The Problem with Performance Agreements - Limiting manager freedom

In my first post in this series, I talked about some of the problems associated with performance agreements. I now want to extend the argument, focusing on one issue, the way in which performance agreements inevitably limit the freedom of the manager.

The need for good management has never been greater. Yet I sometimes feel that management as such is becoming a lost art, submerged on one side in the current obsession with leadership, on the other in a plethora of limitations.

Management does involve leadership, but leadership is only one element of the manager's core role, getting the best results from the people and other resources at his or her command. It may sound trite, but the real role of the manager is just that, management.

I feel strongly on this one because over the last two decades I have watched a real decline in management roles and skills across a number of different organisation types in both public and private sectors. This may sound extreme, but in some organisations management in the old sense of the word has actually vanished, replaced by a reliance on systems.

The systems based command and control organisation works in the sense that the organisation still operates, but this comes at a cost in both human and business terms.

By its very nature, management is a bit messy. Needs change, priorities shift, crises arise. Further, any manager worth his or her salt generates new ideas while working. Sometimes, often, these are a little outside current ways of working simply because they are new. A good manager tries to test and introduce new things, in so doing working around and through existing systems.

Performance agreements can be used to stop all this type of nonsense by limiting the manager to the specified and the known. Further, in a world of cascading agreements where the manager's staff are also on agreements, those staff agreements have the useful effect of further limiting the manager's capacity to do new things by also limiting staff activity to the agreed and the known.

The command and control approach can sometimes be remarkably efficient in getting specific defined things done. It is much less effective when it comes to doing things or solving problems that fall outside neat pigeon holes, often hopeless when it comes to something new.

A key difficulty from my perspective with the application of performance agreements in a systems based command and control environment is the way it de-skills managers. Management now centres on the management of performance agreements and the performance agreement process. "Managers" who have grown up in this type of environment often lack the basic skills necessary to manage in a broader environment. Worse, they may not even recognise this lack.

Performance agreements need not be like this. It's just that the standard performance agreement process seems to drive them in this way.

Introductory post. Next

Towards a Discipline of Practice - Ndarala Case Study

One of the reasons why I and my colleagues are so interested in concepts such as a discipline of practice are the challenges we have faced in trying to build Ndarala as a multi-profession network of independent management related professionals and professional practices.

For that reason I thought that it might be of interest if I posted a story on our experiences on the Ndarala Group blog as a case study. While I think that we have some some pretty good things, the story also provides a frank assessment of some of the difficulties we have faced.

On role clarification within partnerships

As a professional adviser, one of my core arguments has been need for change within many professional practices to better delineate otherwise conflicting roles and to facilitate more effective governance and management. I believe that this is critical to improved performance and indeed survival in some cases.

Partnerships Under Challenge.

The partnership is the traditional organizational form within professional services and remains important today. In this form the world is dominated by the equity partners who essentially own the game. The practice grows by admitting new partners generally recruited from within the ranks who pay a price for partnership. In turn, this facilitates exit by existing partners. Partners receive their return from the profit pool, the pre-tax net remaining after deduction of expenses.

This traditional model is under strain. Risks associated with equity partnership have increased. There is growing reluctance among younger professionals to accept partnerships. At the same time, the availability of partnerships has also declined for those that are interested. Increasingly, partners themselves want more flexible life styles.

There is not scope in this type of post to canvass all these changes and their implications. Instead I want to focus on one thing drawn from organizational theory, the way in which role clarification can assist a partnership to manage change.

Confusion in Roles

All of us who have been involved as managers or advisers on people issues know that clarity in job role is critical to performance. People need to know what they have to do, how their performance will be measured. This is also critical when it comes to remuneration. Lack of clarity about the links between role and pay can and does create significant management problems.

Unfortunately, the traditional partnership approach breaches the clarity principle. Partners traditionally receive an agreed share of the profit pool. In return, they are expected to do a range of things that may have little direct connection with either the size of the profit pool or their share of it. This can create significant tensions within the practice and may make it hard to easily address performance problems at partner level.

Clarifying Roles

In my view, the first key step in addressing this problem is to make a clear distinction between the partner's equity and work roles.

Equity partners in the firm should receive a return on the capital invested in the practice, while their work roles should be remunerated with payments directly related to those roles and associated contribution to the practice. These payments should then be counted as a cost from a management accounting perspective, creating a notional profit directly related to equity.

Once this separation principle has been established, the definition of roles and the remuneration to be attached to those roles can then be dealt with using conventional job analysis and remuneration principles.

Impact of Clarification

This simple approach to role clarification offers a number of very real performance gains.

To begin with, it makes partners more directly accountable for their own work performance. In turn, this makes it easier to assess partner contribution and vary remuneration accordingly.

It also makes it easier to admit staff or non-equity partners in that they can be paid using the same principles as applied to equity partners for their work.

Finally, it can increase flexibility for equity partners in managing their own affairs.

Take leave as an example. An equity partner on leave would still be entitled to a return on his/her investment. Any other payments can then be handled on the same basis as applying to other staff.