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January 8, 2013 · 4:30 am

From the Archives: Stick a Fork in Annual Performance Review Systems

While I’m traveling, I thought I’d re-post one of the most popular Data Point Tuesday posts from 2012. Enjoy.

Today’s data points come from two recent surveys: one from Achievers and one from Cornerstone OnDemand. Both surveys show clearly that annual performance review systems’ time has come. It’s over. Time to stick a fork in them.

Well, it’s time to stick a fork in them if you’re interested in providing the kind of feedback to your employees that is focused on growing their skills, binding them closer to the organization and engaging their full and discretionary energy.

Let’s look first at the Achievers data. As part of a survey fielded in April of this year, employees were asked how frequently they would like to receive feedback from their managers. HR professionals and CEOs were asked how frequently they thought employees in their organizations would like to receive feedback from their managers. Do the answers surprise you?

No surprise that employees would like to receive feedback immediately or on the spot – or at least weekly. Maybe a bit of a surprise that both HR professionals and CEOs know this. Here’s the question, though: if employees, HR professionals and CEOs all know that employees don’t want feedback in an annual context, then why are the majority of performance feedback systems in use today based on an annual model?

Making matters worse, Cornerstone OnDemand published survey results from late 2011 with related findings:

only 37% of employees report that they’ve been given useful feedback from their manager/employer in the performance review process
Only 32% said that their performance goals are aligned with their company’s business objectives
Only 20% have established career goals with their manager/employer

So. Annual feedback systems satisfy no one from a frequency perspective. And feedback systems in general are not providing useful feedback for employee skill growth or engagement – or in line with business objectives.

At this point you could say, “Yikes!” and start moaning.

Or, you could say, “This looks like an opportunity for HR to make a significant contribution to the success of the business!” and start collecting similar data from your organization to identify whether this opportunity is real. If it is real, I see the building of a compelling business case in your future – just in time for the FY2013 budget planning process.

And a new more powerful way to engage employees and manage performance in your organization could be right around the corner.

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Filed under Achievers, Annual Performance Reviews, Business Case, Business Success, China Gorman, Cornerstone OnDemand, Engagement, HR Data, Performance Feedback

Tagged as Achievers, Annual Performance Reviews, Business Case, Business Success, China Gorman, Cornerstone OnDemand, Engagement, HR Data, Performance Feedback

May 29, 2012 · 2:00 am

What’s your budget?

Great sources of free and relevant talent management data are vendor research, white papers and blogs. Of course, vendors have a bias towards research and conclusions that support their cause, but that doesn’t make the research less interesting or actionable. It just means that the reader has to understand the context.

I read an interesting article in the May issue of Talent Management that referenced a survey done by Cornerstone OnDemand and Harris Interactive on performance management. I traced the survey results back to a post on the CSOD blog by Charles Coy. The survey data about the effectiveness of legacy performance management systems is interesting and not at all surprising. They don’t work and everyone knows it – employees and HR.

What was more interesting to me were the math and sources behind the potential price tag of $2 Ttrillion to U.S. employers in 2012 simply due to voluntary turnover. That’s right: $2 Trillion!

$2 Trillion is a big number. A very big number. Could it be true? If we take the stats one by one, it absolutely could be true. Take a look:

Here’s the equation where E = total employees and AW = their average wage (divide total salary cost by the number of FTEs):

(E x .15) x (AW x 2.5) = Total Turnover Cost

Try the math in your organization. If you have 350 employees and the average wage is $50,000 then

350 x .15 = 52
Average wage = $ 50,000.00
Average full replacement cost = $ 125,000.00

52 x $125,000 = $6,500,000.00

And what’s your budget?

But, you say, your voluntary turnover is only 8%, not 15%. Well, even if that’s true – and congratulations if it is – that’s still a lot of money.

28 x $125,000.00 = $3,500,000.00

And what’s your budget?

But, you say, that 2.5 times the average wage calculation for replacement costs is way too high. You don’t buy that the loss of an average employee means a potential loss of intellectual capital or client relationships. OK. How about the impact on internal relationships and getting things done? How about the productivity and morale of colleagues left behind? How about the experience and job skills that you’ve lost? Add in the hard costs of recruiting a new hire, the onboarding time, the training time to full productivity and you’ve still got a big number – even if you found and hired replacements really quickly. Try the math at 1.5 the average wage as the full replacement cost. With 8% turnover and 1.5 times the average wage, that’s still a big number

28 x $75,000.00 = $2,100.000.00

And what’s your budget?

And what if your voluntary turnover is higher than 15%? Or what if the training time to productivity is longer than average? Or what if you – like 52% of employers – can’t find the replacement talent quickly or at all? Then the impact will be greater. Much greater.

This is a useful discussion because it can help create a context for the broader conversation about the real cost of voluntary turnover and the cost savings in having an engaged workforce. It can be part of the rationale in a business case for investing in any of the levers that will increase retention and reduce turnover.

It’s almost budget time in most organizations. Financial resources are still scarce. As you plan your 2013 budget requests for more spending on talent management solutions, be prepared with fact and data. This might help.