It’s performance management, but not as you know it

March 24, 2016 Kim Schollick No Comments

Performance reviews have suffered something of a PR crisis in the last few years. Once considered a crucial activity for all businesses to undertake, performance reviews (at the very least, performance reviews as we know them) have recently been discarded by a number of organisations.

Surprisingly, it’s not just agile, progressive organisations who are doing away with traditional performance management processes. Big-name players like Microsoft, Adobe, Cigna and Accenture have all dropped formal performance rankings, in favour of a more modern approach to performance management.

If overhauling your performance management process seems like an insurmountable task just ripe for the too-hard basket, you should be aware that what you’re doing now is probably not all that successful. In fact, a 2013 study by leadership advisory firm CEB found that conventional performance reviews only generate a 3 – 5% improvement in performance. The same study also found that ⅔ of those who received the highest scores in a typical performance review situation were not actually the highest performers.

CEB also found that 86% of organisations had either changed their performance management processes recently, or planned to in the next year. If you’re considering doing the same, let’s take a look at three of the major factors changing the way organisations approach performance management:

The death of the annual review

Historically, performance reviews have been conducted annually. The process varies from workplace to workplace, but generally speaking, an employee and a manager would sit down once a year and discuss the high points and low points of that employee’s performance over the last 12 months.

Annual reviews have gone the way of the dinosaur in recent memory, for two major reasons. The first is that, ultimately, approaching performance management this way is incredibly time consuming for managers – when management consulting firm Deloitte assessed its performance management approach, they found performance reviews took an average of 28 hours per employee, with most of that time falling on senior leaders in the firm.

The second reason is that Millennials, who are now the largest generation in the workforce as of 2015, crave regular feedback, and respond well to frequent feedback and mentoring sessions. As such, more and more organisations are now dumping the dreaded annual performance review in favour of more informal, regular conversations between employees and managers.

In 2012, Adobe overhauled their existing performance management system in favour of a system called Check In, which enables managers to give employees informal, on-going, real-time feedback. Managers have full control over the frequency and format of that feedback. According to Adobe, it’s been a success, with fewer resignations by highly-regarded employees and higher productivity. An increase in stock prices (from $30 to $80) has also been attributed to Check In.

Development over dismissal

For too long, performance management has been viewed as a clinical way to separate the wheat from the chaff – a way for management to cut the deadweight holding back their efforts. For decades, former CEO of GE, Jack Welch, openly backed a rigid ranking system. Known formally as the ‘vitality curve’ and colloquially as ‘rank and yank’, this system crunched an employee’s performance down to a number, then ranked that against their peers. The bottom 10%, labelled underperformers, were fired.

GE abandoned the ‘rank and yank’ system in the mid-2000s, but its legacy – that is, the belief that performance management is simply a way to ‘clean house’ – remains.

Instead of that (rather cynical) view, organisations should instead look at performance management as a way to identify employees who are ready for further development, opportunities and promotion.

Last year, Deloitte implemented a new performance management process, which requires managers to review employee performance by answering the following questions. For the first two questions, managers are asked to indicate how strongly they agree with the statement on a five point scale. For the second two questions, managers need only answer ‘yes’ or ‘no:

  • Given what I know of this person’s performance, and if it were my money, I would reward this person the highest possible compensation increase and bonus
  • Given what I know of this person’s performance, I would always want him or her on my team
  • This person is at risk for low performance
  • This person is ready for a promotion today

What’s immediately notable about these four questions is that they lean towards the positive – they have clearly been written with the intention of unearthing employees with high potential to succeed. And one of the best ways to keep those employees onboard and loyal is to offer them development opportunities. A survey by career website Glassdoor found that 19% of employees would prefer professional development over a pay rise – that’s more than stock options, childcare programs or wellness programs.

Next: Software that’s changing the space, and what 2016 will bring.

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