Potential Is Not Performance

Posted by Hogan Assessments on Wed, Jan 18, 2017

Identifying and developing high potentials — employees ready to take the leadership reins when someone gets promoted, steps down, or gets fired — is the single greatest talent management challenge organizations face today. The problem is, most organizations are really, really bad at it. Practitioners rate themselves as effective at identifying high potentials only about 50% of the time. That means many high-potential identification systems in place today could achieve the same level of accuracy by flipping a coin.

If your organization is like most, its high-potential identification program focuses — sometimes exclusively — on current performance. A recent survey found 74% of companies identify high-potential employees based on performance appraisals, and 68.5% based on recommendations from management. A separate study by Corporate Research Forum estimated that 73% of organizations currently identifying high potentials using one single data point — a rating or nomination by the individual’s direct supervisor.

“This is problematic for two reasons,” Hogan CEO Tomas Chamorro-Premuzic wrote in a post for Forbes. “First, organizations are not very good at measuring performance (once you eliminate subjective ratings, there are very few reliable metrics left). Second, even when they measure performance well, many top performers will fail to perform well at the next level.”

Performance measures tend to be subjective and biased by politics. Performance appraisals often reflect how much supervisors like their employees, and over-inflate ratings of actual job performance. As a result, individuals designated as high performers are often actually the best politicians, or what we call emergent leaders — the people who are great at building relationships, exerting social influence, and standing out enough to get ahead. The problem is that the qualities it takes to climb the corporate ladder aren’t enough to be effective as a leader.

Second, organizations tend to overestimate current performance as a predictor of future potential. The idea of leaning on performance reviews is that the best predictor of future performance is past performance. But as ClearCompany Co-founder Andre Lavoie points out in an article on Entrepreneur, although all high-potential employees are high performers, not all high-performing employees are high potentials. Research shows that only 30% of current high performers are actually high-potential employees, and most employees (more than 90%) would have trouble at the next level.

“When you transition employees from individual contributors to managers, or from managers to leaders, the pivotal qualities or competencies that drive high performance change,” Chamorro-Premuzic wrote. “Furthermore, many strong individual contributors are not even interested in managing or leading others, preferring instead to focus on independent problem-solving or being a team-player. The result is a paradoxical system that removes people from a job they are rather good at, and re-positions them in a role they are neither able nor willing to do.”

At the very least, wrongly designating a high performer as a high potential means you lose an excellent individual contributor. More than half of high-potential employees drop out of development programs or leave their employer within five years, and studies estimate losing a high-potential employee costs the organization 3.5 times his or her annual compensation.

At worst, promoting the wrong people can cause major engagement problems within your organization. Leadership directly impacts employee engagement. Good leadership creates engaged employees; bad leadership leaves employees alienated and demoralized. Engaged employees are energized, proud, enthusiastic, and have positive attitudes at work. Companies whose employees are engaged show higher returns on assets, are more profitable, and yield nearly twice the value to their shareholders compared to companies characterized by low employee engagement. Disengagement, on the other hand, results in an estimated $550 billion in lost productivity in the U.S. each year.

Put simply, performance is what you do. Potential is what you could do. Until organizations learn to differentiate between the two, it’s unlikely their success identifying high potential individuals will improve.

Want to know more about how to tell potential from performance? Check out our ebook, The Politics of Potential.

Topics: high potential leaders, performance, high potential, high potential employees, high potentials, high potential program, talent

Why Validity Matters

Posted by Robert Hogan on Fri, Dec 03, 2010

Personality psychology concerns three questions. First, in what important ways are people all alike? This question involves analyzing the nature of human nature. Second, in what important and systematic ways are people all different? This question concerns individual differences. The third question concerns how to measure, in a reliable and valid manner, important individual differences in personality? These measures can then be used to predict practical outcomes—e.g., job performance, career and financial success.

But why are personality data so useful? The reason is simple: (1) The best predictor of future behavior is past behavior; (2) A person’s personality (defined in terms of observer’s ratings) is the summary of that person’s past behavior; so that (3) Personality (defined in terms of observers’ ratings) is the best data source we have regarding a person’s future behavior. Our assessments are keyed into observer ratings and provide an objective way to predict a wide variety of life outcomes, including life expectancy, marital satisfaction , substance abuse, and career and financial success.

The principal statistic used in our research (as well as research in economics, sociology, and medicine) is the Pearson correlation coefficient (r). The value of r can range from -1 (a perfect negative association between two variables) to 0 (no relationship between two variables) to +1 (a perfect positive association between two variables). The validity coefficients found in most medical research are below .20. For example, the correlation between smoking and contracting lung cancer within 25 years is .08; the correlation between taking ibuprofen and reduced pain is .14. Typical validities in psychological studies tend to be higher. For example, the correlation between applicants' scores in a personnel selection interview (which is an inefficient form of personality assessment) and subsequent job performance is .30, and the correlation between IQ scores and school grades is .70. Our research over the past 30 years has produced validity coefficients that are significantly higher than those typically found in published medical or economic research.

Personality and industrial/organizational psychologists use correlation coefficients to predict individual differences in peoples’ present or future performance. The best way to interpret a correlation is in terms of hits and misses. Imagine we have tested 200 sales candidates on the HPI Ambition scale, and then hired all of them; Figure 1 shows the expected percentages of high and low performers as a function of the validity of the ambition scale, using validities of .00, .20, .30, and .50.

If the validity coefficient for the Ambition scale in predicting sales performance is 0, then 50 of the new hires with above average Ambition scores will be high performers and 50 will be low performers (a validity coefficient of 0 implies that the prediction based on test scores is no better than chance). If the validity coefficient is .20, then 60 of the new hires with high Ambition scores will be high performers and 40 will be low performers, whereas 60 of the new hires with low scores will be low performers and 40 will be high performers. If the validity coefficient is .30, then 65 of the new hires with high scores will be high performers and 35 will be low performers; conversely 65 of the new hires with low scores will be low performers and 35 will be high performers. If the validity coefficient is .50, then 75 of the new hires will be high performers, and 25 will be low performers, etc. Thus, validity coefficients allow us to estimate how much better than chance (50%) we can predict performance (e.g., if r = .20, then we will predict 10% better than chance or we will make the correct prediction in 60% of the cases; if r = .60, then we will predict 30% better than chance or we will make the correct prediction in 80% of the cases).

The importance of this becomes obvious when we consider that the top 25% of employees in any job or profession will contribute 400% more than the bottom 25% of employees. The major point, however is that validity coefficients are the primary index for estimating the practical significance of any test.

Topics: validity coefficients, performance, assessment validity

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