Managers often struggle with how to measure employee performance. It's natural to shy away from purely subjective ways of judging how well your employees are doing. It's much easier to have an objective metric that you can just look at to track your workers' results.
Ironically, employers generally base their hiring and firing decisions on primarily subjective opinions about the employees. But when it comes time to actually manage them, employers long for something they can look at in a spreadsheet. Law firms, accounting firms, and other professional-knowledge firms are the worst offenders, using the timeworn metric of billable hours to substitute for subjective evaluations of performance.
Many employers use annual performance appraisals to rate employees' performance. They figure that it's easier to check off a few boxes and plug in a few pat phrases than to actually (and subjectively) evaluate performance. In Firing at Will, I describe the annual performance appraisal as "The Dumbest Managerial Tool." To find out why, and to learn about better alternatives, check out the book. (It's in Chapter 8.)
Many employers have asked me how to measure performance if they don't use billable hours or annual performance appraisals. The answer I give them is to look around their business, figure out what really matters, and measure that. Professional-services visionary Ron Baker devotes an entire book on the subject called Measure What Matters to Customers: Using Key Predictive Indicators (affiliate link). In it, Ron talks about the sort of KPIs that professional firms could use, such as turnaround time (which is really the opposite of billable hours), innovation sales (selling new services), customer loyalty (retention rates), share of customer wallet, and others. (Ron prefers "key predictive indicators" to the more common "key performance indicators" because the former is forward looking.)
At Shepherd Law Group, we unintentionally developed a way of recognizing whenever one or more of our lawyers had a successful client outcome. It didn't matter what it was: winning a discovery motion, landing a new client, settling a case. We would note the successful event by exchanging "fist-bump fireworks." This was a goofy ritual of exchanging fist bumps followed by a slow descent of wiggling fingers to connote fireworks. This came from a silly but memorable McDonald's commercial. (I've looked all over the web to find it, but was unsuccessful.)
Although we never put this into practice, we could have tracked FBFs — either as a firm or by lawyer — and charted our performance. Naturally, a greater number of FBFs per month or per quarter would be a positive result. This might sounds like a silly performance metric to you. But as the saying goes, "You can manage what you can measure." Measuring FBFs or other key predictive indicators will help you manage toward having more occasions for them.
What KPIs could you institute in your company? Share them in the comments.