Chapter 9

Performance Expectations: The Wage–Work Bargain

In This Chapter

Setting the right standard for the wage–work bargain

Understanding what performance measures to pay attention to

Giving feedback and making changes

Analysing performance within the first 6 months

Managing poor performance with warnings and procedures

Anyone can do any amount of work, provided it isn’t the work he is supposed to be doing.

Robert Benchley

Y ou set the standards of performance, provide the necessary tools, direct employees in how to perform work and pay wages for the time employees spend performing this work. In exchange, employees apply their knowledge, skills and experience diligently and conscientiously in the interests of your business. This describes, ladies and gentlemen, the fundamental wage–work bargain.

In this chapter, I explain how to get the best value from that bargain by creating an effective system to manage performance. I cover how you can improve your business by defining, facilitating and encouraging good performance, and measuring and learning precisely how well your employees are performing their work.

The first 12 months of employment are an important time, during which you invest time, energy and money in your employees. You need to make an important decision during this period about whether or not to continue to employ beyond these initial 12 months. Often known as the probationary or qualifying period of employment, I explain how you should approach this decision. I also look at how to address any poor performance issues, keeping in mind the best interests of your small business, and in a manner that minimises any risk of claims of unfair dismissals.

Lastly, I set out a checklist procedure that should be followed when addressing poor work performance to get employees back on track.

Defining, Facilitating and Encouraging Performance

You can manage the performance of your staff in two ways: Informal and ad hoc supervision, or the correct way, which is what this section is all about.

Introducing a structured system of managing the performance of staff serves three important purposes:

• Strategic: Taking a strategic approach to performance management helps ensure your staff’s daily activities are consistent with your businesses values, goals and objectives. Everyone should be working for the same objectives, and doing so in a manner that reflects how you want them to work. Defining the tasks and work standards in this way gives you a better chance of actually achieving your business goals.
• Developmental: Using a structured management approach in your staff’s performance enables you to focus on the specific skills, knowledge and abilities required to achieve your business goals. By doing so, you can then work to develop each person’s capacity to succeed and to grow in the job.
• Evaluative: Applying a well-structured system enables you to accurately evaluate performance so that you and the staff learn from experiences and improve in the future. Having both individual and collective performance accountability makes it easier to address deficiencies and reward success.

A structured performance management system has five stages and works in a continuous cycle designed to improve performance over the life of the employment relationship (refer to Chapter 1 for a figure showing this performance management cycle). The five stages in the cycle are defining, facilitating, encouraging, measuring and learning.

I cover the early stages in this cycle in the following sections and then talk about the later stages further on in the chapter in ‘The Art of Measuring the Right Stuff’ and ‘Providing Feedback’.

Defining performance standards

The first step in the performance management process is defining the key performance indicators (KPI) for employees. This means describing the results that you want staff to achieve in a manner that can be easily followed and measured. For example, you may want your receptionist to greet telephone callers in a friendly and courteous manner such as:

‘Good morning, you have contacted ABC industries. How may I help you?’

You may also want your receptionist to answer the telephone within five rings. Congratulations — you’ve just defined two KPI for your receptionist:

• KPI 1: Greet telephone callers in courteous manner
• KPI 2: Answer all telephone calls within five ring tones

Both KPI are simple indicators of performance that can be achieved by the employee applying his knowledge, skills and abilities to the tasks described in the job description (refer to Chapter 2 for more on writing job descriptions). The KPI are consistent with the business goals and values, are measurable indicators of performance and are integral to the success of the wage–work bargain that you have with your employee.

Performance indicators can include a combination of results, processes, personal attributes and behaviour. An effective system of performance management measures everything from the way in which employees do the job through to the revenue generated from sales to customers.

One of the most successful businesses in the world is McDonald’s Restaurants. Its performance management system isn’t a secret, and its system of defining and managing the restaurant staff’s performance has been replicated throughout the world. Staff are required to follow a very simple operating procedure for every customer that they serve:

• Provide a friendly and attentive greeting
• Take the order promptly
• Provide an accurate recounting of the order
• Hand over the meal within a short period
• Say thank you to customers as they leave

All of these actions are carefully defined tasks requiring a combination of personal qualities, attributes, skills and a focus on results to achieve the ultimate objective of selling fast-food meals to the customer. Both the employer and the employee know precisely the standard of performance required to achieve the business goal.

It’s a good idea to work collaboratively with your employees to define and agree upon no more than ten suitable KPIs for their job, and then measure how well employees perform in those areas for 6 to 12 months.

Start with five KPIs for new employees, just to get things going, and focus these KPIs in particular areas. You should have a KPI that’s result-based, one that’s quality-focused and one that’s task-oriented. One should also cover the attribute and another the behaviour you want to see continually displayed. You can record the agreed KPIs on a form known as a performance plan. This form captures the specific KPIs, the timeline to achieve them, the assistance that will be provided, how success will be measured, and any other comments that you and your employee may wish to add.

Rather than taking a broad approach to the KPIs, focus on specific measurable requirements for each one. For example, a KPI could be ‘Make five sales per week’, ‘Greet all customers who enter the shop’, ‘Ensure a ten-minute response time for customer enquiries’, or ‘Ensure a failure rate of no more than 3 per cent on dispatching goods within 24 hours to customers’.

Visit www.dummies.com/go/hrsmallbusinessau for a sample performance plan worksheet.

Removing the barriers to performance

You can’t expect people to succeed in any area of life — whether it be work, school or sport — if they don’t have the basic equipment required to perform in that area. The required tools include more than just, say, a computer, driver’s licence, apron, recipe, hammer or nails. They include skills, knowledge and ability. At this stage of the performance management cycle, you and your employees being able to identify not only the things that employees need to perform the job but also the things that will hold them back is critical. I call anything that can hold staff back barriers to success. This stage of the system is aimed at removing those barriers.

Plan to discuss and identify at the outset any barriers that may inhibit the individual employee’s capacity to achieve the agreed KPIs. Cost, develop and implement strategies to address barriers — such as gaps in professional or product knowledge, poor or inadequate skills, and inadequate equipment. Changes required may be something as simple as upgrading computer software, providing new tools and equipment, sending your payroll officer to a class to learn a new payroll system or providing financial support so she can improve her bookkeeping qualifications.

Record the strategies for removing barriers on individual performance plans (refer to the preceding section) so that you can return to them and check them off as they’re completed and during the regular review meetings. This also enables you to assess the success of these strategies (see the section ‘Learning from the experience’, later in the chapter, for more).

Encouraging performance

Motivation to perform well in a job is influenced by various factors, with financial reward not the only means of encouraging performance. In fact, once employees receive a level of remuneration that they believe to be fair and equitable, additional payments to encourage greater performance have little impact on motivation.

Many experts in the field of human behaviour now argue that, beyond remuneration, other motivators are at work, including the desire for autonomy (that is, being able to control how you perform the work), for mastering the work performed or for an affinity with a greater purpose to the work other than just making money.

Keeping possible other motivators in mind, you can encourage employees to achieve better performance through focusing on the following areas:

• Leadership: Motivation comes from the top as well as from within. Good leadership contributes to good performance. Model the behaviour that you want others to display, whether it be honesty, diligence, humour, initiative or teamwork.
• Valuable encouragement: The encouragement and reward that you provide has to be valued by employees. Think about what motivates the person, and what she views as important and valuable, and provide encouragement accordingly.
• Timely reward: Immediate positive reinforcement of an employee’s performance is more likely to see the same performance repeated. Wait too long to thank employees and they’re less likely to continue along the path that you want.
• Fairness and equity: Employees compare their rewards (financial and non-financial) with their peers both in the broader working population and with their immediate work colleagues. Motivation doesn’t come from money but it sure can dampen enthusiasm if employees believe they’re not treated fairly or their wage is inequitable. Get online occasionally and check out the job advertisements to see what your competitors are offering in wages and conditions.
• Compatibility: Rewards given to staff should encourage behaviour that leads to the desired performance standards. Say that your small business relies upon cooperation and teamwork to produce and sell your products and services. Offering individual incentive payments in this situation is pointless, because such payments may encourage staff to act selfishly. Bar and restaurant staff, for example, need to work as a team no matter which part of the bar or restaurant is experiencing high demand. It would be counterproductive to divide customer tips only between those who serve on tables because it takes more than one person to prepare and deliver the order, serve the customer, manage the money and clean up at the end of the night.

For greater detail on the wage side of the wage–work bargain, see Chapter 10.

The Art of Measuring the Right Stuff

Being able to measure performance is integral to achieving high-level performance. Defining performance standards that you want staff to work toward is pointless if you can’t measure their performance correctly and precisely.

Duh, pretty obvious . . . but how do you measure it?

Well, firstly, the number of actual products and services sold, either individually or collectively, is easy to measure. You have the sales receipts to help you calculate and report on sales. However, success may also occur because of excellent after-sales service. In that case, you may wish to measure the quality of the action taken by sales staff to ensure customers are satisfied with the product they purchased from you. This could include slightly more sophisticated measures, such as measuring the quality of customer feedback provided in after-sales surveys. Another area critical to your business success may be persistence and consistency in sales methods such as pursuing and nurturing new customers. In that case, you may want to measure work behaviour such as diligence, initiative and customer relationship-building. Add to the mix product knowledge, and you can see that performance can and should be measured from various perspectives.

Here are some common methods or approaches that you can use to measure employee performance:

• Comparative: This involves techniques that require you to compare an individual’s performance with that of others. This approach typically uses some overall assessment of an individual’s performance or input in the business, and seeks to develop some of the employees within a given work group. For example, you could establish a friendly competition between staff to try to encourage better performance.
• Attributes: This approach focuses on the extent to which an employee has particular characteristics or traits believed to be desirable for the businesses success. Specific traits are measured, such as initiative, leadership, empathy, teamwork, problem solving, and employees are evaluated on these. A simple way to measure attributes is using a performance scale such as the example shown in Figure 9-1.

You and your employee rate how apparent the attribute is in the way in which the employee performs his job on a scale of 1 to 5. Try to reach agreement on the rating because such attributes are unlikely to be displayed in the future where your employee views his performance differently to you.

Figure 9-1: Attribute performance scale.

• Behavioural: This approach defines behaviour that an employee must exhibit to be effective in the job. Some really complex mathematical methods are available to measure behaviour but I suggest you and your employee can measure the type of behaviour that you would like to see on display by identifying critical incidents. These are incidents at work in which you believe the employee has displayed the desired behaviour during the period in review. For example, displaying initiative in after-sales service, always attending work on time, following up on customer enquiries and complaints promptly, or managing difficult customers calmly and effectively. Keep a diary or notes as and when you witness the incidents so you can remember them during reviews. You should also document poor behaviour.
• Results: In this approach, you focus on managing the objective, measurable results of a job. This approach assumes that subjectivity can be eliminated from the measurement process and that results are the best indicator of an employee’s contribution to business success. The method that the employee uses to achieve the result is less important. Using this approach encourages creativity and innovation in employees, particularly in jobs that require a reasonable level of expertise and knowledge and where autonomy and mastery over the work is important to successful performance.
• Quality: Characteristic of this approach is customer-orientated action or measures. For example, action of staff that takes a preventative approach to errors. Customer satisfaction is the primary goal and risk management and quality assurance are the key techniques or methods to achieve quality. To measure these goals, you could run a customer survey once a year and include questions that are likely to give you an insight into quality. Error or complaint registers are also useful tools.
• Means-based: This approach focuses on the way in which performance outcomes or results are achieved, and provides a way of determining the extent to which performance outcomes are the result of the employee’s behaviours rather than due to external or environmental influences. This approach is the opposite to the earlier Results approach to measuring performance. It assumes that tightly controlled operational methods followed by employees will lead to the desired result and, therefore, performance measurement focuses on the method of work and making sure certain processes are followed. I refer earlier in the chapter to McDonald’s Restaurants, which provide a perfect example of this approach to performance measurement (refer to the section ‘Defining performance standards’).

Providing Feedback

No-one likes sitting down for a bit of one-on-one discussion and reflection. The situation is often unpleasant and usually embarrassing and sometimes can go pear-shaped! Nevertheless, measuring and appraising performance is critical to the management of staff work performance. Plus, I guarantee that if you manage this phase of the performance cycle properly, it can be painless and, importantly, productive.

Regular appraisal of the individual employee’s performance is designed to

• Assess past performance against agreed standards
• Analyse the reasons contributing to the performance
• Reward good performance
• Adjust future KPIs

When you focus on these aims, the appraisal interview experience should be beneficial to you and your employee. You must, however, get yourself organised beforehand, and be prepared to also learn from the experience.

Handling appraisal interviews

Sitting down with staff to formally review their performance should occur more than once a year, preferably quarterly for the following reasons:

• The data measuring performance is more manageable for shorter periods.
• The feedback is more immediate.
• The reward for good performance will be more effective.
• You have greater chance of rectifying unsatisfactory performance if picked up earlier on.

You should provide information that you have collated measuring staff performance in advance of the appraisal to your employees. In fact, they should be able to see how they’re progressing whenever they need to via regular informal reporting and feedback.

The appraisal process is a reflective process and, therefore, you should be as honest as possible in your analysis of satisfactory and unsatisfactory performance, and encourage your employees to be so as well. The process can then inform the next step, which is the review and re-alignment process occurring through the learning stage of the cycle (see following section).

You should collate and discuss performance results. You must also record the results and comments and keep them on the individual employment record.

The performance appraisal process isn’t a de facto disciplinary procedure. Poor work performance or conduct justifying warnings or dismissal should be dealt with separately and as the need arises. If you indicate that your employee’s performance has been satisfactory in an appraisal and subsequently initiate action to formally warn or dismiss the employee on the same set of facts, you may risk a claim of unfair dismissal against you. Therefore, honestly appraising the performance of your employees is much more sensible.

Learning from the experience

One of the primary purposes of managing staff performance in a structured manner is the development of the staff and the business. Consequently, the performance management cycle is a dynamic model that has been designed to promote continual improvement in staff and your small business.

Information acquired or learnt through the appraisal process that contributes to your understanding of the strengths and weaknesses of each employee should be recorded on the performance plan and fed back to allow adjustments to improve employee effectiveness.

Upon the completion or shortly after completing an employee’s appraisal, you should create a new or revised performance plan for the employee.

Reviewing the First Six Months

You want employees to repay your confidence in them with good to really good work performance. In other words, you want a good return on your investment. After the formal orientation program has been completed, the best method of achieving good performance from staff is to support them and provide regular feedback on their performance. You should also let them know for how long the employment is probationary. This means new employees must satisfactorily perform to the standards set at the commencement of employment in order for the employment to continue beyond the probationary period. Continuing employment is often a hard decision where the performance has been borderline satisfactory. However, unless you make a hard decision during the first six months, you will pay for it in frustration and money when you tolerate unsatisfactory performance for too long.

Applying a formal qualifying period

Once you have determined what your probationary period is for new staff — I recommend six months, but you can choose one, two, three or six months — make this clear to your employees at the commencement of employment. Also clarify that continuing employment beyond the probation (or qualifying) period depends upon you being satisfied with their performance over that period.

Employees engaged by small businesses (that employ fewer than 15 employees) in Australia aren’t entitled to claim unfair dismissal and apply for reinstatement or compensation if they’re dismissed within the first 12 months of employment. (The period is six months for every other business.) However, this isn’t an opportunity to ignore the signs of poor or inadequate performance, safe in the knowledge that you can just dismiss employees before they achieve 12 months’ service. The performance expectations established during the orientation program should be reinforced, measured and reviewed, just as you would with other staff in your business. See Chapter 17 for an explanation of unfair dismissal laws.

If any of you has reasons why . . . speak now or forever hold your peace

You have window of opportunity of either 6 or 12 months as a small business (depending on how many employees in your business) to thoroughly assess the performance and suitability of your new employee. Whether the performance has been good, bad or indifferent, you should formally assess the suitability of the employee to continue in your employ.

Assessing an employee’s suitability includes using the objective measures of performance (refer to the section ‘The Art of Measuring the Right Stuff’, earlier in this chapter) and also an assessment of the person’s general suitability. Answer the question: Is this person a good fit for my business? This is often difficult to answer because it relies on your intuition, balancing the emotional factor of the equation against the objective measurement of performance. Give yourself some time to reflect on performance measurements and your ‘gut feel’.

If you don’t think the person is a good fit, end the employment. Not every person is suitable to your business. Thank the person for her time and assist her to move on to other employment.

On the other hand, where employees are suitable, confirm their value to the business by formally writing to them that they have successfully completed the probation and have qualified for continuing employment. This act may also coincide with a pay increase, cake or other reward to mark the occasion.

Reinforcing employees’ performance and value to the business builds loyalty, and the true value of loyalty to a business can’t be measured by any system of performance appraisal.

Addressing Poor Performance

The aim of defining, facilitating, measuring and rewarding performance is to create a culture of continuous improvement that benefits your small business. When managing poor or unsatisfactory work performance, your dilemma may be how far you should go to remedy the underlying problems.

Reprimanding an individual can have a sobering effect on an employee’s performance, but it may also create resentment and further poor performance. People don’t like being told they’re not working to the required standard. Nevertheless, you must address poor work performance and behaviour when it occurs, because serious risk to the business occurs from the failure to act on poor work performance. Nothing sends a good business toward insolvency more swiftly than the act of putting your head in the sand and hoping the problem will go away.

Warnings, warnings and more warnings!

Issuing warnings or counselling to staff is a necessary procedure, because failing to go through this process before sacking staff may result in liability for compensation to disgruntled employees who sue for unfair dismissal. Nevertheless, warnings should be the last resort because, undoubtedly, such action can have a negative impact on the individual and the general work culture. You’re aiming to remedy poor work performance not contribute to the problem.

Okay, you may be thinking this is easy for me to say, but difficult for you to implement. Table 9-1 provides a breakdown of the type of poor work performance scenarios possible, and responses that you could use where appropriate.

Running through a simple checklist and procedure

The responses suggested in Table 9-1 are designed to provide a response commensurate with the underlying problem. However, performance problems rarely fit preordained patterns. The issue usually involves a lot more than is immediately apparent. Therefore, your response must include a procedural stage that will inform the remedial action to improve performance.

Table 9-1 Responding to Unsatisfactory Work Performance

Scenario	Response
Poor work performance during probation period but putting in effort to achieve expected performance standard	Additional supervision and instruction. Where performance doesn’t improve sufficiently over the period of the qualifying period, you need to assess whether or not it’s likely to improve to the expected standard. If in doubt, consider terminating the employment.
Performance problems affected by personal factors unrelated to work	Offer opportunity to disclose personal factors. Where practical to do so, offer assistance to overcome the factors. Look at offering annual or personal leave or leave without pay. Note: Personal issues do affect what action you can take against employees not performing to expectations.
Performance affected by poor attitude, behaviour	Issue warning indicating the problem and the attitude and behaviour expected of the employee. Be very clear about the attitude and behaviour that’s unacceptable. Provide a reasonable opportunity for the employee to improve attitude and behaviour.
Performance improves for a short period and then deteriorates once close supervision is withdrawn	This is the most frustrating scenario for employers. A formal performance improvement plan (PIP) with very specific standards of behaviour and performance, combined with frequent reviews is the best response because it both places pressure on the employee and reduces the risk of successful claims of unfair treatment.
Serious and repeated poor performance where employee has been given opportunity to improve	Final warning or dismissal. Prior to dismissal you must offer the employee an opportunity to defend himself. This means offering a face-to-face interview.

The checklist of action provided in Figure 9-2 is a guide to addressing unsatisfactory work performance, with the aim of remedying the problems and enabling the employee to improve performance to a standard where you will be satisfied. Follow the checklist and you can reduce the risks to your business from claims made against you of unfair dismissals.

Everything that you do with employees is connected. This means the action you take to address unsatisfactory performance during the course of employment affects the final decision on that employment, including whether to dismiss an employee. In Chapter 17, I explain the way in which you need to manage terminating employment in detail, because you need to consider additional issues if dismissal is considered the appropriate response.

Figure 9-2: Performance improvement checklist.