In the last few years, The KPI Institute (TKI) has supported several organizations with the implementation of a hybrid performance management system (PMS), namely a hybrid between a KPI-based framework and OKRs. This is especially useful for entities that want to benefit from a more agile approach to performance management while still retaining part of the control offered by a more stable framework, such as the Balanced Scorecard (BSC). A hybrid methodology was also seen as an option by organizations that were already using a PMS but were not willing to undergo a complete framework change.
The majority of clients that chose this solution as opposed to solely deploying OKRs were already working with a BSC and had prior knowledge of KPIs and the field of performance in general but felt the need to update their framework and incorporate the latest developments from the field into their practices.
Most of our clients that implemented a hybrid solution were facing challenges, mostly at the operational and individual levels. Due to a fast-changing environment, their operations had to learn to adjust with a higher frequency; therefore, a system that encourages such changes and operates within a shorter timeframe became more desirable.
At the individual level, the increasing percentage of millennials and Gen-Z in the workplace made it a necessity to deploy a value-based PMS that not only relies on committed results and business as usual but takes into account employees’ ambitions as well as actively includes them in the setting process of all objectives and results.
Solution
The solution we proposed and the integration of the two systems are usually highly dependent on the specific needs of the client as well as their organizational structure, external stakeholders—especially in the case of governmental entities—or environmental requirements.
The usual stages of a hybrid PMS deployment are as follows, but these are subject to change depending on each project’s specifics:
Needs analysis
Design and documentation of the hybrid PMS at all levels
Education of all stakeholders on the hybrid PMS
Implementation
Reinforcement through communication campaigns or review meetings, among others
A project as described above for a medium-sized organization of around 100-150 employees—if the individual level is included in the project—can take up to one year.
Key Success Factors
The key success factors of implementing any hybrid system are, first and foremost, its compatibility with the organization’s scenario, followed by top management sponsorship, and employees’ openness to learning and operating with two philosophies merged into one.
The hybrid solution that we recommend is easier to use and more versatile; therefore, it can work for most organizations. It is compatible with the BSC on the corporate level, where stability and committed, longer-term objectives are needed, followed by OKRs on the operational levels, where agility is mostly needed. However, this must be customized depending on the organization’s needs and aims.
Alignment
Ensuring alignment between different organizational levels while using a hybrid PMS relies almost exclusively on effective communication between the representatives of those levels. This ensures that by the time the lower level needs to set their performance components, they fully understand what needs to be achieved at the higher level and what their contribution looks like, equipping them for the alignment process.
Response
In most cases, employees are slightly reluctant to accept a hybrid system during the first phase, especially since it is, by default, more complicated than working with only one framework. However, after intensive training and discussions, most of our clients’ employees embraced the idea of a hybrid system and can see the benefits it brings them, such as people-centricity, flexibility, and measuring their value-add or the simple fact that they can be involved and listened to when setting the system’s components.
About the Guest Expert: Alina Miertoiu is a Senior Management Consultant at The KPI Institute. She facilitates on-site and off-site consultancy on OKRs and BSC frameworks in various industries and conducts training courses on OKRs, KPIs, Performance Management, and Benchmarking. She is a PhD candidate in the field of OKRs and Performance Management at Babes-Bolyai University.
Editor’s Note: This was originally published in Performance Magazine Issue No. 28, 2024 – Employee Performance Edition.
And the worst part is, workers are somehow becoming more exhausted and burnt out. This challenge is exacerbated by the fact that in the era of constant change, most workers do not fully understand what is expected of them. In today’s fast-paced and complex work environment, the concept of a “top performer” has become increasingly elusive, leaving many individuals feeling overwhelmed in trying to understand and achieve this seemingly impossible goal.
Improving employee performance management practices alone would not solve the global issues surrounding mental health and productivity nor the widening skill gap. What it can do, however, is bring clarity and structure to the chaotic workplace landscape, offering a framework for understanding and addressing some of these challenges.
Here are a few best practices to ensure that such appraisal systems are balanced, encouraging, and—ultimately—successful.
Balance Competing Priorities
Businesses must balance competing priorities in order to succeed, that’s a given. In order to ensure the consistency and fairness of evaluations when business priorities are translated into key performance indicators (KPIs) for employees, leaders need to make sure that they know where their priorities lie and what they’re willing to compromise on. These decisions and trade-offs will ensure that proper weight is allocated to KPIs and employee goals.
Here are some common organizational trade-offs businesses face that—if not clarified—might result in flawed employee performance management practices.
Predictability vs Responsiveness: Organizations must balance the need for stability and adherence to established plans with the demand for adaptability and quick reactions to changing circumstances.
Task Focus vs Relationship Focus: Organizations must decide whether to prioritize efficiency, productivity, and achieving specific tasks or emphasize the cultivation of strong interpersonal connections and collaborative relationships with stakeholders and team members.
Performance vs Potential: Organizations must decide whether to evaluate employees based on their current performance or their potential for growth and development. Focusing on performance can help identify top performers and reward them accordingly, but it may also overlook employees who have the potential to excel with additional training and support.
Autonomy vs Control: Organizations must balance the need to give employees autonomy and independence with the importance of maintaining control and oversight. Allowing employees to make decisions and take ownership of their work can increase motivation and job satisfaction, but it may also lead to inconsistency and a lack of standardization and maybe even inadequate first deliverables during the learning curve.
Figure 1 illustrates how the trade-offs can be monitored and measured using the appropriate KPIs.
Figure 1. Objectives and KPIs for Common Organizational Trade-Offs
When measuring employee performance, we typically look at metrics such as the quantity, quality, and timeliness of work. However, we often invest too much effort in avoiding subjectivity during evaluation, which might lead to employees feeling like they are just “numbers” and that the diversity of personalities and individual strengths do not matter as everyone is evaluated based on the same numerical standards. Moreover, organizations should not forget that there is so much more to people than their achievements. Embracing subjectivity in a balanced way will lead to a more relationship- and communication-based performance evaluation without neglecting objective performance metrics.
The KPI Institute recommends complementing quantifiable KPIs by assigning competencies and desired behaviors to objectives. Defining specific competencies for each role involves considering both internal factors (e.g. job descriptions and discussions with employees in those positions) and external factors (e.g. competency catalogs). Meanwhile, desired behaviors are shaped internally by the company’s vision and organizational values and externally by the socio-cultural context, demographics, and examples provided by professional associations or publications in the field.
Figure 2 shows how a goal can be measured through objective metrics (Individual KPI) with subjective components (Desired Behavior).
Figure 2. Objective Metrics With Subjective Components
Offer Stability and Consistency
Frequent changes to expectations and evaluation criteria lead to ambiguous definitions of top performance, sowing confusion and frustration among employees who struggle to discern what is genuinely valued and rewarded. Consequently, performance reviews may become inauthentic or—worse—employees may lose trust in the evaluation process, undermining its credibility. Employees thrive in an environment where they understand expectations and can rely on stable guidelines for evaluation.
Thus, it is critical to adhere to an employee performance management system (EPMS) that is supported by all the necessary tools, processes, training, and monitoring and review procedures. This approach benefits both managers and employees as it ensures clarity in performance evaluation, from setting inclusive performance standards to linking the results to talent management, which also involves providing employees with development opportunities. Consistency in these practices fosters a sense of security and trust among employees and a culture of continuous growth and employee engagement.
Employee performance management need not be perfect. Instead, organizations must aspire to align it harmoniously with the company’s values. Through a holistic approach to employee performance management, organizations will be more capable of balancing the needs of the business with the realities of life.
For more articles on employee performance management, click here.
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About the Author
Bori Péntek, a management consultant specializing in organizational development and human resource management, uses an approach that merges strategic planning and performance management at the organizational level with responsible HR strategies. With diverse experience in recruitment, HR, and operations management across sectors like sustainable construction, research, and instructional design, Bori is passionate about fostering employee well-being through conscious leadership and internal corporate social responsibility.
Editor’s Note: This article was originally published in the print edition of Performance Magazine Issue No. 28, 2024 – Employee Performance Edition.
How effective is the pay-for-performance scheme in the public sector? Most civil servants working in public administrations worldwide before the 1980s had a salary system built upon seniority and length of service. The basis for career advancement did not look into the performance of the position holder.
During the 1990s, the tendency to change the payment systems was born, and the direction sought was to look into individual performance but only for senior public service officials and middle managers. What fueled the change was the need to fill in the gap between the salaries of managers in public service and those who served in the private sector so they could attract and retain private sector managers in public administration. Moreover, the focus was essentially on improving the motivation and accountability of civil servants.
However, in most European countries, there was little introduction to performance-related pay for non-managerial positions in civil service. The conclusion drawn by the European Public Administration Network was that the staff’s motivation could have improved. Given that only those achieving outstanding performance were entitled to a bonus–perhaps due to the efficiency of government spending, the employees found the schemes de-motivating. This caused jealousy and led them to blame the appraisal system.
Rigid pay systems began to be called into question to thrust into light the public value system and be able to compete with the private sector. By the 2000s, a significant number of civil servants were covered by various flexible payment arrangements. In other words, seniority was replaced by non-bureaucratic criteria such as job content, qualifications, competencies, and individual performance.
A controversial function under Human Resources Management is the individual staff performance appraisal with a pay-for-performance (PFP) scheme, which became popular among practitioners and academics in the New Public Management (NPM) wave. The public sector was responsive to change and complemented career-based pay with PFP models to reach soaring levels of attractiveness. Then, the NPM trend was established. There are two perspectives in analyzing the effect of monetary rewards or the efficient use of assets on the public sector.
The Standard Economic View is grounded on the notion that performance is positively related to effort, so outstanding performance should be rewarded. According to Victor Harold Vroom’s Expectancy Theory, there are three major elements of employee motivation. First is expectancy — an employee is motivated due to thinking that effort leads to “acceptable performance.” Second is instrumentality — meaning the “performance will be rewarded.” Lastly, the valence — “the value of the rewards is highly positive.”
Vroom saw the connection of these elements in motivating employees and provided guidelines on employee effort-to-performance expectancy, performance-to-reward expectancy, and valences of reward, which leaders will play an essential role in implementing.
Effort-to-performance expectancy – Leaders should provide all the training and support for their employees to be effective at work and be open to employees’ suggestions about innovative ways of getting their job done. Moreover, leaders should set expectations while helping employees achieve certain performance levels.
Performance-to-reward expectancy – This is where PFP will emerge. Leaders should establish with their employees that good performance will be rewarded. With this, the process of the reward mechanism should be strengthened. Performance should be accurately measured, and reward will be based on the result.
Valences of rewards – Rewards given to the employees should be diverse, with some preferred promotion, salary increase, or vacation leave credits. Leaders should make an effort to increase the expected value of rewards associated with their performance expectations.
The advantage of this approach is that weak performers are identified through financial incentives, and their performance is assessed through KPIs and targets, resulting in increased productivity and efficiency levels.
Image source: freepik
The Cognitive Psychology View takes heed of the two kinds of motivation: intrinsic and extrinsic. The first type of motivation looks for joy, satisfaction, and a sense of duty in the activity, rather than the external pressures or rewards, such as money or promotions and benefits, which the second type does.
Understanding workplace motivation is a critical component of achieving a dynamic work environment that enriches and fulfills employees. Based on Rajesh Singh’s study, “The Impact of Intrinsic and Extrinsic Motivators on Employee Engagement in Information Organizations,” managers must understand that intrinsic factors play a more significant role in motivating employees and investing more in building a culture of respect, appreciation, honesty, and individual freedom when reshaping their management approaches in tapping their employees’ emotion.
Literature, such as “Crowding Out Intrinsic Motivation in the Public Sector” written by Yannis Georgellis, Elisabetta Iossa, and Vurain Tabvuma, showsthat public servants tend to be more intrinsically motivated than private sector employees. That is why the motivation of public employees might decrease when extrinsic rewards are introduced.
Pay-for-Performance Schemes in Public Administration
According to a report issued in 2020 by the European Commission called “Pay-for-Performance in the civil service of the EU,” the monetary rewards are emphasized through a variety of economic forms that depend on several factors:
* Whether the performance of individuals is tracked
Individual performance can be approached in different ways. Traditionally, performance was scored on a scale based on a set of criteria and indicators, thus, leading to a differentiation of public servants into multiple performance categories. The modern way to register it is through regular performance appraisals in which employees ought to meet objectives’ targets within a certain timeframe. Crossing from output measures towards performance appraisals made the process more enchanting for the public system employees as they felt that they are part of a less rigid rating system that was qualitatively addicted. Some examples in this area are Estonia, Greece, and France, which gave up on explicit numerical rankings. Whereas Denmark and Finland have decentralized the decision regarding the rating system used to the organizational level.
According to a European Public Administration Network (EUPAN) survey (Staronova, 2017), only two countries reported using a quota system, Malta and Latvia. However, the purpose of it is to use it as a guideline only and not a strict requirement. Germany uses quotas only for the top performers in order to better differentiate them per category.
Part of the modern trend of performance instruments may be encountered in the self-assessment, together with the performance interviews. The methods are established through intrinsic motivators, like professional development opportunities or quality connections.
* The size and forms of payment (base pay, one-time bonuses, or a combination of the two)
Most of the time, the typical merit scheme links individual performance to annual salary raises. The computation is either as a percentage of base pay (3-10%) or a variable merit increment. Another form of it is granting a lump sum bonus. Some countries, such as Slovakia and Lithuania, offer a “pay promotion” that is tied to performance appraisal and a career promotion that assumes a change in rank.
Modern pay systems abandon the automatic pay progression and embrace the flexible PFP regimes under which annual evaluations and regular check-ins build the civil servant’s profile for a higher chance towards career advancement or bonus payment. According to the EUPAN 2017 survey, Portugal is an example of salary progression, as a public employee with an excellent performance score stays in the queue, alongside other high-performing candidates waiting for the managerial decision to give employees a bonus. Meanwhile, if other colleagues of a public employee that await in line accumulated an increased number of points since the last change of pay, they are entitled to the bonus.
Pursuant to “Pay-for-Performance in the civil service of the EU” developed by the European Commission, most Central European countries punish poor performers by decreasing their salaries or withdrawing the financial rewards. Others, like Malta and Belgium, chose to reflect the punishments on career progression by freezing it or even introducing the possibility of being downgraded.
Modern Performance Management Trends
More and more EU countries started to adopt PFP schemes in the public systems as they scrapped its controversial reputation and took heed of overall motivation, communication, and relations within the administration. Several key trends made it easier for financial schemes to be integrated into the organizational managerial culture:
Feedback and continuous discussion – Regular check-ins on results and competencies development represent a key trend within employee performance management. Mixing monetary incentives with non-monetary ones increases the changes in individuals’ motivation to reach new peaks. Annual appraisals performed in isolation are not the key to objectives achievement or performance of any kind. However, combined with ongoing feedback or performance interviews between superiors and civil servants creates common meaning and prepares them for the yearly evaluation. In the Swedish public administration, employees discuss goals and work-related issues with the manager, and they are aware of how payment is set and how they can increase their share.
Self-assessment – In order to involve and obtain civil servants’ input, they are required to perform self-evaluations. Shared insights of civil servants on how the job can be carried out effectively bring a valuable contribution to how they perceive appraisals, requirements, and opportunities for professional development. In Slovakia, this factor is introduced as a voluntary tool, while in Italy, the method is used for both supervisors and senior civil servants. In Portugal, self-assessment is compulsory to be carried out.
Competency-based approach – This takes into consideration technical skills and behavior patterns that put an apprentice on how individuals do their jobs. Moreover, the focus is on how civil servants contribute to the overall administration’s mission. According to a EUPAN survey (Staronova, 2017), in the past decade, the number of countries that adopted competency frameworks doubled. Supervisors believe that the policy contributes to the public sector’s performance by a vertical alignment of people’s competencies to the mission and vision.
Considering the current labor market challenges, pay-for-performance schemes need to be strategically planned to look into both the cost-effectiveness related to employment and the outcomes that support public employment services. The rule that undergoes tight budgets is to do more with less, thus implementing cost-effectiveness measures might provide comparative information on the labor market cost. Performance management should be linked to high-quality HR practices, in which individual, team effort, ongoing coaching, targeted training, and recognition are well-settled. Moreover, the human resources practices available in the public sector have a demonstration effect across the entire local market.Performance management should be tailored to influence civil servants to meet local needs rather than to achieve set targets at any cost.
Banks have beenbuilt on trust for more than six centuries. Bank relationship managers, a specialized type of banker, are vital in maintaining lasting relationships between their respective institutions and their consumers. As frontline officers, they are responsible for growing the business volume by selling various lending and funding products. Traditional approaches in trust-building put too much value in physical interaction above everything else—with modern technology only acting as an aid in supporting the exchange in order to be perceived as more genuine. This obsession with “I only trust what I can see with my own eyes” on both parties is not unfounded as bankers are handling very valuable assets.
Digitalization has presented a new challenge for banks as it changed how customers interact. Digitally savvy millennials for example are expecting
seamless omni-channel interactions with instantaneous service delivery akin to the ones offered by tech giants like Google or Netflix. Media consumption has also shifted to social media dominating the landscape. Even information gathering has also changed, with Gen-Z preferring to learn by their own rather than under the company’s sales personnel. These changes were further normalized with the pandemic in the 2020s, which discouraged physical interactions.
Recent developments have prompted banks to invest in more robust information technology (IT) architecture, which has led to the high demand for top tech talent.Smaller banks adopted partial digitalization through mobile banking applications, while larger banks created entirely new digital banks as subsidiaries. The allure of scalability, efficiency, and centralized operation is also driven by profit as digital banks do not need to operate multiple physical branches, which means they can employ fewer frontline staff, including bank relationship managers. As traditional banks plan to close more branches in 2024, there is a need for their relationship managers to leverage technology in building trust and loyalty with their consumers.
Building trust through technology
To create genuine interactions with customers, relationship managers mustshift their role from sales and marketing, to a more consultative-driven approach as the former has been taken over by digital media. Bank relationship managers must focus their effort in helping customers make the right decision amidst the abundance of available information. This role is beneficial across multiple generations as it helps the older generation navigate the digital ecosystem and helps younger customers take their first step in their financial journey. These interactions may also be implemented in social media by offering helpful banking guidance without pushing products.
Synergizing customer-facing and technology talents is also crucial in bridging the gap between customer needs and their digital banking solutions. Relationship managers in digital banks must be able to leverage the data offered by various digital platforms. By triangulating information acquired in the field and available from Customer Relationship Management (CRM) systems, relationship managers are able to identify the most effective interaction channels. Key performance indicators (KPIs) such as # Customer engagement and % Customer satisfaction must be considered another piece of the puzzle in decision-making. This triangulation of data will also enable personalized interactions through digital platforms to generate closeness and trust with customers. In addition, this digital record would also facilitate seamless transitions from one relationship manager to the next.
Bank relationship managers must also take a proactive role in improving their bank’s various digital platforms as these are essentially their organization’s extension in the digital landscape. They should move forward with the development of technology and work in a more horizontal and inter-functional structure. Their consultative role will be involved in introducing the human aspect of mobile applications and digital marketing to tech developers. Thus, modern relationship managers must also understand the digital design of the ecosystem. While this does not mean that banks should hire tech talents as relationship managers anytime soon, the talent they acquire should at least have a strong ownership towards digital applications so that they can help guide their consumers in navigating this new technology.
Digitalization has been both a blessing and a challenge for traditional banks. On one hand, it has allowed them to revolutionize their offerings to a wider range of consumers through mobile banking services and digital marketing campaigns. On the other hand, it has also forced them to adapt their approach in relationship-building. While these changes may put traditional banks into obsolescence, it has also created a new opportunity for them to synergize with the new digital ecosystem.
Does your organization adopt an employee or customer-centric operating methodology? For decades, the main focus of businesses in the Middle East has been on the customer, embracing mottos such as “The customer is always right” or “Customer comes first,” with the primary objective of attaining high customer satisfaction to expand market share. While this remains a universal goal, the approach to achieving it varies among companies, with some prioritizing employees over customers.
Employee performance management has gained increased attention in recent years compared to previous decades. This shift is largely a result of a changing mindset in both the private and public sectors regarding core business principles and operating methodologies. Companies have started to be more aware that what leads to customer satisfaction is a happy workforce, prompting them to focus more on managing employee performance.
Business magnate Richard Branson encapsulates this shift with his statement: “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.” This shows us the importance of transitioning towards a more employee-centric business model to keep employees satisfied and engaged while achieving business goals. For all these reasons, employee performance management plays a pivotal role.
To better understand what employee performance management entails, it is important to examine its sub-processes:
Employee performance planning: The planning phase is a prerequisite, establishing the groundwork for the entire process. It is imperative to clarify roles, responsibilities and competencies by having the proper job descriptions and competencies framework developed based on the market’s best practices.
Employee performance measurement: This phase teaches the creation of scorecards at the employee level, guiding the assessment of competencies and behaviors. It also delves into the advantages and disadvantages of creating a final performance index for each employee, incorporating clearly defined criteria such as objectives, KPIs, competencies, and behaviors.
Employee performance review: This phase details organizing and conducting employee performance review meetings, ensuring value for managers and employees. During meetings, managers transparently discuss employee performance, acknowledge achievements and progress, and highlight improvement areas.
Employee performance improvement(talent management): This phase emphasizes the right course of action after the performance review meeting and the enablers of performance improvement. It guides the addressing of low-, medium-, and high-performing staff members, underscoring the importance of a monitoring process to ensure the effective implementation of corrective actions.
Performance recognition: This process guides the creation of rewarding models for acknowledging high-performing individuals and teams, enabling the design of a sustainable reward system encompassing financial and non-financial rewards.
In 2023, several aspects of performance management, especially employee performance management, have evolved. This shift is a response to the so-called “post-pandemic new normal,” forcing businesses to rethink survival strategies for 2024 and beyond. Six main trends have emerged:
A noteworthy change is the evolution of the job landscape. Financial security, which once deterred employees from leaving their jobs, is no longer the sole factor. Jobs now offer employees opportunities for growth, continuous feedback, flexible working hours, remote or hybrid work options, and comprehensive benefits, enhancing their work-life balance. These trends underscore the imperative for businesses to shift towards employee-centricity to achieve strategic objectives and foster sustainable business practices with reduced turnover.
Employee performance management will witness further changes, particularly in performance review and goal-setting. The workplace will increasingly focus on personal and professional goals, transforming performance reviews from a process into project-based evaluations, enhancing the workspace and contributing to a more sustainable business.
To prepare you for the year ahead, The KPI Institute can equip you with the industry-leading tools and skills required to nurture employee performance. Sign up for the Certified Employee Performance Management Professional and Practitioner courses now and secure your slot here.
