identify the key problems with the existing performance management system in the bank: Business- People Management Report, UCD, Ireland

Case study

Performance management at Harvesting Corporation

Harvesting Corporation is a large (fictitious) bank located in London, UK. The organization employs 350 employees at its London office. The bank provides corporate and institutional banking, treasury and security services to its clients around the world.

The bank operates a performance management or appraisal system which covers all financial staff in the company. Every year, an annual performance appraisal interview is conducted whereby line managers, using a rating scale, are required to judge the performance of their subordinates. Developed by a group of HR consultants when the business initially began trading in 2013, the performance management system uses a points scale with the following ratings: (a) = excellent, (b) = good, (c) = satisfactory and (d) = unsatisfactory. The following criteria form the basis upon which performance evaluations are to be made: sales, introduction of new business, client satisfaction, cross-referral of business within the firm, and financial miscalculation errors/service complaints. Employees’ monetary rewards are decided based on the ratings that they receive.

Those employees who receive an (a) receive a financial bonus of 15% of their annual salary. Those who receive a (b) receive a financial bonus of 10% of their annual salary. Those who receive a (c) receive a financial bonus of 5% of their annual salary. In addition, these employees are also called into a performance meeting attended by the line manager and the HR manager for the purpose of discussing the employee’s performance and developing an improvement plan to accelerate performance. Those who receive a (d) have their contract automatically terminated by the bank. Therefore, in effect, the so-called ‘D players’ are unwanted in Harvesting Corporation. It was envisaged by the team of consultants charged with implementing this performance management system that it would promote a performance culture, recognize the achievements of those who excel in their jobs, offer developmental opportunities for average performers and weed out underperformers.

Despite the merits of the performance management system at Harvesting Corporation, many employees have become disillusioned with it. Many believe that the performance targets are unrealistic, out of their control and do not take into account the key performance criteria set by the bank. Getting ranked into the category (a) and (b) seems extremely difficult. Although a performance culture prevails, many employees feel that the existing system is subjective, unfair and not very transparent. Many employees believe that the performance management system promotes aggressive internal competition and promotes risks which are detrimental to the long-term viability of the business deals. Many personnel have complained that the division into categories (a), (b), (c) and (d) is conducted in an arbitrary manner, and the relationship employees have with their line managers seems to be of greater importance when it comes to bonus decisions. The constant threat of job losses at the end of year also creates a culture of fear and stress for workers.

Many of these problems have led to a major turnover crisis for the bank, a situation likely exacerbated by terminating the category (d) employees and because of the stress and fear induced by the forced ranking system. Turnover is a costly outcome for Harvesting Corporation because many employees are joining rival banks in the city who can capitalize on their developed expertise. For line managers who are charged with conducting the performance appraisal, many are reluctant to provide honest feedback and make the tough decisions because of the consequences involved.

Since the bank has substantially grown since its inception in 2013, and because of the problems being experienced, the senior management team recognize that tackling the problems with the performance management system is a major priority.

Questions

1. In your capacity as HR manager, you have been asked by the senior management team to identify the key problems with the existing performance management system in the bank.
2. Advise on the best approach to rejuvenate it in order to ensure that motivation is enhanced and staff turnover minimized.