Let’s consider performance reviews first, as most managers believe it necessary, and sometimes useful, to conduct them. Yet, like everything in business, performance reviews are worthwhile only if the benefits realized exceed the cost—in time and resources—of performing them.
In my view, the employee performance review system has a number of shortcomings. For one, postponing the exchange of feedback to an arbitrary date in the future; feedback needs to be timely in order to be helpful. Another is the emphasis on grading past performance rather than shaping future efforts.
We can, however, mitigate these two weaknesses. Reviews may be performed on a quarterly or monthly basis, rather than once-a-year. Achievement may be emphasized at the expense of past performance by incorporating employee-specific goals into the review, and communicating specific expectations to the employee at the beginning of each performance review period.
If goals and expectations are sufficiently detailed and quantified, responsibility for evaluation may be shifted from the manager to the employee. Think of an airline schedule; at the start of the work day, specific flight departure times represent agreed upon expectations for all employees. When the day is finished, performance is evaluated with, of course, the actual departure time for each flight.
Now, one of the big advantages of utilizing this type of “before and after” performance review system is that the employee compiles the information over time, so very little management time is required. But the really cool thing about this system is that, when executed as outlined above, there is really no difference between a performance review and a bonus plan.
The purpose of both performance review and bonus plan systems is to: 1) compel staff to plan in advance the programs, projects, and major efforts to be carried out in the coming twelve months, break each into manageable pieces, and assign individual responsibility for execution; 2) keep employees focused on established priorities; and, 3) provide a basis for assessing, at the end of each evaluation period, how well each employee (and the entire organization) performed.
Success depends, in large part, on: 1) how well designed the system is; and, 2) how committed the employee is to the system, including how often he or she compares individual expectations to actual outcomes. The quality of the system design impacts the performance review and the bonus system more or less equally. Employee commitment, however, is likely to be much higher under the bonus system, and that commitment is far less likely to fade over time.
How does one establish a method to measure individual performance? It’s not as difficult as it might seem, even in a nonprofit.
Consider that work activities are often either “input” based, or “output” based. An input is what an employee does, for example: make a phone call to a donor; write an op-ed; or, research educational performance for a state education system. An output (or outcome) is something that occurs as the result of an input: receive donor money; generate attendance at an event; or, visits to a website.
Employees may be evaluated on inputs or outputs, but the best approach is to utilize a combination of both. The variety of actions and outcomes which may be selected for performance evaluation may at first appear daunting, but there exists an established methodology for the process. Corporations have faced this same issue for years and now use what’s called a “balanced scorecard”.
Here’s a simplified example of a balanced scorecard which may be used for a development associate:
Here is a more complex example of a balanced scorecard developed for an employee bonus plan.
Here are two articles which explain in greater depth how balanced scorecard bonus plans may be utilized by nonprofit organizations. If you have difficulty finding a copy, contact me.
“‘If the Shoe Fits’: Not-for-Profits Try Out New Compensation Plans” by Sally B. Bailey and Howard Risher, from Compensation and Benefits Review: v28 p47-57 My/Je 1996, © American Management Association, New York. All rights reserved. WBN: 9612203772007
“Linking CEO Compensation to Organizational Performance” by David E. Strachan, and Lawrence G. Myslewski; Association Management v49 p63-4+ Ap 1997.
