Performance Management is an area which is currently prevalent in headlines around the world. The performance management debate, which comes down to a need to adjust, transform or eliminate these programs, catches a lot of attention because the majority of employees around the world are subjects of some kind of performance management program. All employees can pretty intelligently talk about it, no matter the career level.
As a result, organizations must equip themselves to respond to the questions that employees inevitably raise:
- What are we trying to achieve through the performance management process?
- Are we truly getting what we need and want out of it?
- Are the costs of executing the process the purported investment in employees, or simply an exercise that needs to be completed once or twice a year, then shelved?
- Do the outcomes of the process help us differentiate employee rewards?
The answer for many organizations to most, or even all, of these questions has been unequivocal. No. In fact, in a study conducted by World at Work, 58% of employees give their performance management system a C grade or below. Why is that? When did the process stop working, or did it never really work?
In 2015, Buckingham and Goodall estimated that two million hours are spent conducting performance evaluation processes each year in one global organization, which focus primarily on past performance. When you calculate the financials associated with those hours, the costs of performance management are staggering, particularly when you consider the fact that these resources are spent on what has already happened. And can’t be changed.
Additionally, receiving ratings at the end of a performance cycle is rarely motivating for employees. 75% of survey respondents in a study conducted by Rock, et al. in 2014, see their company’s performance management system as unfair, as two-thirds of employees who are rewarded as top performers are not viewed by peers as the highest contributors. On top of that, research conducted by Mount, Scullen and Goff in 2000 suggests only 21% of the variance in performance ratings across an employee population was directly related to variance in performance. The bottom line is that organizations have outgrown the traditional performance management system and the need for a transformation is already here.
Where should an organization begin to enable this transition to a more relevant system? First, an organization must articulate the outcomes needed from the performance management process. An organization must confirm whether performance management outcomes will be used to confirm past achievement, establish the platform for development, create a link between performance and rewards or all of the above. Once this is understood, we recommend the following considerations: first, how do you increase the impact outcomes of the process make on future performance and second, how do you enhance the experience of performance management for employees and managers?
A recent Towers Watson study found that 4% of organizations amongst 90, did not use ratings for their performance management system (Towers Watson, 2014). A further study found that 7% were looking to change their ratings system, while 1% wanted to do away with their ratings curve altogether (Towers Watson, 2015). To effectively implement this kind of system requires a few foundational aspects to be in place. The first of these is the right culture that enables frequent feedback and coaching discussions. The second is having a population of people managers who are not only equipped, but have a commitment for developing employees and facilitating these discussions.
Most organizations still use some form of performance rating because all people managers have not been raised to their role for their excellent skills in managing people. The process aspects of performance management have historically enabled people managers who have less a set of clear guidelines. This does not indicate we need to do away with the need for having a performance management program, but merely to reconsider how we go about executing our intent. Next time, we’ll discuss the decision-making framework for transforming the system you have into something that creates the impact you need within the resource constraints of those executing it.
Armitage, A. & Parrey, D., 2013. Reinventing performance management: creating purpose-driven practices. People & Strategy.
Baer, D., 2014. Why Adobe Abolished The Annual Performance Review And You Should, Too. Business Insider, 10 April.
Buckingham, M., 2013. Trouble with the Curve? Why Microsoft is Ditching Stack Rankings. Harvard Business Review.
Buckingham, M. & Goodall, A., 2015. Reinventing Performance Management. Harvard Business Review.
PwC, 2015. Performance management: Change is on the way but will it be enough?, Sydney: PwC.
Rock, D., Davis, J. & Jones, B., 2014. Kill Your Performance Ratings. strategy+ business, 8 August.
Towers Watson, 2014. Ticking all the boxes? A study of Performance Management practices in the UK, London: Towers Watson.
Towers Watson, 2015. Towers Watson capabilities in Talent & Reward, London: Towers Watson.
Williams, R., 2012. Why Performance Reviews Don't Improve Performance. Pyshcology Today, 7th November.