Plus ça change . . . ?
Sometimes, the more things change, the more they stay the same. Does that saying hold true for performance management?
In some ways, yes. Many American companies still rely on annual performance reviews to assess the quality of workers’ efforts. Their reasons, often pragmatic, include
- rigid pay for performance practices linked to fiscal cycles,
- the difficulty of organizational culture change, and
- sub-par selection and training of talent managers.
(For more on this, see our blog “The Momentum for Change in Performance Management.”)
However, a 2017 Gallup research paper famously concluded “Traditional performance management systems are broken.”
It’s not a new insight. Decades earlier, quality management pioneer Dr William Edwards Demming memorably blasted the merit rating system used in performance reviews. He wrote:
The merit rating nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, [and] nourishes rivalry and politics. It leaves people bitter, crushed, bruised, battered, desolate, despondent, dejected, feeling inferior, some even depressed, unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior.
—Quoted from The Essential Demming, 2013
Gallup’s 2019 article “More Harm Than Good: The Truth About Performance Reviews” flatly states annual performance reviews don’t equip, inspire, or improve performance.
Furthermore, the article says they’re not the best system for determining pay and promotion. And they’re expensive, costing large firms (more than 10,000 workers) between $2 million and $30 million a year in lost working hours—with little to show for it.
Problems with annual performance reviews also include
- too one-sided,
- potential bias of managers,
- flawed reviews due to managers who aren’t formally trained on how to evaluate performance, give feedback, or develop and coach employees,
- a focus on the past rather than the present—often, too much time has elapsed between employee work actions and assessment, and
- the stress of having to give or receive criticism.
But perhaps the biggest problem with the annual performance review is the scope. Gallup management experts Robert Sutton and Ben Wigert believe most performance reviews try to do too much in a single conversation. For example, managers may use a single performance review interview to
- offer advice on how to improve,
- set an employee’s raise or bonus,
- decide on a promotion, or
- justify a future firing.
They believe it’s better to separate these issues into different conversations. But ultimately, that’s up to individual company policy.
So for some firms, even though there’s evidence to support change, not much has changed for them, because of the values of their corporate culture.
Meanwhile, more agile firms have listened to the criticism and revised how they use annual reviews. Some organizations have even abandoned them entirely to experiment with other forms of appraisal and methods for boosting performance, such as Accenture, GE, Microsoft, and Deloitte.
Increasingly, companies do monthly, bi-weekly, or on-demand one-on-one meetings in lieu of a single annual review.
So, for some organizations, things have changed.
New influences: From microbes to millennials
Some new factors are influencing performance management.
Pandemic-driven remote work
A significant one is the COVID-19 pandemic which led to more remote and hybrid work. HR had to rethink some of its performance management assumptions. How do you assess people you can’t see?
The pandemic also sped up adoption of remote platforms, tools and cloud-based technologies to monitor work, automate certain HR processes, and communicate with employees off-site via multimedia. Consequently, data integration became even more critical for HR.
Managing millennials
Workforce demographics have also changed. Millennials, born 1981-96 (who’ll be 26 to 41 years old in 2022) are the largest working population in the US, accounting for around 30% of the US workforce. By 2025, millennials will represent 25% of the global workforce.
This affects performance management because millennials often have different attitudes to work than older generations. They value company cultures that are collaborative, innovative, and socially responsible. They value training opportunities, professional development, and a good employee experience. If they don’t find it, they’ll often leave.
Rise of data, metrics, and analytics for decision-making
The rise of big data and use of HR metrics to feed into analytics for better decision-making is another notable influence in performance management in the 2020s. Companies are learning how to use their internal business data and leverage external data in more sophisticated and strategic ways to measure and add value to their departments and business.
Here are 6 trends in performance management in 2022:
Trend 1: Data-driven performance management
Futurist Bernard Marr points to the importance of data integration in any comprehensive performance measurement system. He notes a strategic performance management system should provide a holistic view of performance by bringing together data from different organizational units.
However, Marr notes people often underestimate the efforts needed to collect data from diverse sources. And often, much performance data is not readily available in existing databases.
Marr explains the first step in any performance management software implementation is to find out which information is required, whether the data already exists, and if so, where it is stored.
Much information will come from companies’ existing ERP systems and data warehouses. But other data will come from sources such as office apps like Microsoft Excel, or data from third-party providers. And people may have to manually enter some performance data into the system either because it doesn’t exist yet or because it’s not stored in available IT systems.
Marr explains strategic performance management solutions are not just a big database full of numbers. They may include visualizations, descriptions, comments, discussion threads, and action plans. He comments:
These provide the rich contextual information that allows us to make sense of the data and turn it into actionable knowledge and learning—which is the key objective of strategic performance management.
—Bernard Marr
Trend 2: Experimentation and change
Many firms are experimenting with how they do performance management. Some are blending traditional annual performance reviews with other approaches. Others are reinventing the process as an ongoing performance dialogue rather than a one-off review.
Google, for example, an exemplar of HR practice in Silicon Valley, recently revised their performance management processes. Previously, they gave detailed twice-annual performance reviews and raises, which involved a huge amount of work. Since May 2022, they’ve developed a new Google Reviews and Development (GRAD) system.
Highlights of GRAD include
- regular feedback and check-ins by managers, to ensure alignment on important work, and to discuss learning and career options,
- a simplified, single annual performance review involving less work for managers and employees, and
- the continuing possibility of promotions twice a year.
The trend in many firms today is for reviews that are shorter, more frequent, and part of a broader performance management program. Some approaches include peer feedback.
Trend 3: Managerial coaching skills in demand
Employees prefer coaches, not bosses. They want clearly defined job expectations, accountability, a rich purpose, and above all, ongoing feedback and coaching to help them improve.
Coaching ability in managers is in high demand now as it improves employee behavior more effectively than annual reviews or managerial orders. Good coaching skills directly correlate with growth in large companies.
Hiring and training managers to be effective coaches is therefore important. Also, managers need to understand that an annual review should never be the first time an employee hears about concerns.
Trend 4: Developing a feedback culture
More firms are embracing regular feedback, check-ins, employee recognition, and goal-setting as alternative or supplementary ways to track progress and motivate improvement. Some firms even entirely ditch annual performance reviews for more timely, accurate feedback sessions throughout the year.
Developing a feedback culture provides varied formal and informal feedback methods to eliminate surprises, support performance, and make the review process more palatable.
Trend 5: Cloud-based performance management software
Many organizations now use cloud-based performance management software to replace the tedious annual review process with real-time performance tracking, goal setting and feedback. The software enables a business to adjust individual employee goals as conditions change.
It also allows 360-degree feedback from peers and subordinates as well as supervisors. These systems use dashboards for quick, collaborative reviews, and can report on the performance of individuals, projects, and teams.
A popular PMS vendor says performance management software tools help managers write accurate job profiles and expectations, create relevant objectives that align with company goals, document performance, and write appraisals. It says the best software tools also boost engagement through transparency, recognition, SMART goal-setting, and feedback.
Trend 6: Assess and reward good performance
Pedro Neiva Botelho of Schlumberger believes firms should assess and reward individual and team operational contributions, along with financial results and corporate strategic performance. It’s an approach taken in his own firm.
Employee rewards and recognition digital platforms and programs can boost engagement and encourage better performance. Deloitte research shows employee engagement, productivity and performance are 14% higher in organizations with recognition programs than in organizations without them. And a 15% improvement in engagement can cause a 2% increase in margins.
Performance Management Advice
- Simplify the performance review process so it’s not intimidating.
- Make reviews more relevant to the work being done. Set clear standards and expectations for each job or role.
- Develop caring, insightful coaching skills in your managers so they can speak effectively to employees, understand their strengths and weaknesses, and communicate well to encourage growth.
- If you plan to replace annual reviews entirely, first ensure you train all your managers in the skills to use your new system. For instance, if you’re moving to frequent feedback meetings, some managers may need communication training and role-playing simulations to learn how to talk effectively to employees.
- Build a culture of continual learning and development. This includes teaching people to talk about work expectations, progress, and personal development in open, positive, constructive ways. It also includes employee recognition programs and rewards systems for progress achieved.
- Performance management systems work best within a culture of honest feedback based on shared definitions of excellence. So if you don’t have this yet, develop it.
- Establish a reliable data integration system for all the HR data you need to collect, store, and analyze for managing performance issues.
- Make the evaluation process fair and transparent for all. Some ways to do this include clearly linking employee goals to business priorities, and communicating this well; teaching managers to coach; differentiating compensation for top performers; and team-based (as opposed to individual) evaluation.
- For more tips, see advice from the Forbes Human Resources Council.
When you do performance management well, it helps employees realize their full potential, while helping management get the most out of the workforce.
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