Use Metrics to Strengthen Staff Performance Reviews & Development

It’s not too soon to begin thinking about year-end planning, reviews and goal-setting for 2008. The growing emphasis on accountability, training, development and assessment means that changes may be due in how your firm reviews and develops staff.

CPA firms aren’t the only employers trying to make performance reviews and performance management integral parts of growth and development. There’s a lot to be learned from the trends in the world of HR and from the experts who can assist in targeting your efforts to institute or improve performance management.

Changing your mindset. As an owner, you probably hate filling out the forms that generally accompany year-end and mid-year review time. You are busy, after all, and the increasing pressure to use the "right" words to avoid lawsuits, the accountability demands upon your time and growing difficulties in making your staff resources stretch further may be making you impatient with the whole process.

Keep in mind, though, that the process, done right — and this is key — may be able to ease some of your concerns and pressures. A good performance management system should lead to better and more productive staff, to improved goal achievement and to more profitability and productivity for the firm. And those are certainly the goals that are foremost in any owner’s mind.

Start to think about appraisals as a process, just as you think of strategic and succession planning. And consider that a process is something that can be measured. Many firms have begun to explore and experiment with scorecard-type assessments for partners.

Although few CPA firms have extended this approach to staff, Paul Falcone, vice president of human resources at Nickelodeon Animation Studios, advocates such a metrics-based approach. He does so with a human capital performance index (HCPI), similar to a scorecard. Metrics play a major role in human capital measurement, so how people are performing should be a part of this, he explained. How your staff performs is a part of your firm’s initiative to make the most of resources, so know that measurements can be a friend to your firm in achieving this goal.

The HCPI grades all division heads on their ability to assess the human capital in their groups, and part of those leaders’ compensation is tied to this goal. The results by department are given to the CEO to consider in the overall assessment for the company. You can apply this strategy with practice group or department-oriented assessments, so the managing partner can track at a glance the improvements and productivity of each group.

But you can’t get to the level of using a performance metric until your firm has mastered the basics, Falcone cautioned. In performance appraisals, that means a one-on-one appraisal system that works.

Performance assessment basics. As with all metrics, you can get meaningful information only by knowing what you are measuring. His HCPI includes the average change in performance appraisals over time so that management can track improvements and areas where improvement is needed.

Other strategic HR performance-driver measures that Falcone finds helpful in determining value in human capital include human capital return on investment, human economic value add, and human capital value add. These strategic figures can support the basic "people efficiency" measures that are already tracked by many HR professionals, like cost per hire, turnover costs, benefit costs as a percentage of payroll, compensation costs as a percentage of revenue, sick days per full-time equivalent, and variable labor costs as a percentage of variable revenue.

Individual performance review is the basis for the information for these metrics, what Falcone calls the "core foundation and building block." With individual results, you can plan for improved performance, which brings better performance for the practice group or department, which in turn adds up to improved performance firmwide.

How to improve individual reviews. Before preparing for year-end reviews, consider ideas from Falcone on ways to improve individual reviews and the overall review process. His suggestions will help to standardize the information collected in individual reviews and will help to make the process more user friendly and less time consuming—both of which should encourage more and better participation by both owners and staff. These steps will also make it easier for your firm administrator or HR manager to collect and disseminate progress reports with the data.

Reduce surprises. Falcone said there should be very few surprises in an individual’s annual performance review. The idea is that regular communications will bring any issues to the attention of staff or partners long before it is time for the annual sit-down meeting.

Look back before you look ahead. Review last year’s review before preparing this year’s review. This preparation will provide continuity, Falcone explained.

Know the effects of documentation. Proper documentation can be very helpful both in metrics and in overall review quality—but it can be a double-edged sword. You need to make sure you understand—and communicate to managers and supervisors who are reviewing the work of juniors and seniors—how documentation can be used against an employer.

For instance, reviewers should avoid "codifying the damage, and don’t draw a conclusion, because it could be used against the organization." Instead, Falcone recommends being "specifically vague," which entails making such statements as a behavior "could be seen as" rather than drawing a conclusion about the behavior.

Also be careful about what are known as "state of mind" defenses. Reviewers should not say that something a staff person did was "malicious" or "purposeful" behavior. Such statements can come back to haunt you in a lawsuit.

Avoid extremes. Some partners may be reluctant to be too hard on staff; others may withhold praise. Neither extreme is helpful, for obvious reasons.

Get staff involved. Shifting some responsibility for evaluating performance onto employees is very beneficial for a number of reasons, Falcone said. CPA firm staff are eager to provide input, so all you’ll need to do is ask. In this case, self-evaluation is a way for staff to help direct their career development, indicating areas where they would like to expand their technical and other training, and, in general, be active participants in developing a career path.

Ask staff to answer the following three questions prior to the review so you can look over the responses as part of your preparation:

1. Address your overall performance track record for the review period. "They are tougher on themselves in general than you would ever be," Falcone noted, though low performers may overrate themselves. This gives you the opportunity to discuss differences in perception.

For problem performers, Falcone suggests that you first talk to the person. Then follow with a written warning and detail the facts of the earlier discussion in writing: "When I asked you about ‘X,’ you said ..."

2. In what areas do you need additional support, structure, and direction? Staff need career mentors and coaches; you should work to help your staff to build their resumes, Falcone said.

3. What are your goals for the next year or next review period? Let staff set up an individual development program (IDP) before you add your thoughts about goals. It will save time for you and gives the staff person the opportunity to provide input.

IDPs can help staff to build skills, acquire long-term benefits for their resumes, and can really enhance their relationships with partners and other leaders. "Money won’t buy you commitment in a job," Falcone said. Building a strong relationship with a supervisor is a way not only to encourage growth and better performance but also to retain staff.

Separate performance and pay increase discussions. While many firms combine the two, Falcone said it is best to handle these matters separately. "If they know the salary talk is coming, that’s all they listen for."

Know how to use the performance review for disciplinary purposes. Falcone said that the firm may add disciplinary language to the annual performance review, which in effect turns it into a written warning.

Watch your language. The language used by the reviewer can be key both in communicating a strong message and in avoiding any legal problems down the road.

Some suggestions from Falcone:

—Avoid discriminatory references. Don’t bring up a staff person’s health problems, for instance, during a review.

—Avoid the term "attitude," which Falcone terms "too generic." Instead, he encouraged

attendees to "paint a picture" by providing the specifics of a problem, the action taken by the firm, the staff person’s response or lack thereof, and subsequent events.

—Use "for example" frequently. Details and descriptions will make better reviews. A related technique is to use "by" to describe how a staff person reached goal A "by" doing X, Y, and Z. This is also important when you are describing a problem, Falcone said. "You must tell them why it’s a problem and give them a chance to fix it." The use of "by" is helpful here as well, since you can say that the staff person has done little to achieve goal B "by" performing actions one, two, or three.

—Document how the partner, manager, or supervisor has tried to help the staff person to meet performance standards during the review period.

Grading pointers. Performance grading can take many forms: one to five, A to E, or nongrade language ranging from "outstanding" down to "unacceptable/unsatisfactory."

Falcone suggests that factors to consider in your grading system include productivity (increasing revenue, cutting costs, or saving time), growth and learning (ability to contribute to the firm in new ways), commitment (caring and selflessness), satisfaction and engagement level, and competitive capability.

While about half of all those reviewed should fall in the middle level, Falcone noted that in reality, people tend to see a C or three or whatever measure you choose as being more negative. This can lead to "grade inflation" to a B or four.

Language-only ratings may be better in that they eliminate the numeral or letter grade that can have negative connotations.

A suggested approach:

—Five or Distinguished = Performance is exemplary by a significant degree. Employee invariably demonstrates master-level performance.

—Four or Superior = Performance is continually superior and regularly and consistently goes beyond what is expected.

—Three or Fully Successful = Performance consistently meets the critical requirements of the position, and the employee performs at the level expected.

—Two or Needs Improvement = Performance occasionally falls below what is required of the position, and the individual needs to improve in specified areas.

—One or Unsatisfactory = Performance is unacceptable. Immediate and sustained improvement is mandatory.

A timeline for review preparation. To make review time go smoothly, you need to plan ahead. Falcone suggests the following time line:

One month before appraisals are due, prepare staff for the changes you plan to make in the appraisal system and explain that you are aiming for a more collaborative process. This is why you will be asking employees for more input into assessing their own performance and in career development plans.

Two weeks before review meetings, give out copies of current job descriptions and last year’s review. Ask staff to "weight" roles and responsibilities to make sure that the job description is still applicable in their eyes. Ask them to complete a simple self-evaluation form that focuses on strengths, areas for development, and future goals with measurable outcomes.

One week before formal evaluation, review the individual self-evaluations and development plans in a one-on-one meeting. This "pre-review" gives the staff person the chance to be heard and the manager the chance to listen (without having to prepare extensively). If you are time-pressed, you can combine this step with the next one. The reviewer can then prepare his or her formal review. (It is wise to let your firm administrator or HR manager see the written report first to make sure there is no "bad" language that needs to be edited.)

On the day of the review, meet with the staff person to give formal feedback. State that you have considered the employee’s input and suggestions. Discuss points of disagreement between the two and agree on future directions.

Three to five days after the review, conduct a follow-up meeting. This is important for two reasons, Falcone said. It confirms agreement on what was discussed at the review, new projects and responsibilities, and long-term plans. It also is the time to present information about the pay increase being given for the overall performance rating.

Ideally, this process should also include informal or interim appraisals every three to six months. Let the staff person know that he or she will be expected to review progress to date at that time and will have the chance to make adjustments.

Bringing review data into your firm’s strategy. The above structure will help to generate the information you want about improved performance. Once you have information in hand from your strong individual performance review system, you can use the information for your firm’s strategic goals.

Strategic performance management will help in managing human capital, Falcone explained, because it should be able to help answer such questions as how the organization differentiates pay between the highest and lowest performing staff in specific jobs, the likely differential in merit pay awards between high and low performers, and how well the current performance management system reflects employee competencies and behaviors.

Automation is the way to bring together the individual data and process them in meaningful ways. The best-of-breed systems focus on either performance measurement alone or performance management, along with other performance-related functions like succession planning. Falcone mentioned several specific programs that are best-of-breed, according to the feedback he has heard. They are Success Factors Performance and Talent Management (www.successfactors.com), Softscape talent management suite (www.softscape.com), and Workstream life cycle suite (www.workstreaminc.com).

These systems can do the heavy lifting of processing information about performance. Once you have this valuable data in hand, you can create a productivity dashboard, as Falcone likes to do. You can expand upon an existing balanced scorecard system used for partners, if you like, or develop a separate system for staff assessments. And don’t forget that your administration and support teams should have their performance goals set and progress assessed since they are a critical resource to helping your firm achieve its goals.

Ratings can be worked into this system, depending on the criteria your organization chooses to emphasize. For instance, you may want to assess how profitability goals are being met and how performance gains are affecting that in different departments or groups within the organization. 

From the September 2007 issue of Partner’s Report for CPA Firm Owners.

Copyright © 2007 IOMA, Inc. The Institute of Management and Administration.