off. We should talk." Or if somebody else says, "Marc, on D, I thought I was working on that."

So goal calibration is a way of, one, making sure that we're connected as a team. But then what our manager is listening for is, do all of these goals feel like they are equally challenging to the individual who is talking about them? Or does it feel like somebody's sandbagging and somebody's really stretching? Because if I don't get my team's goals right at the beginning of the year, end-of-year evaluation then gets really complex, because I've got a degree of difficulty now I need to assign to those goals. And if Scott had a swan dive and Jackson did a quadruple somersault, how do I evaluate these two things against each other?

Well, and even the definition of what's going to constitute a three versus a four, of whatever number system you give the thing, if we agree up front, like, look, if you move this number 20% more, that's worth more to us than if you just hit the number I gave you.

Yeah, so let's push on this a little bit, because one of the things you mentioned early, Marc, was that coaching, and accountability for coaching as a manager, is super important. And I think that's really helpful, and we should probably attach it to something the system could see. But I also think that you would probably tell us that we have the ability to set that accountability today, and we should focus in on that, and the ratings problem is a separate problem. How do you think about this? And how should our viewers and our listeners kind of follow along with that?

Yeah, everything we've talked about, right, largely everything we've talked about is a symptom of lack of clear accountability. And a lot of times managers will say, "Oh no, it's about the process or the tools." It's like, if I gave you no performance management tools at all, and I said, "You have two possible outcomes from setting good goals. If you don't do it, I'm going to kill you. If you do do it, I'm going to give you the billion-dollar Powerball ticket that I found in Illinois the other night." I'm pretty sure they're going to come up with three good goals. Yeah. So this is not about "oh, I don't know how," or "I don't know this technology." If you're a manager, you're smart enough to come up with three at least semi-decent goals. Maybe I'll give you a one-page instruction sheet if you're not clear exactly what a good goal looks like. So a lot of it is, no one's holding them accountable.

When we talk about good goal setting, when we're doing performance management design for companies, we ask — and Jackson, to your point — do your HRBPs read through goals? Occasionally, maybe 20% of the time they do. But oftentimes they'll read through, "Oh, it's just, yeah, it wasn't set as a SMART goal." Okay, I don't give a rat's butt about SMART goals. First, I don't like SMART goals. I like SIMple goals. Read our literature, SIMple goals. But secondly, what I care about is you reading through and saying, "Hey, Jackson, you know, I was reading your goal, and you said you're going to hit 110% of the market this year, but the market's increasing by 20%. So it kind of feels like you're underplaying the market. Tell me more about that." That's what I want from an audit. Not "well, your metric wasn't clear." Add some value, HR. You know, help me to think through the business.

And so, let's start with, there's not that type of accountability where I know someone's going to look at this besides my boss. In many cases, there's not even one-up accountability. So if I work for Scott and Scott works for you, are you looking at my goals, Jackson? And we call — I love this technique as well. Print out all of your two-down goals. You say, "Listen, here's a hundred goals." But you could go through that, just go, "Good goal, good goal, don't even know what that is, bad metric." You can go through that in 15 minutes, hand it back to your directs and say, "Here you go." Because you're going to know instantly if the goals that you see align up to the agenda that you're trying to achieve. That takes so little effort and so little work, but it's a massive accountability lever.

So when we talk about why this doesn't get done, in many cases, it's because there's not that level of accountability. Now, do we need to give people maybe some instruction or some help? Sure. I mean, not everybody's naturally good at setting goals. Great. Let's give them a little bit of help around that. But a lot of it comes down to, if they set a bad goal, nothing happens. And all you have is a bunch of anger at the end of the year in the calibration meeting where I'm saying, "He overachieved," and I don't care. Yeah, he overachieved a crap goal. And now you're embarrassed, because you have to go back to him and say, "I gave you a crap goal you did really well on. But in that meeting, HR told me I had to make you a three."

And you know, when I listen to all of those things, whether it's the accountability or the ratings or the goal setting or whatever, it all seems to come back to one central thing. And Jackson, I think you and I actually started the top of the episode with this. Nobody's asked the critical question: who decided what this system was for?

So let's reframe this thing. And here's the reframe. Ask 10 people in your company who your performance management system was built for. And most people are going to say, wait for it, the lawyers. The compliance. It's how we get a bad name to begin with. So here's the thing worth noticing. Nobody ever sat down and decided that. At least I don't think they did. Defensibility was the only question that anyone ever assigned to a named person. "You've got to be defensible on this. We don't want to get lawsuits over any of this." Everything else was a preference. So the question without the owner, every year, 20 years later, looks like somebody made a decision, but they really didn't.

Yeah, look, Scott, you are so on point there. I grew up in PepsiCo. I think everyone recognizes PepsiCo has been really good at this stuff. It is probably the most sophisticated talent organization that year after year puts out people that really think about this the smart way. And when I was trained on performance management, we started with, okay, if you're going to fire someone, you need to make sure that you have comments in there that are going to help support it, right? And we never had the conversation that said, you know, we need to give people positive feedback and reinforcement. Because look, what happened there — they recognized earlier that all the coaching upstream was way better done outside of this annual process. And so even in a company that seems to have gotten it mostly right, they don't use it for the intended purpose that most people think we should. At least that would be the argument here.

And the implication of that is you have people that have been built up that we are working towards really one thing. It's about completion of it in a defensible way. And that's the wrong solution, completely, in my view.

And so think about it this way, Marc. I'm going to throw it to you. Back in what, 2010? Is that when One Page Talent Management came out?

Pretty close.

Yeah, you talked there about starting with the science, stripping the complexity, building in transparency and accountability. And then 16 years later, what percentage of companies still have no consequences attached to goal setting or coaching? Like, north of 80%, I'd guess. So why is it — it's logical, it makes sense, it's rational, it's impactful. I don't think anyone is going to argue any of that. Why hasn't it stuck?

I would suggest it's for the reason we talked about at the beginning of our conversation, which is we are framing this in exactly the wrong way. We are framing it as an HR process that you need to complete because we need to understand what you're working on. Okay, that's like me filing a report with my doctor about what I ate during the day, because my doctor needs to know that. Well, are you concerned about me filing the report, or my cholesterol? Because those are two very different things.

And if we started this with, "Hey, Marc, we want you to be healthy," let's flip that to, "Hey, Marc, we want you to be a high performer. We've got a way for you to be a higher performer." And until we recast this as a performance-driving system or a strategy execution system, then it's not going to stick, because I'm not — unless it's finance, I'm not going to do what a corporate department tells me to do.

And so, you know, we need to find some way of saying this is actually about elevating performance, and then taking HR accountability to say, "Hey, Miss CEO, Mr. CEO, I promise you that we can get you additional pennies per share if you'll help us to execute this process the right way in the organization." Because that's another thing I think too often we do in HR is, "Well, we just run the process, we can't control the outcome." Well, then I'm not going to pay you much, because I pay for outcomes, I don't pay for process. And we should be able to say, "I'm going to help get pennies per share into the ledger, because I'm going to help make great goal setting, great coaching. I'm going to make sure people are skilled at this and understand the process." Now, I think if we start with that, we have a chance of actually getting this to stick.

Marc, you've seen a lot of organizations both before and after interventions. Is what you're talking about, is it a belief problem, or is it an execution problem on their part?

I think those are two sides of the same coin. If you believe, you probably execute better. I think in many cases it's a CEO belief problem, because if this stuff starts at the top, it's going to flow a lot better. And I've seen organizations where this does flow exceedingly well. I can think back many years to the old HP. HP executed the living crap out of this. It just flowed beautifully and they got stuff done. Was it an onerous process? No. They knew, hey, in October, goals are to roll down one level. Middle of October, they'll roll one more level. Mid-November, one more. And you just knew, hey, great, we'll set goals and we'll figure out how they align. And it's not difficult to do. And so I think what organizations need to focus on is simply, do we see value in the outcomes of people having clear goals that are aligned, that are stretchy, that get the best out of people? If so, then great, let's execute against that.

Yeah, I spent a lot of my time in the messy middle, the SMB space, where they don't necessarily have sophisticated processes and they tend to have a much stronger compliance-based lens. And it makes my conversations with them pretty straightforward. And hello, Tom — I was talking to them earlier this week on this very topic. Like, do you believe that if we had everyone that knew the three to five things that they were accountable for, defined in outcomes, and if everyone knew that today, would performance overall go up? And it's really hard to make the argument that the answer is no. You might make the argument everyone always does, which is fun, because I always say, well, let's check.

Yeah.

Let's go into this room right now. And the answer rarely comes back as intended. You know, that's what the CEO thinks. But so you go in there, and to me, this comes back to two things we've talked about on the show before, Marc, that you just touched on. One is, people listen to finance, they don't listen to HR. Guess what? One of the reasons why is they approach it with a business lens. We approach it with a compliance lens, which causes people to work around us, because we get in the way of getting things done. And that's why it's so important to then do what I keep calling the solutions order: effective, efficient, defensible. You ultimately need all three, but the order that you solve them in decides whether you ever reach the first one. And as you're growing up in this function, you're handling payroll and terminations and leave, and there's no room for error at all in any of those. So you get trained in solving the defensible thing first, and it's the correct answer to that job.

Well, right up until the job changes, and then you bring in a risk answer to a growth question, and you wonder why the room moved on. Yeah.

I think two things come out of that. The first one is probably the most expensive. Your peers on your executive teams have spent years learning to work around HR instead of with it. And this is the problem. I was talking with a chief commercial officer not so long ago. He's eight weeks in role. He is trying to figure out, okay, I have these seven direct reports, here's what I want to go do. He went to his HR team and he said, "I want to lock these two people in so I can do these, and here's the sequence of the moves I'm making." There is a right answer, and that is, "Great. How much do you need?" But the answer he got back was, "Do you really need to do that much? Can you tie it to something so that you're eliminating all financial risk if this doesn't work out? Can you do it at a lower amount?"

And I just shook my head and I said, "I'm sorry that you're working with kind of undersophisticated HR folks," because ultimately that is why people work around us. And so for you that's out there listening to it, it is really important that you get the solutions order right. If you start with defensible, you will solve for optimizing away all risk, but you will leave no room for having something that actually works. If you start with effective, by the time you get to defensible, you're optimizing for unnecessary risk. And that is the way every other part of the company does it. Finance looks at it through the business lens. That's the same thing we need to go do.

And you know, I think this is probably the most important thing that a sitting CHRO can do from the seat where you sit today. Nothing is getting in the way.

Well, Jackson, you mentioned — so the first one you mentioned was the executive team and other leaders working around you. And I think that's the first one. I agree with you. I think the second one is quieter, and I think it takes you longer to see, and it's that you haven't built the muscle to do this. You know, the function that has spent — or even the company that's spent — 20 years getting good at being defensible on these processes so that they feel insulated from, I don't know what. But their excellence is in defensibility. They've got no practice at really anything else. Or the reps are kind of the absence of them. It's one protected year at a time, but not necessarily one growth year.

Yeah. Marc, I saw you nodding. And so I'd love — I'm sure you've seen this from the outside. What does an HR team look like when it's never had to solve for effective?

It's, to your point, it's compliance. It's making sure that we've got something in the record so we can fire Bob when we need to. And the hilarious part is, what is my potential upside of having everyone have three clear, stretchy goals in the organization, versus the downside of the likely payout across the five poor performers who are going to sue us? I'm going to bet on the upside of that equation every day, because they're going to sue us no matter what's in the system. We all know that. So I don't really give a rat's butt what's in the system. You know, maybe we'll save a couple hundred thousand if it's a little bit better documented. But you know, if we're designing for the lowest common denominator — performance management is designed for the two to five percent of people who are going to do a really poor job — then we're completely underestimating the power of this process to do good. It's kind of like designing a finance process to assume everyone's going to steal, therefore we're going to make it so onerous, the finance report, that no one ever will, but we also are going to burden the organization with this.

There's an even richer irony in what you just shared, Marc, because I agree with you completely, and I love the finance guardrail that stops any sort of cash from being deployed. That is, I think, a great analogy for what we're using. But if what we're really trying to do is take care of those two to five percent, we don't do that very well either. And anyone who's ever had to go and defend some of the decisions, you just shake your head and you're like, well, I'm going to have to write a check here anyway. Which oftentimes is the better path to glory anyway.

So as you're listening, take that back to the system that's in front of you. And what I would encourage you to do is ask what it's effective at, and be really honest. Because I think it's effective at things. One of them is executing itself. It produces poorly worded written feedback on the people you're firing, and it makes a very loose connection on how compensation gets allocated. I think that's what it delivers in current state.

Marc, we've talked about a lot of different things so far in this episode. You go inside of organizations all of the time. What's your solutions order? What do you start with usually?

Always start with the goals. Always, always, always start with the goals. I don't care if anything else that we've talked about today works. If you've got clear goals, you've got the setup for everything else to work well. At least people are working on the right stuff, that likely means you're going to get to better outcomes. Even if I don't coach you on it, even if the end-of-year review system is absolute crap, I at least set up the organization to perform well. If we don't get goals set well, then what am I coaching you on? Then I guarantee you the end-of-year process is going to be complete crap. If I haven't set good goals, then training you how to coach on bad goals doesn't help.

So goals are the absolute essential starting place. Unfortunately, we in HR have been so obsessed over the end-of-year process forever — since I'm an old guy, since I've been in HR — as opposed to saying, hey, we'll figure out the end of the year. Why don't we get goals right, and then we'll figure out how to make sure everything flows well from the goals that were set. So absolutely: goals, goals, goals, goals, goals.

Yeah. And that's consistent with what we talk about on here a lot. The clarity of outcomes up front makes everything downstream easier. But I want to move us maybe even one step further upstream on that. When companies pay you to come in and rebuild it, I'm curious, what does one of them decide it's costing before they bring you in? So what is it that gives them the "aha" moment that says it's not working?

I'm not sure there's a trigger. I think oftentimes — and you're both experienced HR pros — it's a new CHRO who comes in and just, like, "Yuck, this is not working." Sometimes they've tried a few different things and they've just realized, hey, we've messed this up, we need some external help. Sometimes they've just read something I've written and they're like, "Yeah, that actually sounds like a decent idea. Let's bring this guy and his team in and let's just do it this way and see if this might work finally." So I'm not sure there's a trigger. I think there has been such frustration.

In fact, we do lots of survey work around this. Our performance management survey last year — half of companies have played around with their performance management process in the past two years. Half of companies have adjusted their performance management system in the past two years. That suggests that there's still a lot of dissatisfaction. But when we see companies doing that, they aren't playing around with the fundamentals. They're playing around with, well, maybe they'll like a four-point system better. It's like, you're shooting at the wrong ducks, people. That's not how we're going to win here.

So let's pivot here, because I think this is what is actually changing, and it's the mental model on the design that you have in front of you is not being held in place by anybody. Nobody's defending it. Marc just shared, people are coming in — somewhere there is a question that got asked once and the answer came back, "Uh, yeah," and then it became the architecture, and then no one has actually been back at it since. Which means you're not up against a person or a policy or a veto if you're the CPO or CHRO looking at this. You don't have to win this decision back. You just have to make the decision. And I think that is so different from almost everything else we touch.

Yeah, the starting question in any organization before we do any of this work should be, what's the purpose of performance management? To your point, Jackson, this is a process without a declared purpose in most organizations. And that's normally our starting question when we walk into a client: what do you want performance management to do? It can do any number of things. It can elevate performance, it can drive behaviors, it can elevate engagement, it can link to compensation. But it can't be optimized for all of those things. So what exactly do you want it to do? Because if you want it to drive performance and elevate engagement — nope, ain't gonna do that. If you want it to link perfectly to comp, okay, then it has to be set up so — let's start by saying, what's the purpose of this process? It does not have an independent right to exist in your company.

It is a solution to something. What is it a solution to? And again, doubling down on what Marc said — I told you he's been a hell of an influence on the way I think about this stuff. So it's always great when you get a chance to, quote unquote, meet your heroes, although he's too humble to suggest that that would possibly relate to him. But what he just asked you who are watching and listening to do with that is not rhetorical at all. It is literally, that is the question that you should be asking your senior team. What is this designed for? And can anyone actually determine what it is? And if the answer comes back that no one can define it, no problem. Go grab it. That is the most likely outcome. In fact, if you were to go talk to your legal person, they're probably the closest to where it's been allocated today, and my guess is they don't think it's theirs to decide either. So the amount of organizational energy that this process takes that is not aimed at a particular outcome, it's mind-boggling to me.

Marc, you've seen an awful lot of organizations. We've talked about stuff that's going wrong, but you've seen people on both sides of it, right? There are organizations that are doing it right, organizations that aren't. What are the themes for the winners?

Yeah, there are a few things, and I wish I could say I've seen a lot of organizations who are doing it well, but I've seen a few who are doing it well. But there are consistent themes. They're going to be very obvious themes.

You have a CEO who generally understands that the purpose of performance management is to drive higher performance, and she or he uses the process in that way. So a starting point is, the CEO gets it and holds her or his team accountable for executing the way that everybody else executes. That may sound like a small point, but we all know CEOs who say, "Oh yeah, that process is good for the rest of you, but at my level we set 12 goals." No CEO supports the system that was made.

Second, obsessive focus on goals. That they are all about getting goals right, even if they're late. So I bitched earlier about setting goals too late. Even if they're late, I'll take good goals late then bad goals early. So get great goals.

And then some accountability around coaching. We know that this is a human issue, not a structure issue. People don't like having those conversations, but some accountability to say, look, you're going to have that conversation one way or another. It's going to happen, because we know it's beneficial when you do.

When I see those three things in place, you're at least 80% of the way there. Now notice, I've said nothing about the end of the year, because you do not drive or elevate performance or behaviors at the end of the year. And I think we need to keep that in the front of our minds in HR. The horse has already left the barn, gone around the track, and gone back to the barn when you review people. It is over. So stop worrying about the end of the year. It has nothing to do with performance.

Yeah, we've talked on the show a lot about that we were obsessed in the rearview mirror, and not once did I make the connection that this is in fact the worst example of it. So thank you for making those connections for me.

But now it's the time of the show that we talk about the climb, which are the four moves. And as Scott always says about these things, if we could just get the ratings in without involving the managers, we would have a very, very clean cycle. I literally have never said that, but I think I've sat through a meeting where somebody proposed it. I'm sure you have. We all have.

So Marc, this is the thing we do every week. It's called the climb. It's the four moves a listener can actually make starting on Monday. And we're going to give you move number two.

So the first thing I'd suggest that you do as you're listening is walk down to the employment counsel and ask them one question: which parts of our performance review process are actually legally required? And I think you're going to find that almost none of it is going to be the answer, and the most likely response you get from the lawyer is going to be a shrug. And the shrug is kind of what you came for, because as I mentioned just a minute ago, 20 years of design decisions were made around a requirement that no one ever really issued. And if you get anything other than a shrug, that's okay, then just ask a follow-up: what's the most efficient way to cover that risk? Because in my view, it's almost certainly not the process that you're running right now.

So Marc, what's move two? Someone's listening to this on Monday morning. What do you think they do first?

I would send out 10 email messages or 10 Slack messages to random people saying, answer this question in two words or less: what is the purpose of performance management in our organization? Because the answers you get back are going to give you clarity either way. Either, shoot, they get it, or, more likely, completely random — which then goes to your point, Jackson: I'm free. They don't think it does anything anyway. I don't need to worry about it. I have free license to actually make this better, because no one's counting on it to do anything.

Scott, why don't you use number three, because he just took mine.

Okay, so move number three, tagging on to what Marc just said. Write one sentence. Listen to all of that feedback, write one sentence naming what your performance management system exists to produce. Synthesize it. Get one answer, one number in it, one thing that changes for a person. Take it to your CEO. And you know, you hear Jackson and I talk about contracting the altitude that you want — this is another place for it. Take it to your CEO and say, "This is my sentence. What would you change about it?" You know, you inherited the design, maybe, but the renewal, that's on you. And when it comes around this year, contract the altitude that you want, not just for yourself, but for the system.

Yeah. Marc, I'm interested, from your background, what should that sentence sound like?

I would love for that sentence to sound something like: the purpose of performance management is to elevate company financial performance. As simple as that. And then say, are you interested in having that conversation?

I think that's spot on. And it leads us to move number four: listen to the answer you get. If your CEO names an outcome that the current system doesn't serve, then you know the gap is in the design, and the design is yours. If your CEO can't name one, then that gap sits upstream of you. You've got a different kind of work that you're going to need to do. Those are two different problems, and you need to name the one that you have so you can solve the right one.

I think, Scott, you have a great point. There are cases where a CEO actually doesn't get this and actually does not care about performance management. That's a judgment point for you as a CHRO, as a head of talent, to say, do I want to work in a place where the biggest lever of performance is not something that my CEO really cares about?

Yeah, that's a rhetorical question. There is a right and wrong answer to that, by the way.

So Marc, maybe as we're wrapping up here, what is the big takeaway that you hope our viewers and listeners walk away with?

That performance management is an unbelievably powerful way to drive performance in your company if done right. And done right is actually really straightforward. It takes some effort, but doesn't take a huge amount of work. And that if you're in HR to help elevate your company's performance, this is the single most powerful process available to you to get it done. There's plenty of information out there about how to do it right. You've heard it on this podcast, you can read my books and my articles to learn more. But if you want to be a performance-driving HR leader, this is the place to start.

Yeah, amen. And Marc, that's why we're so excited about having you join us. And you talked about a couple places where people can follow your work. And by the way, the One Page Talent Management book — I have three or four books that I require when I take over a new team. It is required reading, and that is one of them. Who, Power Score, and First, Break All the Rules and One Page Talent Management are like — that's where we start. So where can people learn more about what you do and what you bring to the function?

Well, folks can read all of our articles, see our videos, read all of our free research at talentstrategygroup.com. Everything's always free. My mentor Marshall Goldsmith taught me: give it all away.

Amen. Thank you. Thank you again so much for joining us. Scott, you want to close this out?

Yeah. Well, before we go, shout out this week to David from Toronto. David, thank you so much for listening every week. And to everybody who's listening to us, whether you're joining us from Vienna, Austria, or Southlake, Texas, or to be honest, someplace that we haven't learned to pronounce yet — attention is the scarcest thing you own. We thank you for spending some of it with us today. New episodes drop every Monday and Thursday at 7 a.m. Eastern time in the United States. If it's Monday, it's Jackson solo, and if it's Thursday, you get both of us.

And one last thing. I think most CHROs are operating without a written mandate today, and they don't find out about it until it's too late to fix quietly. And most people find out when the work that they own gets redesigned without them and they get handed the execution. So here's my offer: take 10 minutes, check yours. The assessment's going to tell you which one of the three conditions you're missing, and the one that's costing you the most. It's free. You can find it at mytalentsherpa.com/clarity.

And that's the summit for today. Thanks again for climbing with us, and until next time, keep raising the bar. Keep asking what the system is for. And keep on climbing.