In 2008, the world financial markets were consumed by a crisis that claimed well-known companies such as Lehman Brothers and Washington Mutual, and forced insurance giants such as AIG, Hartford and Lincoln National to take bailouts from the federal government. However, some companies emerged from the crisis even stronger. One of those was New York Life, the now 167-year-old mutual life insurance company.
For Ted Mathas, who became CEO of New York Life in summer 2008, the financial crisis confirmed the importance of a key strategy he identified upon taking over the company’s leadership: focus on talent development and corporate culture.
“The strong position from which New York Life entered the financial crisis was, in many ways, the result of generations of strong leadership — leaders who had the insight and conviction to make some decisions that challenged the prevailing wisdom at the time,” said Mathas, chairman, president and CEO of New York Life. “The gains in sales, market share and reputation we made during the crisis reflected the strength of our current management team. This reinforced that perhaps my greatest responsibility as the steward of this company is to develop another generation of leaders with the skills to thrive in uncertain environments and to create an environment that fosters innovation, accountability, conviction and collaboration.”
To develop another generation of leaders, Hy Pomerance, New York Life’s chief talent officer, was asked in 2010 to enable an ethos of distributed, provocative leadership where leaders act with accountability, innovation and collaboration to enhance the organization’s bench strength and support a performance culture.
To do this, Pomerance focused on a series of initiatives. The first was to reaffirm how New York Life operated at its best. This involved bringing leaders together to discuss the company’s best moments and how they could be replicated.
Second, the company had to build senior leadership capability with a focus on innovation, collaboration and leaders holding themselves and others accountable. A third initiative focused on performance management.
“Clearly, the way leaders and managers focus on the performance of individuals is central to an organization’s success,” Pomerance said. “At New York Life, we knew that to develop a high-performance culture we needed to change the performance management approach, which was not seen to be providing the outcomes we needed.”
Many leaders across various industries share this view of performance management. In its 2011 “Dynamic Performance Management: How to Deliver More, With Less, Forever” survey, Mind Gym, a performance and employee development company, identified five common performance management problems (Editor’s note: The author works for Mind Gym):
1. A murky link exists between strategy and execution: Individuals don’t see their goals as connected to an organization’s wider purpose or to their personal success.
2. Everyone scores the same: When it comes to scoring people in reviews, everyone scores a four out of five, leading to a sense that there’s little point in being outstanding and no consequence to underperforming. Further, the review focuses on scores as opposed to an individual’s strengths and weaknesses.
3. Reluctant managers focus on process rather than the conversation: Good performance conversations require courage. Often managers want harmony and so blindly follow process as opposed to seeing it as part of an ongoing dialogue on how people can give their best, and make their best better.
4. Individuals feel uninspired about their future: A sense of growth and progress is essential for high engagement and high performance. Yet many people, particularly those who have been in the same role for an extended period, feel uninspired about their future.
5. Responsibility for performance is placed either on HR or line managers — not individuals: Sometimes in a desire to manage the system, talent leaders forget the individual has to take some responsibility. Sure, the manager has a good deal of responsibility, but ultimately an individual has to be accountable for his or her performance.
These issues mean performance management can be a value-neutral or value-declining activity, considered a burden by leaders and a futile instrument for employees. But the paradox is that when done well it can add significant value. On almost all commercial measures including return on equity, revenue growth and increase in net income, the strongest-performing companies are much more likely to have a high-quality, dynamic performance management approach.
To combat these challenges and reap the rewards, Pomerance and his team began overhauling New York Life’s performance management process.
“The idea was to encourage managers to focus the performance management conversation in the right areas,” said Michael Molinaro, chief learning officer of New York Life.
For example, the company adapted a new goal-setting methodology. In the past, many people’s expectations were a to-do list of activities with murky links to organizational goals, which made it challenging to manage performance. The new process aligned individual goals with broader organizational goals and encouraged meaningful conversations to help people see their work’s impact and create greater meaning for individual contributions.
“This change allows everyone to be clear about what they need to do to be successful and aligned in the same direction,” Molinaro said. “We also removed the final rating and instead focused on a simple goal by goal rating. This has moved the conversation away from a final number, which then becomes a label the employee wears to a conversation on specific deliverables and an individual’s development.”
The final issue was the link between performance and reward.
“We decided to eliminate the direct link between a final rating and compensation,” Pomerance said. “There are so many things that affect compensation — what the employment market is doing, the qualities within a team, the business performance of that team and so on. So, while we are a pay-for-performance culture, relying too heavily on a single rating limited our ability to align individual success to the business. So, now we separate out the reward conversation, with the individual being informed later once all the relevant factors have been considered.”
Molinaro also recognized the key role that development plays in shifting the culture.
“However well the process is constructed, it needs to be underpinned by the right skills for managers and individuals,” he said. “Ultimately performance management needs to be seen as something that is lived day to day as opposed to a process saved up for two or three conversations per year. We needed to build the confidence and skill in our managers to have the right conversations more often.”
New York Life collaborated with Mind Gym to create a three-hour workshop that focused on the key skills involved in managing and operating this way. The first was engaging in “real talk.”
“We know that if managers and leaders provide frequent informal feedback, an individual’s performance improves,” Molinaro said. “It’s about providing feedback in ways that empower individuals, drive performance, support development and create a sense of purpose.”
New York Life executed these sessions with first-line managers through executive officers, and the training allowed participants to dialogue and give each other feedback about their performance management skills.
After surveying all participants in 2011, the following feedback was received: “Excellent workshop. Fit the most essential bits and pieces of previous classes into one concise class.” Another participant said: “I thought the class was excellent — coach was knowledgeable and clearly understands New York Life’s culture — I feel more confident going into difficult conversations.”
For individuals who feel uninspired about their goals, Harvard Business School professor Rosabeth Moss Kanter suggests that people in organizations divide into two major categories: the moving and the stuck. The moving can see how their working life can progress and what the next steps look like. The stuck can only see more of the same.
In their 1980 study “Appraising the Performance of Performance Appraisal,” Kanter and Derick Brinkerhoff found that being stuck leads to lowered aspirations, diminished self-esteem and disengagement. This leads to higher turnover and destructive activity, such as petty griping or subtle sabotage. In these situations managers need to believe in their employees’ ability to learn and grow. This means not only giving them things to do that they are good at, but also putting them in situations where they have the chance to learn.
As a result of the efforts at New York Life, 1,165 people managers — 92 percent of the total — were trained in 10 locations across the United States between late September and early December 2011. Training was a requirement for all people managers below executive officer. Ninety-eight percent of those trained indicated they will use what they have learned. The results of the year-end performance management process showed a significant increase in the number of effective performance reviews conducted by managers in 2011 over 2010.
“I’m very pleased with the results,” Pomerance said. “This approach helps New York Life be our best more often and delivers on our company values of integrity and humanity.”
Sebastian Bailey is president of Mind Gym Inc. He can be reached at email@example.com.