Performance follows pay, or is it pay follows performance? It's an age-old question and not easily resolved, but we know there is a connection between the two, at least in high-performing organizations.

I thought you might be interested in the just-published i4cp report Performance Management Playbook: Tools and Techniques for Managing Performance.  Performance management (PM) has long been a thorn in the side of many organizations. In fact, two-thirds of the organizations surveyed by i4cp admitted that their performance management processes are inefficient.  It's difficult to imagine another process that consumes so much time and so many resources, yet all too often leaves participants feeling dissatisfied. At the same time, most organizations see the need for performance management and consider it important, even if less than effective.

A key element of any effective PM program is leadership buy-in and support. Without leadership buy-in, PM simply becomes a painful experience about which no one is quite sure why they are going through.  Nearly three-quarters of high performance organizations say their leaders consider PM to be vital to a high or very high extent. Only about half of lower performers said the same.

I once worked in an organization where late performance and/or poorly completed reviews were considered a serious management deficiency and chronically late managers usually became former managers. As a result, reviews were rarely late or brushed over.

The i4cp PM playbook goes on to highlight six common challenges to PM that organizations face and the solutions to overcoming them.  Below are the six challenges the playbook addresses.

1.       The performance appraisal process is perceived to be too complex and time consuming by employees at every level.

2.       Leadership does not consider performance management to be integral to overall business strategy.

3.       There is a disconnect between the pay-for-performance culture and the performance management process.

4.       Organizations often focus on the wrong aspects of performance management.

5.       The performance appraisal process is rarely calibrated properly, if at all.

6.       Performance management is not yet fully integrated with other talent management processes.

Just in case you're wondering if its really worth it to spend so much time and effort on performance management, see the table below and let me know what you think (many thanks to Ann Bares of the Compensation Force blog for allowing me to use her table!).

I believe the data coming out of the study clearly shows that it's worth the effort to incorporate effective PM as a key element to becoming a high-performance organization (or working to stay there).

More to follow in future posts...

The Five Domains of High-Performance Organizations
i4cp identifies the five key areas in which High-Performance Organizations excel

Seattle, WA (January 21, 2010) - After conducting thousands of studies that cover hundreds of issues related to productivity and the workforce, one thing is clear: there is no single organizational element that is correlated with high performance. Rather, there are five.

For decades, the research team at the Institute for Corporate Productivity (i4cp) has studied what separates high-performing organizations from their lower-performing counterparts. The results of that research have consistently shown that companies that excel in the following five domains are typically high performers:
•    Strategy
•    Leadership
•    Talent
•    Culture
•    Market

In December, i4cp set out to clarify the differences between high-performing and low-performing organizations across these domains, and to determine whether certain issues or traits have increased in importance in the current economic climate. The results were interesting, if not startling. The gap between higher-performing and lower-performing organizations has widened considerably from previous studies. Based on a scale from 1 to 7, high-performance organizations scored an average of 6.03 across these domains, compared with 2.88 for low performers.

"High-performance organizations all seem to recognize that, while excelling in these five areas is critical, these domains need to work together as an integrated system," said Kevin Oakes, CEO of i4cp. "The culture should be focused on the customer and reflective of the organization's talent, which in turn feeds off the leadership, who need to be aligned with the strategy, etc. If one domain is ignored or inefficient, the system breaks down. This five-domain system also contains many important sub-domains - our members would recognize them as knowledge centers -that are just as critical to explore."

Specifically the new study found the following in each domain:

1. Strategy
High-performance organizations outscored low performers by 6.14 compared with 2.58 in the critical area of Strategy. In looking at specific areas of strength vs. weakness, it's clear that an organization's strategic approach is vitally important to high performance. The common wisdom of "walk the talk" is an indispensable ingredient in high-performance organizations. If an executive says one thing and then does another, employees draw a variety of conclusions, most of them destructive to the organization.

Executives in high-performance organizations avoid these problems by ensuring that employees are clear about the strategic plan and the company's approach to business, and by ensuring that managers behave consistently. The study shows that the single most widely cited strategic practice among high-performance organizations was, "My organization's philosophy statement is consistent with its strategy." And the strategic practice in which high performers outstrip low performers the most is "Organization-wide performance measures match the organization's strategy," followed by "Organization's strategic plan is clear and well thought out."

2. Leadership
In Leadership, the gap between high-performance and low-performance organizations was 5.96 compared with 2.47. The study found that one of the most widely agreed-on leadership-related strategies is ensuring that "Everyone is clear about the organization's performance expectations." Another important factor associated with high performance is "Making sure employees believe that their behavior affects the organization." Leaders can't do their jobs alone. They must be able to convince others of just how important their own behaviors are to the success of the whole organization.

A third factor that was strongly associated with performance was the idea that "Management promotes the person who has the best skills and knowledge to do the job." Performance tends to be higher in organizations where promotions are based on talent and merit rather than on other factors, such as organizational politics.

3. Talent
With high-performance organizations scoring 5.82 in Talent, compared with 2.73 for low performers, the gap between the two is certainly wide. High-performance organizations know that effective Talent Management moves beyond a focus on HR practices, processes and systems, to a strategic approach that is linked to business outcomes. This begins with stepping outside of HR and looking at the organization from an outside-in perspective. This entails identifying the business model components and areas that drive value, and determining what the organization needs. It enables organizations to take a holistic approach to treating employees as individuals, while managing and making decisions based on data-driven information, all of which benefit the organization as a whole.

4. Culture
The difference between high and low performers in the all-important Culture category is 5.99 compared with 2.94. Being seen as a "good place to work" is a solid indicator that an organization is a high performer in this domain. Not only is this characteristic the most widely cited by high-performance organizations, it's also the biggest differentiator from low performers. High-performance organizations are also well aware of external factors - such as customers, markets and competitors - and they are ready to take on new challenges. Another element of culture that's relatively strongly correlated with high performance is a commitment to innovation and internal fostering of creativity.

5. Market
High-performance organizations scored very high in market or customer focus (6.23) vs. lower performers (3.69). The research shows that high performance is associated with a strong emphasis on customer service, including vigorous efforts to serve customers better than anyone else in the industry. High performance is linked with the use of "Customer information as the most important factor related to developing new products and services." High-performance companies are usually organized internally around what's best for the customer, and their strategy is based on customer data.

"The study reaffirms i4cp's focus on its 44 ongoing research projects, and our discoveries to date on high-performance organizations," Oakes commented. "Throughout 2010, i4cp will be launching new iterations of its most important studies - on such topics as leadership agility, customer-focused workforces and strategy execution and alignment - to see which tactics, strategies and practices high-performance organizations are using in this economic climate."

The High-Performance Organization Survey was conducted by i4cp in December 2009. The full results of the survey are available exclusively to i4cp corporate members.

About i4cp, Inc.

i4cp is the world's largest vendor-free network of corporations focused on building and sustaining a highly productive, high-performance organization. Through a combination of peer networking, human capital research, tools and technology, we enable high performance by:
•    Revealing what high-performance organizations are doing differently
•    Identifying best and next practices for all levels of management
•    Providing the resources to show how workforce improvements have bottom-line impact
With more than 40 years of experience and the industry's largest team of human capital