A number of articles about changes in companies’ performance management systems have recently been published in leading journals and it appears to be a topic most people in corporate organisations can relate to and which often evokes some kind of emotional response. This may relate to the fact that most people have been on the receiving end of a performance management discussion or have conducted the discussion with team members – with the accompanying anxieties.
At first glance, articles published between 2013 and 2016 create the impression that some of the most prominent companies in the world, including General Electric, IBM, Microsoft, Accenture and Intel, are dispensing with their performance management systems. This is especially so if one reads only the eye-catching headings, such as “The dreaded performance review? Not at Adobe”, “Microsoft abolishes employee evaluation system”, “Why GE had to kill its annual performance reviews after more than three decades”, and “Study finds that basically every single person hates performance reviews”. For those who are not supporters of performance management, this is more than enough justification to develop a business case not to implement performance management.
However, if one reads the articles carefully, most of these companies are merely assessing what’s been working well and not so well, and replacing what’s not working well with more appropriate practices within their current context. In other words, the companies are seeking continuous improvement of the process, rather than ditching it.
The question arises: Why bother with performance management? What’s its purpose? Performance management practices can only be assessed against their effectiveness in achieving their objectives.
The purpose of performance management can be viewed from two perspectives: those of the employer and those of the employee. In the case of employees, research has shown that doing meaningful work, receiving recognition and undergoing development are some of the most important criteria for ensuring work satisfaction (more so than financial rewards).
In order to understand the value of one’s work, one needs to know the answers to the following questions:
- How does the work that I do support the strategy of the organisation? How does my work fit into the bigger picture?
- How am I doing? What do I do well and what can I do differently to improve performance?
- How can I obtain the support and development I need to improve my performance?
Regular conversations with line managers who give clear answers to these questions will go a long way to ensuring that employees feel that they are doing meaningful work.
From the employer’s perspective, the most common and important objectives of performance management are:
- to identify the work that is necessary to implement the strategy and to allocate the work to specific roles in the organisation, along with specific measures or key performance indicators that indicate successful delivery of work;
- to hold individuals in each role accountable for doing the work allocated to them and to obtain a clear view of how they are performing against role requirements; and:
- to recognise employees for the work they have done;
- to support or develop people who are underperforming, to become fully productive; and
- to boost performance to a higher level; and finally
- to influence reward decisions based on work performance.
So, what then are the major issues that companies are experiencing with performance management? What is driving the perception that performance management has ‘had its day’? Although each organisation will have its unique issues, there are a few generic trends, of which seven stand out.
Trend one – Frequency of performance dialogues
The ritual of the annual performance review is being replaced with more regular performance dialogues. The main issue with annual reviews relates to the fact that they are backward- rather than forward-looking – they focus on what has been done a year ago, which means that employees may have to defend work completed long ago. Conversations about performance ratings as ‘averaged’ over a year are generally experienced as less valuable than conversations conducted about real-time performance. Furthermore, once-a-year discussions are time-consuming. Deloitte has calculated that its annual performance reviews (completing forms, holding meetings, and creating ratings) consume close to two million hours a year.
The following companies have implemented more regular performance dialogues:
- Deloitte has introduced quarterly or per-project performance snapshots that require managers to describe employees’ performance through four questions; and weekly ‘check-ins’ initiated by the team member to keep performance on course.
- Adobe has instituted on-going ‘check-ins’ where expectations are clarified and both positive and constructive feedback is provided.
- Accenture has replaced annual evaluations with a system where managers give feedback on a more regular basis.
- General Electric abandoned formal annual reviews for more frequent feedback via a performance management application. Their frequent discussions are called ‘touch points’, where progress toward goals is discussed and where content of discussions, commitments and issues resolved are noted on an app (PD@GE). An annual summary conversation with employees around December remains, where they look back at the year and set goals. This conversation is, however, far less consequential and fraught than the former formal review.
Trend two – Nature of performance dialogues
The nature of the performance dialogue has changed to become a more positive and constructive conversation between two equal parties with a sharper focus on recognition, support, coaching to bolster performance, performance improvement, and development. The focus is more on what’s needed for the future than what happened in the past, and reflection on what worked and what didn’t, with the aid of constant ‘crowd-sourced’ vignettes.
These dialogues furthermore aim at giving employees a platform to voice concerns and to give input with a strong focus on development.
- Adobe wants to inspire people to do their best work; they want their good performers to feel valued, and those with room to improve to feel supported and encouraged through their performance dialogues.
- General Electric’s focus is on constant improvement through feedback. The emphasis is on the conversation and on coaching throughout, and the tone is unrelentingly positive. Feedback is categorised into one of two forms – continue doing something or consider changing something.
- Deloitte wants to spend more time helping employees use their strengths.
Trend three – Evidence of performance
Using actual and reliable real-time evidence of performance (as opposed to a once-a-year, inexact, backward-looking analysis of performance) has become increasingly important in coaching and developing performance. Judgements of performance or the lack thereof should be based on evidence of work done or not done. If this is not the case, the performance dialogue often revolves around personal characteristics and traits – one of the main reasons why performance dialogues are experienced as negative by employees. In addition to ensuring that performance dialogues are evidence-based, the line manager is required to display good judgement in weighing the evidence against the objectives within the context in which the objectives had to be achieved.
In this regard, continually crowd-sourcing qualitative and quantitative real-time performance data on the performance of individuals and teams is a main focus of progressive performance management systems. General Electric has developed the app, PD@GE. Through this app, employees can give or request feedback at any point via a feature called ‘Insights’, which isn’t limited to the immediate manager. There is a general move away from taking the opinion of only one person (the manager) into consideration to provide feedback. The focus is on the experience and feedback from the key receiver of the output/work.
Trend four – Objectives, KPAs, KPIs and rating categories
Once-a-year goals are being regarded as too ‘batched’ for a real-time world and more regular reviews of the appropriateness of objectives are proposed. There is a move from annual goals to objectives that are more fluid and changeable. At General Electric each employee has a series of near-term goals or priorities.
Multiple key performance areas (KPAs) or ratings, as opposed to a single rating, are also proposed. In this regard IBM has identified five KPA categories namely business results, client success, innovation, personal responsibility to others, and skills.
There is also a move away from a proliferation of key performance indicators (KPIs) to a few really meaningful indicators which will serve to create focus for an employee.
Trend five – Nature of performance ratings
The practice of one-dimensional, numerical ratings and stack-ranking seems to have come to an end. Ranking forces a manager to divide employees into groups (e.g. only 20% may be assigned the highest rating) and then to rank them. This unintentionally reinforces competition rather than collaboration. It also reduces employees to a single score.
Stack-ranking in Microsoft required managers to grade their team members on a bell curve, based on a 5-point scale. Managers also had to discuss final rankings of their team members with groups of other managers, many of whom did not know the employees being graded. In General Electric, ranking used to be called the Vitality Curve. It boiled employees’ performance down to a number on which they were judged and ranked against peers. Underperformers below a certain percentage (10% in GE’s case) were then fired.
Both Microsoft and GE have now abandoned these practices. The current trend is to direct the focus on the extent to which an employee is performing against the requirements of his/her role.
Trend six – Distinguishing between employees
It is generally regarded as important to distinguish between top performers, average performers and underperformers, because of the disproportionate input of truly distinctive employees and the direct and indirect cost related to non-performance. Studies have shown that the top 5% of employees outperform average employees by 400%. Identifying shades of differential performance among the majority of employees who do a good job, but are not among the few stars, is however becoming obsolete (i.e. ranking employees in the average category is counterproductive).
Trend seven – Performance and reward
There seems to be a shift from a single rating on, for example, a 3- to 7-point scale to which annual bonuses or increases are directly tied, to a looser connection between performance and pay, and better utilisation of variable compensation to recognise performance.
Skills – Observing, relating, rating, feedback and coaching
The trends discussed focus mostly on the design of performance management practices. It is however important to note that the successful implementation of these practices depends largely on the authenticity and the skill with which they are applied. Line managers should first and foremost reflect on their own ethos and skills sets, and take steps to ensure that they have what it takes to utilise the performance management system to get work done through other people in such a way that it inspires them and optimises their inherent capabilities for the betterment of all stakeholders.
Anna Odendal has been involved with USB-ED for the past two years, implementing talent management processes for them. Her areas of expertise are Implementation of talent management systems, Competency / leadership framework design and Competency, psychometric and potential assessments / Leadership and executive assessments / Design and implementation of assessment centre. She is the managing owner of the Centre for assessment and development (CAD).