Key Elements of a Performance Agreement

Whether one is looking at the performance agreement of a CEO or any other staff member for that matter the same key elements are required.

One of the first steps in the process is to ensure that robust job profiles are in place as these serve as an underpinning of a performance agreement (PA), though a performance agreement does tend to be more specific and targeted. Nevertheless, the job profile will help guide you with respect to the Key Performance Areas (KPA’s) that will be included in the agreement. Job profiles form part of what we call Organisational Design and are essentially the key building blocks of any organisation.

Next it is important to decide on the methodology that will inform your performance agreement. For example, the most common approach is the balanced scorecard, which divides the PA into 4 key delivery areas namely: Financial, Client, Internal Processes and Organisational Learning. This approach ensures that performance is measured holistically looking at both financial and non-financial indicators. Prior to determining the Key Performance Areas (KPA’s) and Key Performance Indicators (KPI’s) that will form part of each scorecard area it is important to understand what the organisation’s key strategic objectives are as these would inform the KPA’s of the CEO’s performance agreement. Additionally, the CEO’s scorecard would serve as the highest level performance agreement in the organisation, which must be cascaded downwards through the business ensuring that every employee’s KPA’s are in some way linked back to the organisation’s key strategic objectives. This is not an easy or quick undertaking but necessary for effective performance management. Other key components of a performance agreement are:

• Establishing KPA’s and KPI’s per scorecard area
• Determining threshold, target and stretch performance goals
• Determining weighting of the balanced scorecard sections
• Determining evaluation measures / metrics per KPA
• Agreeing performance review cycles (bi-annual or yearly)