Performance management success depends on having a clear purpose and overcoming misalignment barriers. But even with purpose and attention to alignment, it is helpful to have clear success criteria and to explore new ways to achieve performance management goals.

ACE and Performance Management 

One performance framework that Metrus Group has used that helps in designing a good performance management system is People Equity. Three success factors—alignment, capabilities, and engagement (often abbreviated as ACE)—make up the People Equity framework:

• Alignment is the degree to which everyone in the organization is synchronously rowing in the same direction.

• Capabilities are the extent to which competencies, information, and resources are sufficient to meet internal or external customer expectations.

• Engagement is the level of discretionary effort and advocacy that individuals contribute to the organization. 

Research I’ve conducted demonstrates that all three factors are essential to success. People in organizations must be aligned with purpose, principles, and priorities. The organization must have the capabilities to execute its business strategy. And without full contributor engagement_,_ execution is likely to be flawed and eclipsed by more nimble competitors. High-ACE organizations have higher employee retention and performance, higher customer satisfaction and quality, and better financial results. 

So if organizations design and implement their performance management systems to optimize ACE, they will see a direct impact on organizational success. Alignment is often viewed as a primary goal of performance management, but increasing capabilities that drive future performance is an adjacent goal. While individuals are often focused on skill enhancement, that must be coupled with the right information and resources at the moment of need to the customer. Focusing solely on individual competencies, without the context of information and resources, is not likely to improve performance. 

A frequently missed connection is the link between performance management and engagement. This is both an emotional and intellectual issue. Imagine you are running a 10k but find that you finish a minute behind what you expected. You are disappointed, but you want to figure out why. You’re clearly committed to the goal you’ve set for yourself, and will adjust your performance to achieve that goal. 

In organizations, you can see similar examples. When contributors—individuals or teams—are engaged in goals they own, feedback can create higher energy going forward. When they are not engaged in the goals, don’t own them, and fear the measures, feedback is likely to be a debilitating experience, often resulting in less motivation during the next cycle. 

Armed with ACE, let’s take a look at what several high-performing organizations are doing. 

A New, Dynamic Performance Dialogue

Given the speed of change and ever-increasing competition, organizations need to be more mindful about building their performance management system to align with their unique culture and enable their contributors (employees and other sources of labor) to perform better in the future than in the past. To accomplish this, some organizations are adopting a performance management dialogue. These organizations treat employees as contributors to a shared consciousness that creates value. 

At WD-40 Company, values and principles are the overarching guideposts for employee behavior. The company starts each year by envisioning what it could accomplish if every employee achieved “A-level” performance. It engages employees in a conversation about what A-level performance looks like, and managers are expected to support employees to get an A. WD-40 Company’s starting belief about what is possible leads to results closer to A-level performance, compared with those that assume a normal performance distribution curve, with large numbers of middling performers. 

One North America–based financial services company Metrus Group has studied adopted a similar dynamic approach, engaging the intellectual (“This is why I need to do this”), emotional (“This is worth caring about”), and practical (“This is how I am going to get this done”) aspects of performance management. Leaders in the company viewed performance management as an extended dialogue that begins by setting goals and performance benchmarks, incorporates talent planning as a natural part of the employee conversation, and continuously calibrates individual performance to that of the team and company. 

With a dynamic approach to performance management, organizations are abandoning performance ratings in favor of well-documented verbal feedback. In Adobe’s transformation from a traditional approach, Donna Morris, executive vice president of customer and employee experience, said the performance management process had been a crutch for weak managers. “Managers can’t hide behind ratings,” Morris says. “They now must set expectations and provide real ongoing feedback.” 

Compensation decisions in dynamic organizations are viewed in light of the calibration discussion and reflect the general pattern of an individual’s performance, rather than a single rating. Morris of Adobe says the company has not moved away from performance-driven rewards, but rather away from rewards based on rankings and ratings. After revamping its performance management system, Adobe now relies on managers to make judgments, based on budgets, about how to allocate compensation. 

Organizations that embrace a more dynamic approach to performance management also devote large amounts of leadership focus and energy on the transition to the new philosophy. This is not something that can simply be delegated from afar. 

And the results show. In the financial services firm described earlier, each team that adopted the new approach was surveyed on the ACE factors described earlier both before and after implementation. The scores of employees using the new approach were markedly higher than those who continued to use a more traditional approach to performance management. 

The high ACE scores were maintained well after adoption as the entire company adopted the new system. Such sustained improvement constituted an observable positive change in the climate around performance management. 

Here are a couple of action steps that might help you get started:

• Convene key leaders in your organization to discuss the rationale and goal of the performance management system.

• Conduct an assessment of both ACE (People Equity) and the elements of the performance management process in your organization.

• Ensure that managers have the skills needed to effectively play their role in the performance management process.