The changing face of managing performance
In our last blog, we looked at the traditional system of managing performance. We considered objectives, measurement, feedback, review and ratings but there is momentum gathering which challenges its worth!
Nearly 77 percent of respondents in a recent global survey report believe performance management needs to change. Whilst 34 percent are stepping away from more traditional annual performance management processes. In a separate report only 4 per cent of HR leaders feel performance reviews are effective. A further group (42 per cent) stated to improve their current performance review process, it needed to change ‘significantly.’.
So, what’s wrong with the current system?
Managers and employees classed them as “backward-looking, inconsistent and too complex” in a CEB report. Additionally, the study found businesses spend an average of 43 hours per year per staff member on formal conversations. This is spent on goal-setting, performance evaluation, and on preparing for reviews. The cost and time involved with staff performance ratings has led some organisations to follow the lead of Google, Goldman Sachs and GE to abolish them altogether.
GE originally introduced Forced rankings. This introduced another issue. Employees rated as the top 10%, gained status, promotion and pay rises. Employee rated in the bottom 10 percent would face being managed out of the business!
Four reasons that account for the change in approach.
The Harvard Business Review report https://hbr.org/2015/09/why-more-and-more-companies-are-ditching-performance-ratings suggested four reasons which may account for the change in approach:
The changing nature of work. Numerical performance management systems don’t take into account how work gets done today. 12-month goals are not useful in today’s face paced world. Work is also happening in teams more than ever. This results in fewer managers accurately knowing their team members’ performance. This is due to employees being involved in many other teams, often doing work the manager doesn’t see or even understand.
The need for better collaboration. In their study of companies that have made the change, a clear trend emerges: conventional ratings systems inhibit collaboration, making a business less customer-focused and agile. The forced rating system leads people to directly compete with each other for rewards, hurting collaboration.
The need to attract and keep talent. We know that Millennials crave learning and career growth. The study showed that after a company removed ratings, managers talked to their teams significantly more often about managing performance. (Three or four times a year instead of only once). More frequent communication helps with employee engagement, development, and fairer pay. It helps managers better understand how their people are doing.
The need to develop people faster. Removing ratings has enabled companies to develop people faster. The review states that this is due to more frequent conversations. These tend to be more honest and open when neither party has to worry about justifying a rating at the end of the year.
Should you abolish performance reviews?
The evidence from the CEB survey suggests not! They found that by eliminating performance reviews, overall results and productivity can drop significantly. Employees of organisations that had scrapped performance ratings believed their performance conversations with their managers were less effective, scoring them 14 per cent lower than before.
CEB found engagement and performance dropped by up to 10 per cent without reviews. Meaning people are much more likely to leave the company. 8 per cent fewer employees who took part in the survey, believe the allocation of pay rises is fair. While less than 5 per cent of managers feel able to manage talent effectively without ratings.
“Organisations that have abandoned performance ratings have actually found the experience quite negative,” said Brian Kropp, HR practice leader at CEB. “Employees find it difficult to see the link between pay raises and performance. As a result they believe managers are more likely to give money to the person he or she likes. The research should cast a word of warning among companies that are thinking about jumping on this trend of abolishing reviews.”
Elements of change
So the evidence appears to show and many believe that there needs to be some way of managing performance.
Common themes emerging include: greater transparency, regular feedback and engaged managers, with companies moving away from the annual completion of paperwork toward year-round coaching.
Where companies keep rating scales, they are being simplified. One example of this is Goldman Sachs who scaled down their scale. Changing from a numerical rating system (from one to nine) to a scale which describes employees as outstanding, good or needs improvement.
Thinking of changing? Here are some points to consider:
With the removal of the default retirement age in 2011 employees can retire at a later age. This ends the employers’ ability to avoid addressing poor performance, preferring to wait for the employee to retire at 65. Effective appraisals allow organisations to document when performance is not to the required standard. If an employee becomes a detriment to the company, the documentation can be referred to and, if necessary, the disciplinary process can be started. Having accurate records and measures of employees’ performance ensures those who are taken down the disciplinary route are not able to accuse a company of discrimination, which can be costly and damaging to an organisation.
The new systems adopted by the organisations in the studies relied heavily on managers being able to have meaningful discussions with members of their team. They also shifted to a much more supportive environment rather than one of critical feedback. Coaching has become much more important and is seen as the key to improved performance in organisations that made the change. Before you change, your managers need to gain all of the skills to be able to make the successful transition.