How to Evaluate Direct Reports

Objective Key Performance Indicators Beat Subjective Measures

Julie waited patiently in the small waiting area in the administrative suite. As the Director for Inpatient Nursing Services , it was time for her biweekly meeting with Patricia (Pat), the Chief Nursing Officer. Pat opened the door to her office and motioned for Julie to come in and sit down. As she did, Pat recalled the lecture she attended the previous year about how to evaluate direct reports, and the subsequent adoption of their new process.

evaluate direct reports meeting

It was early August, and Julie and Pat had already received the most recent update on Julie’s balanced scorecard. The scorecard listed four key responsibilities as well as the three goals she and Janice had agreed upon at the beginning of the year. The scorecard contained data through the second quarter, ending June 30.

After some small talk, and briefly discussing a new manager on one of Julie’s units, they shifted their conversation to Julie’s scorecard. During the previous year the entire organization had implement this formal, objective evaluation process as a pilot. It had worked well, so it had been officially implemented in January.

Reviewing The Scorecard

Pat commented, “I’ve had a chance to look over your scorecard. It looks like almost everything is on track. The performance of your department in the financial, growth and patient satisfaction areas is at the above average level. The second quarter performance in quality was better than the first quarter. So, I want to commend you for that.”

“I notice that you had an uptick in turnover of your staff in the second quarter. It looks like that will push your overall score for Employee Engagement below the minimum threshold. We should probably talk about that one. Is there something I can do to help support you in this area?”

Julie responded. “Yes, I saw the spike in turnover. So, I worked with HR and reviewed the turnover for the past five years. This issue seems to be related specifically to CNA turnover. Nursing turnover actually looks very good. Looking back, there always seems to be a peak in turnover in the second quarter.”

“I worked with my managers to identify any employee concerns. But the increase this quarter is actually smaller than the average second quarter increase for the past five years. I’m confident that the third quarter numbers will be quite low and our performance for the year will be very good.”

Pat responded, “That’s good to hear. I think it was great that you took the time to look into this before our meeting today. Your explanation makes sense. Now let’s look at where you stand on your three goals for this year…”

How to Evaluate Direct Reports

As a physician executive, you will be blessed with the opportunity to work with some great directors and managers. They are called your “direct reports.” You will be held responsible for their performance as well as your own.

evaluate direct reports performance

In your executive role, you will use your management skills to identify goals and ongoing performance measures to demonstrate the success of your division. The performance of your directors’ departments and their employees will be key to your division performance.

As a wise administrator, you will have neither the interest nor the time to micro-manage your direct reports. However, you will tools that allow you to monitor their performance and alignment with the rest of your division and with the organization as a whole.

You will have limited time each month in which to do this. Frequently, you will spend significant amounts of time meeting with other senior executives, including the CEO. You will be presenting updates on your division’s performance, writing proposals, negotiating contracts and providing coaching and mentoring to other team members.

Competing Responsibilities

If you are a hospital chief medical officer, you will be preparing presentations about quality, patient safety, infection control, length of stay, and performance by contracted specialty groups, as outlined in the Eight Essentials Abilities.

evaluate direct reports slide show

Therefore, you need a system for motivating and supporting your direct reports. You’ll require a tool that lists their core responsibilities, and monitors their success in achieving them.

If your organization still uses an annual evaluation based on each director’s job description, the evaluation will be subjective and not very useful. It won’t do much to align your direct reports’ daily and weekly efforts with your division goals.

An annual evaluation is basically useless with respect to day-to-day management. What you really need is a tool that will provide clarity for your direct reports and enable them to focus on important goals, and maintain accountability throughout the year.

The best way to do so is to use a balanced scorecard and key performance indicators (KPIs). By agreeing on a set of ongoing performance expectations and tracking them over time, you will be able to encourage and support your team. This tool will also enable them to make course corrections during the year.

Backbone of the Scorecard: KPIs

For each director you will need to identify the primary performance measures. These are often called the Key Performance Indicators (KPIs). I will provide an outline of a general scorecard below, and then a specific example of a scorecard for one hospital department.

Many large organizations, including hospitals and health systems, design their strategic plans and management goals around so-called Pillars. These pillars represent fundamental areas that must be addressed by any organization to be successful.

Generally, these pillars will include domains such as:

  • Growth
  • Financial Stability
  • Customer Service
  • Excellence or Quality
  • Employee Satisfaction

The organizational pillars can be spun off into individual department pillars that parallel them. For hospital-based departments, they should align with the pillars above:

  • Growth
  • Financial Performance
  • Patient Satisfaction
  • Quality and Patient Safety
  • Employee Engagement
  • Physician Engagement

To implement this process, at the beginning of each year we create a balanced scorecard that identifies KPIs that align with each pillar and then determine levels of performance for each metric. Some departments may not create a KPI for every pillar. For example, if a department does not interact with physicians, then it will not have a KPI for Physician Engagement.

Some pillars might have more than one important KPI. A department that produces revenues and has expenses (e.g., outpatient laboratory) might need a KPI related to both increasing revenues and reducing expenses. A non-revenue producing/support department such as human resources, quality improvement or risk management may have one KPI related to reducing expenses.

Some of the measures remain the same from year to year, but the threshold goals for each may change over time. The goal for each metric may be dichotomous (pass/fail) or tiered to three or more levels.

Avoid Subjective Measures

My preference is that the measures be completely objective and easily measurable. I prefer not to use subjective evaluations.

For example, I would rather not use an evaluation with measures such as these:

evaluate direct reports subjective evaluation

Instead, I prefer evaluations based on achieving measurable agreed-upon thresholds that have been discussed and clearly articulated by the supervisor. This means that staff are assessed based on results, or what they accomplish, and not on how it is accomplished.

A criticism of such a process is that if the focus is on one or two parameters, short-term gains will be sought rather than long-term success. For example, financial performance could be improved by terminating highly compensated employees and replacing them with lower paid inexperienced staff.

Balance is Critical

But that is avoided by using a balanced scorecard in which all of the important measures are addressed simultaneously, thereby avoiding the short-sighted focus on only one or two measures.

A decent balanced scorecard for the evaluation of a director over an imaginary hospital department based on the pillars above might include KPIs that look like this:

evaluate direct reports KPI example

[Note that more detail would need to be provided – this is for illustration only. – VPE]

For the director of such an imaginary department, these measures would be measured, reported and discussed monthly by the VP or CMO and the director. The director would be encouraged to perform at the above average or superior range.

The VP would provide support and encouragement to achieve better results in any area in which acceptable or less than acceptable performance was being achieved. The support of the VP might be to intervene with other departments, or deploy resources (staff or budget dollars) from another department to help meet important goals.

Incentives

evaluate direct reports bonusThere are two primary incentives working to improve performance. The first is simply the recognition that comes from achieving the proposed goals. This recognition can be enhanced when the results for all of the directors and executives are shared across the organization.

This scorecard will be even more powerful if annual salary bonuses are tied to the outcomes. In such a scenario, the KPIs are reviewed and discussed with the director monthly or quarterly. Estimated bonuses, based on the most recent scores, are discussed at least quarterly. Then later, the bonus amounts (or lack thereof) will not come as a shock to the director.

The CEO and CFO will generally determine the amount of financial incentive that is potentially available, because it needs to be budgeted. The board may also need to approve the plan.

The total available for bonuses  may be a set dollar figure, or it may be set as a percentage of salary (e.g, 20% maximum potential bonus). The bonus payments may be canceled if the organization experiences a major financial decline in any given year.

Once a potential bonus is determined, you must create a formula for a partial payout because it is likely that KPI thresholds will only be partially met. The formula is based on the number performance measures and the importance of each.

Pharmacy Director

Let’s create a balanced scorecard for the (inpatient) Pharmacy Director, using the rules we set above.

Based on the CEO’s recommendation and board approval, all directors will be eligible for a bonus of 20% of gross salary if all KPIs are met at the Superior level (maximum threshold). The total potential bonus is being split equally among each director’s five KPIs (possible $6,000 for each).

If the performance falls between Above Average and Superior, 80% of the bonus will be paid. When it falls between the Average and the Above Average, then 50% of the potential bonus is added. If a KPI ends the year below the lowest (Average) threshold, then the director is not eligible for a bonus on that item.

If the Pharmacy Director receives a salary of $150,000 per year, she is eligible for a maximum bonus of $30,000 at the end of the year, to be paid in March following the calendar year. The reason for the delay in payment is the processing time required to collect, tabulate, and review the data being used to calculate the measures.

Here is how the year-end analysis might look, assuming the performance listed in the 6th column:

evaluate direct reports thresholds

Under this scenario, with a potential $30,000 bonus, the Pharmacy Director would receive $21,600 in March, based on relatively good performance compared to the annual goals.

In this example, just the basic outline is provided. In a real implementation, each goal and threshold would be clearly defined, and a determination made that the measure could be reported in a timely fashion.

Carefully Select KPIs

For the HCAHPS metric (patient satisfaction that is based on a mailed survey, collected and reported by a third-party), there is a significant time delay. So, the organization might need to use internally tracked measures that mirror the publicly reported measures.

It is best to use a monthly or quarterly scorecard that looks like this at each meeting with the Pharmacy Director:

evaluate direct reports balanced scorecard

Each month or quarter, you and the director will look over the current trends and develop plans together to improve performance for those areas not meeting the stretch goals.

The design of the KPIs and specific goals will need to be carefully considered. Looking over historical averages and trends can help to determine appropriate thresholds. It is also helpful to consider the variability of the measures. If there are wide swings in annual expenses in a given department, setting a goal may be more difficult than setting one for a department that performs within a tight range.

Wrap Up

The performance of your direct reports will sky-rocket if they transition from old style subjective evaluations to a balanced scorecard using Key Performance Indicators. Whether through peer pressure or financial incentives, measurement and reporting are the keys to improved performance.

An optimal scorecard will include KPIs that represent the major pillars defining the performance of the department. The KPIs must be designed with care, however. The metrics must be measurable and timely and meet the same guidelines as a SMART Goal. And they must be balanced, so that one area does not dominate the focus of the director and department.

Next Steps

If you are not using a balanced scorecard to provide ongoing objective evaluation of your direct reports, then commit to the following process over the next month or two:

  1. Choose a director with whom to explore the use of a balanced scorecard;
  2. Identify the major pillars of the organization and of the department;
  3. Select 4 or 5 Key Performance Indicators based on their importance and measurability;
  4. Begin a pilot beginning next quarter in which you measure, report and discuss the KPIs with your direct report;
  5. If the process results in improved performance, then expand to other departments;
  6. Share with your COO and CEO and the rest of the organization.

Then watch as the organization’s performance really blossoms!


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