Revamping Your Performance Management System

Companies are ditching their performance management systems and adopting completely new ideas. Adobe replaced its formalized annual appraisal with more-frequent and less-formal check-ins. Microsoft deep-sixed its stacked rankings in favor of more-frequent meetings (Connects) between manager and employees. Lear, Motorola, and Expedia replaced a ranking system with discussion-based programs. However, a closer look supports a statement from the February 2016 Economist report: “Reports of the death of performance reviews are exaggerated.”

The Center for Effective Organizations at USC, together with World at Work, found that three cutting-edge practices emerged from their research published in the World at Work Journal in 2016:

1) On-going feedback (at least four times per year);

2) Rating-less reviews; and

3) Social-media (i.e., “crowd-sourced”) feedback.

Some things have changed and some have not. Goal attainment remains the basis for performance appraisal. However, development goals are gaining in importance over performance goals. Rating-less reviews take place through discussion and lack a numerical rating, so the biggest concern is how to determine merit increases in the absence of metrics.

What makes performance management effective? Research by Edward Lawler and his team from the University of Texas (2012) points to the following:

• Business-driven performance management integrated with other talent-management practices;
• A strong performance-management feedback culture using honest, direct performance feedback;
• The right leadership and management support practices with checks and balances to ensure appraisals are done well;
• Measures to determine the effectiveness of the system;
• Calibration meetings where managers defend their rankings with other managers; and
• Managers trained to conduct effective appraisals and employees trained on their role in the process.

According to Gallup, conventional performance-management systems, which emphasize annual performance ratings based on the past year’s work, fail to improve performance. Gallup found there are three core practices to effective performance development:

• Establish Expectations
• Continually Coach
• Create Accountability

Much of the criticism aimed at performance management focuses on the annual review—and for good reason. Performance is not an episodic event—it happens every day. Gallup found employees want a coach, not a boss. Continual coaching helps managers and employees create an ongoing dialogue about performance expectations and individualized developmental needs. A good coach focuses on the future with clear expectations and ongoing feedback on progress and performance. Nothing makes an employee’s work more difficult than unclear or conflicting goals. One of the most effective ways for managers to avoid these issues is to collaborate with employees to determine performance expectations based on employee abilities, aspirations, and developmental needs. Together they can then identify performance targets and prioritize the most important objectives. Dialogue between manager and employee should facilitate developing and applying the employee’s strengths. Gallup recommends that employees experience some form of coaching at least once per week, whether in the form of recognition, constructive feedback, or encouragement.

Accountability is critical to achieving high performance. Without accountability, establishing expectations and continually coaching are just talk. Organizations have traditionally used the annual review as the main way of creating accountability. Employers must still hold employees accountable to key performance expectations, so performance reviews are still relevant. Gallup recommends that, in addition to creating an ongoing dialogue about performance, managers should complete at least two formal progress reviews per year—rather than one annual review—so formal accountability conversations happen more often.

Your performance management system may not need a complete overhaul. Some small changes or additions may provide a much-needed tune-up. The good news is that you do not have to eliminate performance ratings and reviews. There may be opportunities to improve the way you discuss performance and conduct reviews. The more managers effectively establish expectations, continually coach, and create accountability, the better both individuals and organizations will be positioned to reach their goals.