Making Performance Management Work - 10 Keys to Success

Copyright © 2015 Deloitte Development LLC. All rights reserved.1 Global Human Capital Trends 2015 Copyright © 2015 Deloitte Development LLC. All rights reserved. The Ten Keys to Success Is Your Performance Management Healthy? Josh Bersin Principal and Founder Bersin by Deloitte October, 2015

Copyright © 2015 Deloitte Development LLC. All rights reserved.2 Global Human Capital Trends 2015 • The changing world of work • Why performance management matters • What we’ve learned • 9 Keys to making your program healthy Agenda

Copyright © 2015 Deloitte Development LLC. All rights reserved.3 Global Human Capital Trends 2015 Copyright © 2015 Deloitte Development LLC. All rights reserved.3 Global Human Capital Trends 2015 Barriers between work and life dissolve Talent in high demand Millennials make up 50% of workforce Global transparency in job market

Copyright © 2015 Deloitte Development LLC. All rights reserved.4 Global Human Capital Trends 2015 Culture and engagement Leadership gaps Learning and development HR Skills and capability 87% 86% 86% 80% % V E R Y I M P O R T A N T 50% 51% 40% 39% 35% 34% 29% 26% 20% 14% Top Talent Issues Globally Percent Rating Trend Important Workforce capability Performance management HR and people analytics Simplifying work Machines as talent People data everywhere 71% 57% 52% 80% 75% 75%

Copyright © 2015 Deloitte Development LLC. All rights reserved.5 Global Human Capital Trends 2015 Engagement Is A Global Challenge Glassdoor Ratings of Employer (Recommended to friends), 20,000+ respondents Average 3.1 What are these companies doing?

Copyright © 2015 Deloitte Development LLC. All rights reserved.6 Global Human Capital Trends 2015 6 Careers Have Changed and So Have People “Our candidates today are not looking for a career…” “They’re looking for an Experience.” Copyright © 2015 Deloitte Development LLC. All rights reserved.6 Global Human Capital Trends 2015

Copyright © 2015 Deloitte Development LLC. All rights reserved.7 Global Human Capital Trends 2015 Millennials Also … 80% Want to give performance appraisals to the boss 60% think 7 months of work means they’re “loyal” 2/3 Want to be “creative” at work in their job Their “team mates” are the most important people at work Expect feedback weekly and progression annually

Copyright © 2015 Deloitte Development LLC. All rights reserved.8 Global Human Capital Trends 2015 Companies with “soul” had a 1026% return from 1996 through 2006, 8x higher than S&P 400 firms Companies with “soul” experience: • Much higher engagement and retention • Better customer service • Long-term profitability Source: Simply Irresistible: Engaging the 21st Century Workforce, Bersin by Deloitte, 2014 Importance of mission and purpose

Copyright © 2015 Deloitte Development LLC. All rights reserved.10 Global Human Capital Trends 2015 • The average tenure at work is <4 years, so “lifetime employment” strategies are out of date • 55 Million people (32%) in the US work part-time, contingent, or as contractors • 30% of Tech workers believe they could get a better job within 60 days if they looked (Dice) • 50% of Millennials will change jobs within two years • If you don’t have a facilitated talent mobility strategy good people will leave New Models for Talent: No Longer for Life

Copyright © 2015 Deloitte Development LLC. All rights reserved.11 Global Human Capital Trends 2015 Historic Perspective on Performance and Management The Evolution of Management Thinking We are Here The Industrial Corporation Hierarchical Leadership Collaborative Management Networks of Teams <1950s 1960s-80s Today1990s Andrew Carnegie Henry Ford Netflix, Google, Facebook, Amazon Jack Welch Peter Drucker Howard Schulz Steve Jobs Profit, Growth, Financial Engineering Customer Service, Employees as Leaders Mission, Purpose, Sustainability Operational Efficiency 2020 Purpose,Meaning, andEmpowerment? Industrial Age People as Workers Management by Objective Servant Leadership Work Together Empower the Team The Corporation is King The Executives are King The Teams and Team Leaders are Kings The People are King(s)

Copyright © 2015 Deloitte Development LLC. All rights reserved.12 Global Human Capital Trends 2015 • The changing world of work • Why performance management matters • What we’ve learned • 9 Keys to making your program healthy Agenda

Copyright © 2015 Deloitte Development LLC. All rights reserved.13 Global Human Capital Trends 2015 Historic Perspective • The process defines and communicates your culture, your expectations, and how managers will behave • The process establishes fair and transparent rules for compensation, bonuses, promotions, and other types of reward • The process should teach leaders how to coach and develop people, driving ever-higher levels of performance from everyone • But… in many cases PM is there to create control, mitigate risk, and give executives insights into people – not to “improve performance.” Why PM is So Important

Copyright © 2015 Deloitte Development LLC. All rights reserved.14 Global Human Capital Trends 2015 Traditionally the process includes: 1. Goal Setting and Management 2. Cascading or Aligning Goals 3. Self-Assessment 4. Manager Assessment 5. 360 Assessment 6. Skills and Competency Assessment 7. Development Plan Traditional Thinking Circa 1970s-1990s And Integration with: • Learning Management • Succession Planning • Leadership Development • Compensation • Compliance • Recruiting • Analytics Resulting in: • Performance Appraisal • A development plan • Succession plans • Performance Rating • Competency Rating • Forced Ranking Traditional Old-Fashioned Performance Management

Copyright © 2015 Deloitte Development LLC. All rights reserved.15 Global Human Capital Trends 2015 Performance Management Only 12% of companies believe their existing performance management process is “worth the time put into it.” - Deloitte Human Capital Trends 2015 The Process is Broken

Copyright © 2015 Deloitte Development LLC. All rights reserved.16 Global Human Capital Trends 2015 The Big Shift: From Annual to Continuous The Big Shift is Happening Source: Bersin by Deloitte research, 2014. Top-Down Annual Performance Process Top-Down Approach Cascading Goals Annual Event Big Bureaucracy Involved Lots of Forms and Automation Needed Focused on Rating and Forced Ranking Compensation Tied Directly to Rating Continuous Management and Feedback Team Centric Aligned but Local Goals Ongoing Weekly/Monthly Check-ins Simple Tools, Agile, Mobile, Easy to Use Focused on Continuous Development, No Ranking Compensation Based on Many Factors HR-Driven and HR-Centric Process Management-Driven Driver of Culture

Copyright © 2015 Deloitte Development LLC. All rights reserved.17 Global Human Capital Trends 2015 Where we are today 1. Philosophy, purpose, and culture 2. Make goal setting agile, local, and meaningful 3. Use check-ins instead of annual review 4. Reduce impact of ratings (or eliminate) 5. Focus on coaching and development 6. Redesign compensation process 7. Create a culture of recognition 8. Eliminate steps and simplify 9. Use metrics and measurement aggressively 10. Train and develop managers carefully Ten Factors in a Modern Healthy Process

Copyright © 2015 Deloitte Development LLC. All rights reserved.18 Global Human Capital Trends 2015 1. Start with Philosophy and Culture The rise of “Distributed Leadership” “Distributed Leadership” means… • Encouraging dialogue among employees around work priorities • Pushing accountability for results farther down in the organization • Encouraging innovation and promoting reasonable risk-taking Copyright © 2015 Deloitte Development LLC. All rights reserved.18 Global Human Capital Trends 2015

Copyright © 2015 Deloitte Development LLC. All rights reserved.19 Global Human Capital Trends 2015 Copyright © 2015 Deloitte Development LLC. All rights reserved.19 Global Human Capital Trends 2015 It all started with a disruptive innovation

Copyright © 2015 Deloitte Development LLC. All rights reserved.23 Global Human Capital Trends 2015 2. Shift Goal Setting to Local and Aligned Board of Directors / CEO Executive Team / Senior Leaders Business Leaders Team Managers Team Leaders Individual Contributors The Industrial Age Process: Top Down Cascading Goals

Copyright © 2015 Deloitte Development LLC. All rights reserved.25 Global Human Capital Trends 2015 Goal Management Organizations that have employees revise or review their goals quarterly or more frequently were 3.5 X more likely to score in the top quartile of business performance. Frequent Goal Reviews Note: Based on our employee recognition survey, we created a business performance index (BPI1) that averages scores on employee engagement and three business-related outcomes (customer satisfaction, cost structure compared to competitors, and market leadership position). It then ranks organizations on the scale. Organizations that scored in the top 25 percent of the BPI are considered to have “strong” business outcomes. 16% 44% 21% 10% 9% 3% 24% 26% 31% 50% No Goal Revision Once Per Year Twice Per Year Quarterly Monthly Top Quartile on Total… Source: “High-Impact Performance Management Using Goals to Focus the 21st-Century Workforce,” Stacia Sherman Garr / Bersin by Deloitte, December 2014.

Copyright © 2015 Deloitte Development LLC. All rights reserved.28 Global Human Capital Trends 2015 1. Have a formal, more regular discussion on employees’ progress on goals (minimum of twice per year) 2. Ensure goal alignment and make any adjustments 3. Have a two-way discussion on strengths and opportunities 4. Identify learning opportunities in the short-term 5. Gain insight on greater career goals The Purpose of Check-In Source: “High-Impact Performance Management Using Goals to Focus the 21st-Century Workforce,” Stacia Sherman Garr / Bersin by Deloitte, December 2014. Electronic Arts

Copyright © 2015 Deloitte Development LLC. All rights reserved.29 Global Human Capital Trends 2015 The Problem with Ratings 4. Reduce or Eliminate Ratings Applying Neuroscience to Drive Innovation Source: David Rock

Copyright © 2015 Deloitte Development LLC. All rights reserved.30 Global Human Capital Trends 2015 1. High Performers are Disappointed 2. Mid-level Performers can Sit Back 3. Low Performers can Hide 4. Manager ratings are unreliable 5. Bell curve pushes against management philosophy The Myth of the Bell Curve

Copyright © 2015 Deloitte Development LLC. All rights reserved.32 Global Human Capital Trends 2015 Coaching is Key 5. Focus on Coaching and Development Competitive Assessment Coaching & Development

Copyright © 2015 Deloitte Development LLC. All rights reserved.33 Global Human Capital Trends 2015 Coaching and Development Model Data Proves Coaching Pays Off # Top 22 Best Practices Impact Area 1 Coaching: formal or well established coaching programs for employees. 48% Performance Management 2 Consolidating staffing requirements across the organization 42% Sourcing & Recruiting 3 Ability of current workforce planning process to identify current and future talent gaps 38% Workforce Planning 4 Competencies maintained through annual maintenance process 34% Competency Management 5 Staffing metrics: measuring time to hire, cost to hire, and quality of hire 33% Sourcing & Recruiting 6 Cascading goals: aligning goals to manager or corporate goals 33% Performance Management 7 Development planning: creating consistent development plans across the organization 33% Performance Management 8 Establishing goals: establishing clear and measurable goals for all employees in organization 32% Performance Management 9 Job functional competencies well established and used throughout the organization 32% Competency Management 10 Competencies used in recruiting process for assessment and interviewing 32% Competency Management 11 Managed recruiting process: carefully monitoring and tracking interview process 31% Sourcing & Recruiting 12 Assessing performance: delivering an annual performance appraisal and evaluation 30% Performance Management 13 Internal sourcing: internal job postings, career planning, and promotion to recruit from within 29% Sourcing & Recruiting 14 Leadership competencies well established and used across the organization 29% Competency Management 15 Performance based compensation: consistently linking compensation to performance ratings 27% Performance Management 16 Competencies used in performance management for assessment, review, and development 27% Performance Management 17 Developmental training: training tied to developmental goals of individuals & organization 27% Learning & Development 18 Competencies used in leadership development programs for training 24% Competency Management 19 Pre-hire assessment: assessing candidates against competencies for a position 23% Competency Management 20 Employer brand: using web, collateral, and marketing to position well for recruiting 22% Sourcing & Recruiting 21 University recruiting: working with educational institutions to obtain qualified candidates 22% Sourcing & Recruiting 22 Maturity level of leadership development: Strategic Leadership Development (level 4) 21% Leadership Development Bersin & Associates High-Impact Talent Management, 2007 Coaching is the process most highly correlated with impact.

Copyright © 2015 Deloitte Development LLC. All rights reserved.35 Global Human Capital Trends 2015 The Real Talent Equation Development Plans are Critical DESIRED COMPETENCIES (KNOWLEDGE, BEHAVIOR, SKILLS) OPEN POSITIONS & OPPORTUNITIES INDIVIDUAL NEEDS/DESIRES INDIVIDUAL DEVELOPMENT PLAN (IDP) VISION STRATEGIC INITIATIVES DESIRED BUSINESS OUTCOMES VALUES MISSION ORGANIZATION NEEDS MOBILITY STRENGTHS DEVELOPMENT NEEDS CAREER ASPIRATIONS ANNUAL GOALS Succession Management Career Development Individual Development Plan (IDP) Strategic Competencies Workforce Planning Performance Management Development Planning

Copyright © 2015 Deloitte Development LLC. All rights reserved.36 Global Human Capital Trends 2015 What Millennials Want (and Need) • Companies are desperately looking for ways to build leaders from Millennials • Mentors and mentor programs are among the hottest programs to build new leadership • When asked “how would you like to learn to lead,” more than 60% of Millennials say “I’d like a mentor.” The Mentor Next Door

Copyright © 2015 Deloitte Development LLC. All rights reserved.37 Global Human Capital Trends 2015 Expand beyond “rating” as key 6. Redesign Compensation Process Spotlight: Compensation allocation Four criteria are considered when determining short term incentive and merit increase awards for employees:

Copyright © 2015 Deloitte Development LLC. All rights reserved.39 Global Human Capital Trends 2015 Expand Compensation Decision Matrix Adobe Model is Common Current performance Market demand Peer relationships Leadership or technical potential Collaborative values Followership Customer relationships Special skills

Copyright © 2015 Deloitte Development LLC. All rights reserved.40 Global Human Capital Trends 2015 Recognizing Organizations Have Lower Voluntary Turnover 10.5% 8.7% 7.2% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Poor (1-2) Fair (3-4) Excellent (5) VoluntaryTurnoverRate 7. Create Culture of Recognition 31% reduction in voluntary turnover Source: “High-Impact Performance Management: Making Recognition & Rewards Matter,” Stacia Sherman Garr / Bersin & Associates, 2011. Effectiveness of Recognition Program at Improving Engagement

Copyright © 2015 Deloitte Development LLC. All rights reserved.41 Global Human Capital Trends 2015 “How supportive is your organization’s recognition culture?” Supportive; 34%Somewhat supportive; 40% Extremely supportive; 17% Source: “High-Impact Performance Management: Making Recognition & Rewards Matter,” Stacia Sherman Garr / Bersin & Associates, 2011. Building Recognition Into the Culture Unfortunately Recognition is Not Prevalent Not or Not at all; 10%

Copyright © 2015 Deloitte Development LLC. All rights reserved.42 Global Human Capital Trends 2015 Simplify The Process! 8. Simplify Adobe: 80,000 hours per year Deloitte: >150,000 hours per year Only 12% of companies believe the performance management process is worth the time they put into it see need to simplify work; 25% say need is very important 75%

Copyright © 2015 Deloitte Development LLC. All rights reserved.43 Global Human Capital Trends 2015 Simplify the Process Kelly Services Kelly Services Source: “Getting Away from the Score: Creating Better Ongoing Performance Feedback,” Bersin & Associates, 2012. Coaching for Development Talent Decisions Performance Improvement Legal Documents Employee Motivation Compensation Performance Feedback PERFORMANCE MANAGEMENT Coaching for Development Talent Decisions Performance Improvement Legal Documents Employee Motivation Compensation Performance Feedback PERFORMANCE MANAGEMENT

Copyright © 2015 Deloitte Development LLC. All rights reserved.45 Global Human Capital Trends 2015 Many Forms of Measurement 9. Measure Performance Core Performance Snapshots Confidential Performance Snapshots will allow leaders to provide reliable performance data on every employee Pulse Surveys Targeted Pulse Survey questions, validated by research, will allow employees to provide leaders valuable insights Quarterly Talent Reviews Leadership selects prioritized segments of the population to review quarterly to increasing development support Additions Replace Engagement with Pulse Survey Pulse Survey results can be aggregated and leveraged in place of Talent Engagement Surveys Manager Assessment An assessment of managerial effectiveness as a leaders of others based on Pulse Survey results Eliminations Link Between Competencies & Performance Assessing employees against competencies does not fuel performance. However, competencies are great for development, shaping a role, aligning on what a role means, and understanding and skills needed to make job changes Ratings on Unreliable Data Ratings serve as a proxy for performance but when based on unreliable data or forced bell curves, compromise real understanding of performance and consequent decisions 360° Feedback for Performance Evaluations Accurate evaluations come from those working directly with an individual and are frequent enough to provide timely feedback; 360° evaluations are not effective for measuring performance but can be useful when focused on employee development

Copyright © 2015 Deloitte Development LLC. All rights reserved.46 Global Human Capital Trends 2015 Bersin Leadership Development Maturity Model 10. Invest in Management Training Inconsistent Management Training Content Available • No Development Process • Benefit to Employees Level 1 Structured Leadership Training Core Competencies • Well-Defined Curriculum • Developing Individuals Level 2 Focused Leadership Development Culture-Setting • Future-Focused • Developing Organization Level 3 Strategic Leadership Development Championed by Executives • Talent Management Integration Level 4 BersinbyDeloitte 25% 38% 28% 10%

Copyright © 2015 Deloitte Development LLC. All rights reserved.47 Global Human Capital Trends 2015 Leadership Development Pays Off The Leadership Equity Premium +15.7% Equity premium on organizations perceived to have effective leadership -19.8% Equity discount on organizations perceived to have ineffective leadership $2.4 billion Premium as 15.7% of Company Market capitalization $3.0 billion Discount as 19.8% of Company Market capitalization consider their leadership development programs very effective, and…4.3% 2% And yet, companies aren’t getting the investment right… Believe that their succession management is where it needs to be * Source = Talent Edge 2020

Copyright © 2015 Deloitte Development LLC. All rights reserved.48 Global Human Capital Trends 2015 Where we are today 1. Philosophy, purpose, and culture 2. Make goal setting agile, local, and meaningful 3. Use check-ins instead of annual review 4. Reduce impact of ratings (or eliminate) 5. Focus on coaching and development 6. Redesign compensation process 7. Create a culture of recognition 8. Eliminate steps and simplify 9. Use metrics and measurement aggressively 10. Train and develop managers carefully Ten Factors in a Modern Healthy Process

Copyright © 2015 Deloitte Development LLC. All rights reserved.49 Global Human Capital Trends 2015 Performance data reveals accurate insights Managers have effective coaching skills Employees receive meaningful feedback frequently Leaders understand team dynamics and actively improve them Employees receive targeted development attention Compensation is informed by data Employees leverage their strengths every day Processes take less time and add more value Imagine a world where…

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