The Firmwide 360 degree Performance Evaluation Process at Morgan Stanley

The Firmwide 360 degree Performance Evaluation Process at Morgan Stanley - Transcript

Harvard Business School

9 498 053
Rev October 29 1998

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The Firmwide 360 Performance Evaluation Process at Morgan Stanley
The objective of the annual Performance Evaluation Process is to provide every employee with quality performance feedback We continue to believe strongly that candid feedback serves as the foundation for creating development plans for each individual that help the firm meet one of its most important goals the continuous professional development of its employees This development remains one of the critical success elements of the firm

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During 1993 Morgan Stanley implemented a new firmwide 360 performance evaluation system for over 2 000 professional employees worldwide at a total cost of over 1 5 million The revamped evaluation process was the result of a multi year effort initiated by a task force and implemented under the direction of Tom DeLong the recently appointed chief development officer for the firm and the human resource management department known at Morgan Stanley as the Office of Development The key elements of the system are described below

360 Degree Feedback

The guiding principle of the new system was a 360 degree feedback system in which feedback was solicited from superiors peers subordinates and internal clients The first step was that all of the professional employees identified those people within the firm with whom they regularly interacted and would be in a position to provide substantive feedback on their performance This list of prospective evaluators called the Evaluation Request Form ERF see Exhibit 1 was reviewed and discussed with the assigned evaluation director typically the evaluatee s manager or supervisor The ERF was then submitted to the Office of Development which then distributed evaluation forms to the people listed on the ERF collected the completed evaluations and processed them into a Year End Data Packet for each evaluatee

Professor M Diane Burton prepared this case with the assistance of Senior Lecturer Thomas J DeLong as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation

Copyright 1998 by the President and Fellows of Harvard College To order copies or request permission to reproduce materials call 1 800 545 7685 write Harvard Business School Publishing Boston MA 02163 or go to http www hbsp harvard edu No part of this publication may be reproduced stored in a retrieval system used in a spreadsheet or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise without the permission of Harvard Business School

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Richard Fisher Chairman and John Mack President

The New Performance Evaluation Process

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Self Assessment
As subordinates peers colleagues and superiors completed their evaluations each professional also completed their own self evaluation see Exhibit 2 The self evaluation was viewed as an important developmental tool offering employees an opportunity to reflect on their own performance and also to incorporate their perspective into the final evaluation

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Explicit Evaluation Criteria
One of the key challenges faced by the system s designers was deciding on the evaluation criteria Given the multifaceted nature and complexity of the various businesses that comprised Morgan Stanley identifying broad categories of performance that could sensibly be applied throughout the firm proved difficult After much debate four broad categories that could be tailored to particular jobs tasks and divisions were identified 1 Market Professional Skills Including market and product knowledge analytical quantitative and problem solving skills creativity initiative and commitment judgment and decision making skills versatility oral and written communication skills and professionalism 2 Management and Leadership Including people management global business orientation evaluation development and coaching skills ability to work with a diverse workforce fairness and sensitivity management of the firm s resources time management and planning skills 3 Commercial Orientation Including client relationship management selling and cross selling abilities commercial instincts and revenue contribution ability to continually evaluate risk return tradeoffs deal execution and project management skills 4 Teamwork One Firm Contribution Including the ability to build lead or actively participate on a business team participation in recruitment internal task forces and cross divisional projects involvement in internal and external industry related community activities In general the forms that evaluators completed were open ended and asked for specific information on strengths and weaknesses across all four areas see Exhibit 3 In the Investment Banking Division there was an additional numeric evaluation that ranked individuals on a 5 point scale ranging from Unsatisfactory 1 to Outstanding 5 see Exhibit 4 Evaluations from subordinates were similarly structured using a 5 point scale and open ended questions specifically about management and leadership see Exhibit 5 The performance criteria were increasingly rigorous as one progressed up the organizational hierarchy For example for professional skills a vice president was expected to be knowledgeable about the firm s products a principal was expected to be fully operative and a managing director should have the broadest most in depth strategic knowledge of banking products

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High Quality Data and an Evaluation Director Managing the Process

The Office of Development collected these forms and consolidated all of the data into a 10 20 page document for each person being evaluated This document was officially called the Year End Data Packet but was informally known as the book This raw data which were anonymously reported from subordinates but was clearly identified with colleagues and superiors then had to be

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interpreted and synthesized by the evaluation director As one managing director who served as an evaluation director described The data packets are a cornucopia of information that the evaluation director has to sift through That task is huge and extremely important It is critical to the integrity of the system and to preserving the ongoing working relationships

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The evaluatee never saw the actual comments made by those who had completed evaluation forms Instead the evaluation director produced an Evaluation and Development Summary see Exhibit 6 For some divisions these Evaluation and Development Summaries were the data on which promotion and compensation decisions were based Everyone in the firm acknowledged that it took a great deal of time and effort to write clear and consistent summaries The process was perceived as helpful in conducting performance appraisals because the manager was able to draw on detailed and specific information from a broad cross section of employees One director commented These summaries write themselves If 18 people are saying basically the same thing then you know it s a problem Another echoed

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It s interesting how often the themes converge I always encourage people to have more data points even though it means I have to read more Direct quotes make the message less ambiguous The Evaluation and Development Summary served as the template for the Performance Review Discussion that took place between the director and the evaluatee While in most cases this discussion was straightforward there were occasional difficulties The most challenging situation is when there is a complete disconnect between a person s self perception and that of the colleagues superiors and subordinates And unfortunately it is not usually the case that you have to tell people that they are better than they think Thankfully this is the exception rather than the norm Of course no one claimed that the discussions were easy

It s one of the most difficult things we ask line managers to do You have to continue to work with these people count on them They are critical to your success And all of a sudden you are the judge

After the first year the system was implemented the task force held focus groups to assess the effectiveness of the redesigned performance evaluation system There was widespread consensus that the new system was a significant improvement over its predecessor In the past assessments were done verbally in a large group by all those senior to an evaluatee All junior employees were evaluated collectively and the oral meeting led to assessments that had a sound bite quality Furthermore in the past people had generally not received any individual feedback The volume of the data and the written format of the new system contributed to perceptions of fairness and objectivity As one managing director described

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Assessing the New System s Effectiveness

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On the margin you make better decisions This system advantages those who may not be good at promoting themselves It also allows you to see through those who are too good at self promotion But of course there were a number of issues and complexities that needed to be addressed

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The system included numeric scales as well as an overall summary rating that was intended to facilitate comparisons across individuals An unanticipated consequence of the numeric ratings was that the numbers were used as if they were somehow real and precise As one managing director recalled I remember meetings where we were comparing people and there would be this conversation about so and so is a 4 7 but this other person is only a 4 65 And this was a real discussion as if there was a critical difference revealed in that 0 05 points

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Some managers felt that the summary number was a crutch that allowed people to discount the qualitative information contained in the open ended summaries Another problem with both the numeric scores and the written comments was the perception that rampant grade inflation existed One managing director shared his sense of the evaluations If you are incompetent they would say perhaps needs some training You need an eye I mean you have to be sort of a criminologist because you ll find that very little negative stuff is said When there are criticisms they are couched in terms like although he s doing a terrific job with clients he could perhaps spend more time calling on clients that are not as likely to be active Well that means the person isn t calling clients that aren t doing business in that time frame An outsider might wonder why that doesn t say something like Not making enough calls but here the language is not used that way I mean you could get someone fired Although the system designers had tried to keep compensation and developmental discussions separate in practice the two were inextricably linked The data from the performance evaluation process were used by some divisions as justification for compensation decisions The biggest challenge was how to weight the criteria and the input from different evaluators The process raised fundamental questions about what was important to the firm How much should commerciality count How important was leadership and management And of course there were a number of skeptics who made comments like Look people either produce a lot or they don t and complained that the system captures so many soft qualities that don t really matter One employee described the situation They re very focused on making sure that you don t ruffle feathers They want you to be a team player and be good to your colleagues But I still believe at the end of the day the firm is results oriented You need to be a team player you need not to ruffle feathers but at the end of the day you d better bring in the dollars

All of these issues and concerns continued to be debated as the firm tweaked the system each year but the general view was that there was growing commitment to the concept As one managing director put it I find myself weary of the process but impressed with the results

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Exhibit 1

Evaluation Request Form

IBD MED EVALUATION REQUEST FORM ERF

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Name 1 2 Name 1 2 Name 1 2 Name ED Signature

Evaluatee Title Department Date Evaluation Director

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Evaluatee Signature

EVALUATEE INSTRUCTIONS Your responsibility is to List those evaluators who can best provide meaningful feedback on your performance Sign the ERF and review it with your Evaluation Director
Downward Department Location I Name 3

Department Location

EVALUATION DIRECTOR INSTRUCTIONS Your responsibility is to Review and edit your evaluatee s evaluator nominations Sign the completed ERF and submit to your regional PE Center

PLEASE SEE REVERSE SIDE FOR DETAILED INSTRUCTIONS

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Colleague Long Department Location I Name 3 4

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Department Location

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Colleague Short Department Location I Name 3 4 Upward Department Location I Name Date Date

Department Location

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IBD MED EVALUATION REQUEST FORM ERF INSTRUCTIONS
This is your opportunity to nominate evaluators who can best provide meaningful feedback on your performance You should nominate those evaluators direct supervisors colleagues and direct reports who you believe have the most in depth knowledge of your performance and accomplishments Your Evaluation Director identified on the ERF label will review your nominations and is responsible for final approval of the suggested evaluators Please choose your evaluators thoughtfully restricting your nominations only to those people who can provide substantive feedback It is in everyone s interest to avoid unnecessary evaluators What you need to do

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1 Complete the ERF

Downward Evaluators

Maximum 3

List those professionals both intra and interdivisional for whom you have worked closely in the last year who can provide a comprehensive assessment of your performance If a superior not your Direct Manager cannot provide a comprehensive assessment due to limited brief contact then list this evaluator in the colleague section This type of evaluator will be designated a colleague evaluator and will use the colleague form

Colleague Evaluators

Upward Evaluators

2 Sign and date the ERF and then submit it to your Evaluation Director

Your Evaluation Director must review make the final determination sign and return the completed ERF to OOD Your Evaluation Director is listed at the top of the ERF Form

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Colleagues are defined as those professionals both intra and interdivisional with whom you have worked in the last year and who can comment on your performance Colleague evaluators may include those at the same title level as you as well as those senior or junior in title to you For Colleague Long Colleagues with whom you have worked most closely and who are most knowledgeable about aspects of your performance For Colleague Short Colleagues with whom you have had meaningful but limited exposure Maximum Unlimited

List the names of those professionals who have worked directly for you in the last year and who can provide a meaningful assessment of your managerial and leadership skills It is preferable to include all those considered to be your direct reports at the professional level since selecting some and omitting others may cause concern and misunderstanding To preserve anonymity an upward evaluation report is produced only if three 3 or more upward evaluations are returned

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Maximum 4 Long 4 Short

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Exhibit 2

Annual Self Evaluation Form

ANNUAL SELF EVALUATION
Name

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Title Department Date

This Self Evaluation is an important tool in your ongoing personal and professional development Your thoughtful and candid self evaluation will help your manager to acquire a full and accurate understanding of your progress toward agreed upon goals and objectives your role in business transactions client relationship development and cross selling and your contributions to the divisional and MS communities It will also allow you to identify attributes you feel need development to increase your professional effectiveness Please keep a copy of the self evaluation for use during the Performance Review Discussion and for future reference Use the space provided on this form only I BUSINESS GOALS ACCOMPLISHMENTS Comment on your role in achieving your business goals and objectives Consider any of the following that are relevant

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Important new business Major new transactions Key relationships enhanced New product development Client upgrades downgrades

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Market penetration Performance vs indices Cross selling Expense control profit enhancement Capital usage risk management

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II CONTRIBUTION TO MS DIVISION AND EXTERNAL INDUSTRY RELATED COMMUNITY
Comment on your contribution to the MS Division and external industry related communities especially in the areas of training recruiting firm divisional task forces committees events and administration industry panel representation speaking engagements and volunteer activities e g MS Foundation

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Signed Date 8

III PROFESSIONAL DEVELOPMENT
In light of your progress toward business goals and your contributions to the MS Division and external communizes 1 What do you consider to be your three greatest strengths

2 What attributes should you develop to enhance your professional effectiveness

3 What skills and abilities are currently underutilized which you would like to put to greater use

4 What are your longer term career goals at Morgan Stanley

5 What training other job experience s and or Divisional management support would help you reach your goals and improve your effectiveness

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Exhibit 3

Short Evaluation Form SHORT EVALUATION FORM

Evaluatee Department Evaluator Date

Evaluation Period
BEGIN MONTH YEAR END MONTH YEAR

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Project Assignment

COMMENTS ON OVERALL PERFORMANCE
Please describe the evaluatee s primary Overall Performance Strengths as well as the evaluatee s most important Development Areas Pay particular attention to the categories listed refer to the criteria matrix for a description of the specific criteria

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Signed Evaluator

Professional Skills Market Product Knowledge Analytical Quantitative Problem Solving Skills Creativity Initiative Commitment Judgment Decision Making Versatility Oral Written Communication Skills Professionalism

Commercial Orientation Relationship Management Cross Selling Selling Commercial Instincts Revenue Contribution Enhances PBT Expense Control Adherence to Firm Policies Limits Deal Execution Project Management Management Skills Global Business Management Leadership Management of People Evaluation Development Coaching Management of Diverse Workforce Management of Firm s Resources Time Management Planning

One Firm Contribution Team Player Skills Contributes to MS External Related Community

Three Greatest Strengths provide examples

Three areas in need of further development Indicate suggestions for developing those areas

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Exhibit 4
Evaluatee Department Evaluator Date

IBD Long Evaluation Form LONG EVALUATION FORM
This evaluation is based on check one Extensive Involvement Normal Involvement Limited Involvement Do not fill the Skills Evaluation section i e any boxes if you check this Unable to Evaluate explain on reverse side Data insufficient to make an evaluation Overall performance was unsatisfactory failed to meet job requirement and Firm standards of excellence Performance is fully satisfactory in most respects but development is required to achieve Firm standards of excellence Performance meets all job requirements and Firm standards of excellence Performance exceeds job requirements and Firm standards of excellence in many areas Exceptional performance which consistently and in all areas exceeds job requirements and Firm standards of excellence
Not Unsatisfactory Seeks Improvement Good Very Good Outstanding

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Not observed Unsatisfactory

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Needs Improvement Good Very good Outstanding Professional Skills
Market Product Knowledge Creativity Initiative Commitment Judgment Decision Making Versatility Oral Communication Skills Written Communication Skills Professionalism Commercial Orientation Relationship Management Cross Selling Selling Enhance PBT Expense Control Adherence to Firm Policies Limits Deal Execution Project Management Management Skills Global Business Management Leadership Management of People Evaluation Development Coaching Management of Diverse Workforce Management of Firm s Resources Time Management Planning One Firm Contribution Team Player Skills Overall Rating

Analytical Quantitative Problem Solving Skills

Commercial Instincts Revenue Contribution

Contributes to MS External related Community

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Observed

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Three greatest strengths provide examples

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Three areas most in need for further development Indicate suggestions for development of these areas
Signed Evaluator

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Exhibit 5

Annual Upward Evaluation Form ANNUAL UPWARD EVALUATION
Evaluatee Title Department Date

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Good Very Good Outstanding 12

This Evaluation is Based on check one
Extensive Involvement Normal Involvement Limited Involvement Unable to Evaluate

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Not observed Unsatisfactory Needs Improvement

This Upward Evaluation form should be completed on professionals who have closely supervised your work The primary purpose is developmental to help your manager pinpoint managerial and leadership strengths and development areas Your comments are submitted anonymously and will be maintained in strict confidence No manager will receive an upward report unless at least three evaluations are submitted

Complete the skills evaluation section by checking one box for each criterion Please use the following scale Data insufficient to make an evaluation Overall performance was unsatisfactory failed to meet job requirements and Firm standards of excellence Performance is fully satisfactory in most respects but development is required to achieve Firm standards of excellence Performance meets all job requirements and Firm standards of excellence Performance exceeds job requirements and Firm standards of excellence in many areas Exceptional performance which consistently and in all areas exceeds job requirements and Firm standards of excellence

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Instructions

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Leadership Management Skills Section
Not Observed I LEADERSHIP 1 Establishes Direction Develops communicates a positive vision of the unit s future engages people in the vision Maintains consistent focus on client users Keeps staff informed of changes developments 2 Builds Commitment Provides sufficient resources organizational support Recognizes time commitments of other projects balances real deadlines minimizes artificial ones Invites information questions suggestions opinions from staff Ensures appropriate participation of junior members in meetings phone calls etc Builds mutual respect trust among team members Confronts conflict situations honestly and directly 3 Creates High Performance Challenges conventional wisdom takes prudent risks seeks continuous improvement Empowers people by delegating clear full authority accountability Inspires enthusiastic efforts highest levels of achievement Treats a diverse workforce with sensitivity fairness respect Fosters collaboration cross selling builds partnerships across organizational lines Effectively deals with pressure crises 4 Leads by Example Leads by example has high credibility Shows patience understanding Exhibits tough mindedness the ability to make difficult business decisions Possesses required professional technical product knowledge skills Strives to grow professionally seeks accepts development feedback II MANAGING PERFORMANCE 5 Defines Expectations Establishes communicates clear individual team performance objectives expectations Clearly indicates the highest priority goals assignments 6 Provides Feedback Provides insightful real time positive corrective feedback Expresses appreciation for a job well done recognizes value of contribution Active accurate listener 7 Improves Current Performance Spends sufficient time teaching coaching Keeps abreast of key activities without excessive checking up 8 Coaching for Development Acts as mentor takes time to discuss career development Challenges people to expand their role maximize their abilities contribution Develops leadership capabilities of staff 9 Overall Rating Unsatis factory Needs Improvement Good Very Good Outstanding

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Comments 1 To be a more effective manager leader and for the greatest impact what should this person stop doing

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2 To be a more effective manager leader and for the greatest impact what should this person continue doing 3 To be a more effective manager leader and for the greatest impact what should this person start doing

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Exhibit 6

Evaluation and Development Summary Form EVALUATION DEVELOPMENT SUMMARY

Evaluatee

Evaluation Director Signature Date

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Title Date

Review of Annual Performance

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PERFORMANCE SUMMARY INCLUDING ACCOMPLISHMENTS

Consider objectives identified in prior year s E D Summary as well as business objectives set earlier this year Refer to Self Evaluation where applicable

II EVALUATION THEMES A Strengths

B Development Areas

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EVALUATION DEVELOPMENT SUMMARY Goals and Objectives for Upcoming Year

III FUTURE PERFORMANCE OBJECTIVES A Business Goals List important business and commercial targets

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Evaluatee s Signature

B Professional Development Goals List important development suggestions to enhance evaluatee s professional effectiveness

IV CAREER GOALS Comment on evaluatee s short term and long term career goals as described in the self evaluation

V EVALUATEE S COMMENTS

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