It starts with you-the coach.

    You want your firm to be the Dream Team: advisors, support staff, partners-all at the top of their games, working well together, no one hogging the ball, no one lagging behind, the playbook in place and working like clockwork. All the rookies and free agents hope you will draft them. But developing the dream team, the kind of team that makes people want to join you, means that you have to be an all-star coach.
    This is what too many advisors forget: To build a great team, they have to be a great coach. Even natural athletes need ongoing coaching, support and active performance management. Most advisors groan when they realize building a Dream Team will require them to establish a formal system for performance management.
    A performance management system is critical to the health and success of any firm. It allows managers to evaluate employee progress over time and ensure that firm employees are aware of management's expectations, and vice versa. Providing a regular cycle for staff feedback as well as personal and professional goal-setting not only boosts morale and retention but also encourages progression along the career path, for the good of the employee and the firm. A well-designed performance management system helps managers meet the need for individual challenge and motivation that aligns with the firm's strategic direction. It also promotes job satisfaction through open channels of communication and exchange of ideas.

Put The Right System In Play
    To design a system for managing employee performance, follow these four steps:
    1. Identify the desired performance and behavior of each employee. It is critical to ensure that you are defining and communicating desired performance and are clear and specific about priorities for each employee. This can be the most difficult and time-consuming step in the process.
    2. Communicate management's expectations and set goals with employees. The performance management system is only effective if your employees clearly understand the process. You will need to ensure that everyone knows what is expected of them, how they can make the most valuable contribution to the firm and how they will be rewarded for doing so. Setting individual goals with each employee is an important part of this.
    3. Create a performance evaluation process. The process will include the periodic evaluation of an individual's performance and communication between management and the employee. It should be based on the following:
    a. An individual's performance is assessed relative to the desired behavior.
    b. The evaluation method is as clear and objective as possible.
    c. A constructive forum is created for dialogue between management and employees.
    d. Coaching and goal-setting is used to maximize performance.
    4. Connect performance to compensation. In addition to coaching and active management, the act of directly linking an individual's performance to his compensation is a powerful mechanism for driving the right behavior. Just as the employee needs to understand what the expectations are, he also needs to be clear about how his performance will determine his compensation.

Define The 'Win'
    The first and most critical step for any coach is to clearly define what performance she wants to see in her athletes. As an advisory firm owner, you must decide which characteristics of an individual's performance are most important-and will therefore be rewarded. What elements of performance are most important to you? What is critical to the success and culture of the firm? What behavior do you want to promote within the firm?
    The performance expectations must be relevant to the position. As a result, expectations will vary for different roles within the firm, though they might fall into the same broad categories, like technical skills, people development, client management, teamwork and business building. The performance expectations that the firm has defined for each position will create the foundation for the performance evaluation.

Help Employees Set Goals
    A performance evaluation takes into account whether an employee fulfilled or exceeded job expectations, a review of a prior period's established goals and the behavior demonstrated by the employee during the prior period. Managers should also help employees set goals for the coming year and identify areas that require further development. The goal-setting process allows you to very specifically align individual goals with the firm's goals.
    The supervisor and the employee should approach the goal-setting exercise in a collaborative and open manner. Both the supervisor and employee should have copies of the job description and career path grid in order to provide a framework for the discussion. Some questions that can prompt the most effective goals usually address the following issues:
    How does this goal support my current roles and responsibilities?
    How does this goal move me toward personal and professional fulfillment?
    How does this goal support and align with the firm's strategy?
    What is the outcome I hope to achieve?
    What will be the benefit, both to me personally and to the firm?
    The discussion surrounding the goal-setting exercise should consider the personal goals of the employee and build on the prior performance evaluation. Even though the process should be structured enough to direct the employee's goals toward the priorities of the firm, it should be flexible enough to respond to individual inclinations. Of utmost importance, the goals must be achievable.
    The following structure can assist in creating effective goals.
    1. Identify the Goal: Make sure that the goal is specific, realistic, challenging and measurable.
    2. Establish the Time Line: Set a target deadline, with prescheduled progress updates, to ensure that the employee progresses incrementally toward the goal.
    3. Define Action Steps: Action steps are the incremental steps designed to achieve the goal.
    4. Set Measurement Criteria: The expected outcomes of the goal should be articulated and subject to measurements. Based on the nature of the goal-financial or cultural-different metrics will apply.

Evaluations Should Be
True 'Coaching' Sessions
    In order to be successful, performance evaluation sessions must be positive in tone and in substance. While there will be critiques, it is important that the criticisms not be personal in nature but focus on ways to resolve issues and concerns. The purpose of effective feedback is to motivate and empower the employee. The coaching session should be an interactive conversation in which the manager is employing active listening skills, giving and explaining feedback, asking questions, providing supporting evidence, taking great pains to minimize possible interruptions and being aware of body language.
    Both the manager and the employee should devote some time toward preparation for this meeting, beginning with, but not limited to, filling out the evaluation form. Appropriate steps include reviewing the job description and looking over any achievements and/or concerns that occurred in the previous year.
    The following tips are designed to help managers ensure a thorough, effective evaluation process.
Tips for Completing the Evaluation Form:
    Give open, honest, unbiased feedback.
    There shouldn't be any surprises-this is all feedback you should be sharing throughout the year. This process is a recap of the performance period, not the only time you talk to employees about their performance.
    Throughout the year, keep a file or notes on each employee so that when it comes time to write their reviews, it's not just your most recent interaction with them that you remember. Before you write their review, look over these notes. Review e-mails and other correspondence. Review the notes and histories on the clients, accounts or projects the employee worked on.
    A given review should consider only the six or 12 months since the prior review took place, and your review and comments should be limited to performance within that period. Make sure that you aren't dredging up performance (good or bad) from previous review periods.
    Make sure to include written comments for at least 75% of the areas you evaluate (rather than just a numeric score) and give lots of examples. A great comment includes:
    Description of Performance + Good Examples + Clear Expectations = Great Comment.

Smart Tips That Keep You Legal
    Don't use harassing, discriminatory or derogatory language or statements such as these:
    "Now that he is older, he isn't doing as well."
    "She lacks motivation ever since she became a mom."
    "He is not a great writer because he came from a foreign country and doesn't speak English very well."
    "It's been a really tough year for her because of her divorce."
    Focus on the results and the performance you have observed.
    Don't promise or imply future employment-refrain from comments like, "At this rate, she can expect to be promoted at the end of the year."
    Don't retaliate for adverse personal or professional interactions.
    Include the facts: honest feedback with specifics whenever possible.

Tips For Conducting
The Coaching Session
    Make sure you are well prepared for the meeting:
    Gather feedback from others if you are delivering a composite evaluation.
    Ensure that the employee has submitted a self-evaluation.
    Review the evaluation period's goals and progress reports, the employee's proposed goals for the next period and promotion guidelines/career path grid.
    Provide the employee with a copy of the composite evaluation (and last year's goals) at least 24 hours before the coaching session.
    Prepare for what you are going to say.
    It's also important to respect the employee by respecting the appointment-don't reschedule unless it is a dire emergency. As famed Duke basketball coach Mike Krzyzewski says, "Leaders show respect for people by giving them time." Don't reschedule for a client meeting unless it is a desperate situation. You should be no more likely to cancel a performance review appointment with an employee than you would be a scheduled meeting with a client-use the same criteria.
    The meeting itself should begin with an introduction that sets the stage for the evaluation and builds rapport between you and the employee. It's a good idea to review the purpose of the meeting and ensure that the employee has read the composite. During the performance review, the following items should be discussed: each category of the written evaluation; individual ratings for each category and comments to support the rating; summary comments; and strengths and areas for development. In addition, you should take the time to review the prior period's goals and the overall rating.
    Finally, you should spend time setting goals for the next period, discussing career development, defining any next steps and scheduling future meetings.
    Implicit in the formal performance evaluation system is the assumption that informal but frequent exchanges of feedback will occur throughout the year as part of the management-employee relationship. Performance evaluations, therefore, are cumulative appraisals and should not be construed as the only opportunity for an exchange in feedback.

Know The Score
    Another important component of a good performance evaluation system is to make sure that everyone completing evaluations is using a common scale, and that they all have the same understanding of what the various scores mean. In our consulting work at Moss Adams, we frequently find that while some people interpret a "3" on a scale of 1 to 5 as a good score, others think it is a poor score, even if the scale has been communicated that the score of "3" equals "good." As shared in a previous column on bonus structures, an example of a 1 to 5 scale is as follows:
    5. Exceptional Performance, Exceeding Expectations: This person is doing as much as they possibly could. I almost can't imagine someone doing it better. They really have exceeded my expectations in this area, and have distinguished this as one of their strengths. I would point to this person as an example of how to do this exceptionally well or that they exhibit this quality to the greatest extent possible.
    4. Demonstrating High Performance: This person is doing this even better than I would expect and I am quite pleased at the extent to which they are exhibiting this behavior/quality. They have clearly made this a priority and have demonstrated their commitment to doing this even better than the guidelines outlined.
    3. Satisfactorily Meeting Expectations: This person is doing exactly what I expect in this area. They have demonstrated their ability to do this consistently, though on average they rarely exceed my expectations in this area. I am content, but not overjoyed, at their performance in this area.  
    2. Needs Improvement: This person is not doing this as well as I expect. Though they may have demonstrated this skill/behavior/quality on occasion, they do not do so consistently at the level I expect. I have suggestions for this individual on how they might be able to improve in this area, and I expect them to improve in this area in order to meet the firm's expectations in this area.
    1. Unsatisfactory: This person is not exhibiting this behavior even close to as much as I expect them to. They need to make vast and deliberate improvements in this area, and coaching them here should be a priority.
    N/A. Not Rated: There is not enough information or first-hand experience to evaluate performance.

Play To Get Paid
    The final step in the performance management system is to tie an individual's performance to compensation. This can be accomplished either through an incentive bonus program or through periodic adjustments to pay. We believe that an incentive plan is often the best way to accomplish this.     Therefore, the basis for determining the amount of incentive compensation that an individual receives is based on a semi-annual performance evaluation process. Scores from the performance evaluation dictate the amount of incentive pay distributed.
    The evaluation tool should function such that it will produce a composite performance score for the individual. You should decide how to score and weight the various components of performance and whether to place equal weight on all areas of performance.
    Once you calculate an individual's score, it will be used to translate into a calculation of incentive compensation. In the case of annual salary adjustments, the evaluation score would be used to determine the amount of any pay increase.
    While having a performance evaluation system in place is the core to your human capital development plan, simply having a system isn't enough. To borrow another line from Mike Krzyzewski, "Effective teamwork begins and ends with communication."

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