The debate around traditional performance management
In an article in Harvard Business Review, Cappelli and Tavis (2016) argue that current changes to performance management are a result of changing strategic priorities. Organizations must now respond to uncertainty, complexity and diversity with a new mindset, new business models, and new processes. Most of the organizational processes which we have used in the past are no longer suitable for the future or even the present. There is now more need for teamwork, collaboration, greater agility and lifelong learning and less need for individual accountability or individual performance.
A couple of years down the road, new performance management systems promise improved employee engagement and retention, improved talent development and increased efficiency.
The change couldn’t have come at a better time. Leaders and employees were getting frustrated with the process in its traditional form. Everyone seemed to hate it - employees, managers and, despite serious training efforts, people were still having trouble doing it well, which resulted in the process failing to do what it was primarily meant to be: an effective driver of performance.
So where did we go wrong with performance management? Performance ratings and forced distribution decisions are at the centre of the debate, together with a move towards performance review meetings becoming more frequent and less formalized than the traditional annual review. an effective driver of performance.
As always, one size does not fit all. A successful performance management process does not always mean a move away from performance ratings. In fact, giving up ratings is now highly controversial and while the initial reactions to eliminating performance rating received positive feedback, in some cases the key performance outcomes actually decreased. In a 2016 Pay for Performance Employee Survey of more than 10,000 employees in 18 countries, CEB concluded that although some managers are more effective without ratings, most organizations will find it too difficult to get their managers to the level needed to make the change worth the significant investment, and encourage organizations to focus on other changes besides removal of ratings.
Indeed, organizations choosing to optimize their processes now tend to place a bigger emphasis on culture change versus process change and eliminating ratings is a route that has less adopters now. Instead organizations put more focus on the quality and value brought by the process rather than its previous focus on compliance, greater weight on staff development, more frequent and honest conversations with employees.
The route to the new performance management has not been easy and there are lessons that all of us can learn from the organizations that have moved away from the traditional systems. New processes came out as a result to feedback collected from hundreds of employees and in some cases, after tweaking and re-tweaking traditional solutions with little or no positive impact:
- If you take away too much structure, there will be panic and confusion. Don’t under estimate how much training and ‘landing’ will be required.
- Organizations should be clear on the purpose of appraisal – developmental or administrative (pay or promotion related) and work to ensure that performance discussions during the year focus on one or the other, but not both.
- Feedback should not be linked to compensation decisions.
- Management Information is harder to gain and requires different metrics, for example attrition measured against promotion prospects.
- When ratings are not in place it can be challenging to have a clear “cut-off” for saying the employee will not receive an increase or bonus.
- Given well and on time, feedback can be invaluable, but given poorly it will do more harm than good. Significant training is required as well as effort to build the right culture.
- When the data driven decision making is gone, managerial discretion plays an important role in determining salary increases. Compensation teams need to provide a solid framework, guidance and tools to support managers to make effective pay recommendations.
- A clear talent strategy needs to be in place so that high performers are identified and rewarded and recognised in ways other than receiving a rating.
- Without ratings, identifying poor performers needs to be driven from the top down. They must be identified and managed effectively.
- Performance management needs to be seen as a fair process, in order to be effective.
A new model has emerged: continuous performance management
While some are still experimenting, the new performance management is steadily moving towards a continuous process, with some key elements present across the board: regular feedback with a forward looking perspective, more flexibility in goal setting and reviews and more support and coaching from managers.
Benefits of continuous performance management
While this approach is still in its early stage, feedback from employees and results reported by companies provide strong arguments for companies that are still considering the next steps in performance management: increased motivation and engagement, reduced employee turnover, increased productivity.
Timely and actionable feedback motivates employees, which leads to reduced employees turnover and absenteeism
Giving feedback once a year almost guarantees that it will be vague and largely irrelevant by the time employees hear it. Apart from that, waiting for a year to communicate constructive feedback, mostly focused on the past, is also detrimental to morale and often hurts engagement and productivity.
A continuous approach to feedback leads to increased employees’ motivation as they are in constant contact with their managers, in an open two-way communication, they always know where they stand and receive the opportunity to work on their areas of improvement. As a result, employees are more engaged with their job, which means they are more productive, motivated and dedicated to their company. Increased engagement is demonstrated to lead to reduced employees turnover and absenteeism.
Continuous performance management offers more clarity regarding goals and expectations
Through ongoing, real-time feedback, managers can communicate their expectations and vision to the team in a transparent and continuous manner. Such feedback helps employees get more clarity and less uncertainty regarding goals they need to pursue and expected behaviors, as well as progress against expectations.
Frequent feedback leads to constant development of employees, which results in professional growth and work performance
Giving feedback to employees only once or twice a year prevents them from being able to improve all year long. Constant feedback, in turn, enables employees to identify areas that require improvement on time and thus develop and enhance their performance constantly.
Enjoy a richer picture of employee performance
Companies that use continuous performance management tend to move towards a multi-source feedback approach, where the collected feedback comes from the different sources an employee interacts with in his everyday work - a manager, a peer colleague or subordinate. Consequently, companies enjoy a much more comprehensive picture of an employee’s actual performance which leads to a more objective process and less surprises at performance review time.
More efficient and more meaningful performance review
When feedback is exchanged and collected throughout the year, a substantial amount of review is basically already over with by the time managers and employees sit down. Furthermore, all this feedback is readily accessible and therefore provides managers with a real-time cockpit of their employees’ strengths and areas for improvement. Managers can now help employees grow and work towards their goals.
Improved Ability to Close Skill Gaps
Nowadays organizations struggle to find people with the skills they need and would often use recruitment strategies that will focus on bringing people that have the potential to become the talent they need but are not quite there yet. Therefore, one of the current challenges many organizations face is the need to constantly upskill their employees. In a continuous performance management process, feedback flows freely throughout the year, and the corresponding data is always available. This allows the manager to get the most out of the talent of employees because they now have a real-time view to spot and tackle skill-gaps immediately. Therefore, managers have the perfect tool at their disposal to evolve from task managers to active coaches that help their employees succeed.
Use of technology
Advances of technology allow companies to benefit from simpler, easy to implement and use tools.
Performance dashboards can give automated ‘live’ information on performance, including historical trend analysis or automatic analysis of feedback which makes identification of areas of development easier for all users.
According to CIPD’s research report in December 2016, when monitoring progress towards goals, feedback can be given in person or through technology equally effectively.
67% of surveyed CEOs in KPMG’s 2019 Global CEO Outlook survey believe that acting with agility is “the new currency of business”. To respond companies need to fundamentally change how they work towards a more customer-centric, innovation and collaboration driven environment. Traditional performance management has already failed to keep pace with the changes that have happened in the work environment, so now more than ever new approaches are needed.