An Emerging Trend In Performance Management


The article focuses on how organizations are changing their approach to managing employee performance. It takes a closer look at the latest trend with some giant corporations disbanding its performance ratings.

The conventional performance management approach

So we are well versed with the conventional performance management approach – goal setting, interim reviews and annual review & ratings which are than normally linked to increments or bonuses for employees. This is a perfect conventional performance management cycle loved and widely propagated by HR and at many a times hated by managers and employees. Agree?

Doesn’t matter if the above statement is true or not. The conventional approach still remains the most popular approach with organizations in managing employee performance for various reasons

  • It helps in the fair distribution of rewards – merit increases, bonuses, incentives etc.
  • It helps in recognizing high performers
  • It helps in managing poor performance
  • It is an important source for talent management and development reviews

Although this popular approach is very crucial for organizations in measuring and building organizational performance, it has not always been the favourite of managers and employees.

The pitfalls in the conventional performance management system

There are a number of reasons why many managers and employees are daunted by the conventional performance management approach and more importantly the end of year appraisal process. The most noted ones are listed here,

  • Rating an employee’s entire year performance in a single number is not always practical and results in an awkward and uncomfortable discussion for both the employee the manager – it neither drives employee engagement nor high performance.
  • Forced rankings put employees under predetermined buckets. An individual’s performance is evaluated in relation to the performance of others and not on the basis of self-merit and contributions. This encourages individualistic performance and hampers team work.
  • The time and money spent of performance appraisals doesn’t ultimately meet its end goal – to drive better employee performance
  • Goals are as dynamic as the organizations are today. Goals need continuous revisits during the year and it is important to align goals to organizational objectives not necessarily cascade.
  • Appraisals measure past performance whereas organizations are more interested in future performance
  • In a large number of organizations, appraisal process reduces to a paper filling exercise. No actual discussions on performance take place. Once in a year managers and employees meet to discuss “ratings” which are linked to pay raises or bonuses

Some of these pitfalls are exaggerated at times by organizations, but many are real. This is why a lot of research around the world shows that many prominent organizations today are planning to revisit their performance management systems.

What are organizations looking for?

Organizations are looking for a more pragmatic approach to performance management and the one that meets its real objective i.e. driving better performance. A robust performance management system is equipped with mechanism that,

  • Encourages continuous feedback and dialogue between managers and employees
  • Ensures performance conversations are future focused on goals, development and growth and not past performance
  • Reduces administration and is less time consuming
  • Doesn’t encourage employees to compete for rewards but facilitates teamwork and goal attainment

What trends are emerging?

Contemporary to this conventional approach in performance management, I read several articles in the past few years about an emerging trend i.e. some prominent organizations getting rid of their annual performance appraisals / ratings. The trend became more prominent when Accenture, one of the largest organizations in the world announced that it will disband its performance reviews for around 330,000 employees starting 2016. Accenture joined the list of some major organizations including Adobe, Juniper, Microsoft, Gap, Motorola, GE & Deloitte who have all drastically changed their annual appraisals since the trend gained pace in 2011. According to the management research firm CEB, about six percent of Fortune 500 organizations have got rid of their ratings since then.

Performance appraisal process being such a crucial process for many HR decisions, organizations moving away from it would have surely weighed their options. For instance, when Deloitte decided to revamp its performance management it discovered that Managers spent 2 million hours each year on performance appraisal forms, discussions and ratings process. The costs outweighed the benefits the current system was generating. So it decided to go for a more robust performance management approach and scrap the annual rating process.

Organizations who are moving away from the annual appraisal systems are not only looking at the costs. Deloitte may in fact not be able to save any of their 2 million hours spent on appraisals or may even end up spending more by moving away from the once-a-year review. The future focused model of continuous feedback, coaching and development may in fact require managers and employees to meet more frequently but this time to conduct more meaningful discussions that help the organization. It is a deliberate choice of investing time in people’s potential rather than looking at past performance and putting people under the rigid baskets of forced ratings.

What is causing this shift?

Managing and driving employee performance is more crucial for organizations in the current times that in was before. Organizationalstrategies, structures and goals are evolving continuously as a result of the rapid change in technology, economic instability, changing work demographics including the increasing number of millennials in the workforce and the rise of the virtual teams. To stay in business organizations must adopt to the changing circumstances and the way it manages and drives organizational performance. Imagine a corporation like GE which is known to pioneer and popularize the performance reviews and forced ratings is also moving away from it. This has less to do with Jack Welch moving out of GE and more with the “Millennials” (those born between early 80’s and 2000 and known to be highly technology savvy) influencing organizations to change.

With the young workforce reaching a majority in many organizations they are almost driving the rules at the workplace. The workforce demographics and workplace culture have changed rapidly across the world after the technology revolution. Today, employees want instant feedback and ongoing conversations on performance. The new generation employees do not want to wait till the end of the year to know if they have performed well or not. HR Professionals need to think out of the box to engage these new generation of employees.

Should we scrap the annual performance ratings?

It is still early to say if the organizations who have scrapped ratings have seen demonstrated benefits. Hopefully with time a new radical approach will emerge that will address most performance issues. For now, if we are planning to take this bold move we should not be looking at the headlines alone. What works at some organization may not work for your business. Not every organization who has announced it has scrapped annual reviews and ratings has actually scrapped it in principle, they still use some scales to differentiate between performers and non-performers.

For instance, Deloitte’s new appraisal system includes 4 future focused questions confidentially answered by the team leaders. Two of the questions are answered on a 5-point rating scale from “strongly agree” to “strongly disagree” and the other two questions are answered with a simple “yes” or “no”. This means the 5-point rating scale still exist in some context and for me, even the simple “yes” or “no” is a 2-point rating scale. The questions are confidentially answered so the employee doesn’t know the results and how Deloitte uses this data to differentiate and reward employees. This may certainly be researched and may work for Deloitte but will not work with every other organization. There is no one size fits-all approach in performance management. An organization should understand its culture and direction and should make decisions after weighing its compromises vs gains.

Solution: Don’t scrap it – fix it!

If your performance appraisal cycle is not making sense, the best solution is not to scrap it completely but to fix it. Understand the cons of the current system. Understand what is working and what is not working for your organization. Don’t let appraisals become a paper filling exercise that managers and employees hate. Introduce robust mechanisms for ongoing dialogue and feedback throughout the year. The biggest pitfall that we see in performance appraisal systems is that, managers don’t provide regular feedback and talk about performance except the formal reviews. HR plays a crucial role in bringing this change. Train employees, support development, build coaching skills in managers, use technology, keep it simple, make it compelling, make it interesting, make it fair.

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