Your Performance Management System is So 1990’s
Admit it; no one likes their annual review. Leaders dread it, employees avoid the conversation, and human resources is still asking you to do it because it's the only way they know how to measure and track who gets an annual raise.
Most companies have leaders schedule time with direct reports one to four times a year to share a performance review report and rating with their employee. The dialogue is often driven by the employee's role description and yearly goals and looks backward at their performance. The result of this review is a number score calculated by rating each essential accountability or goal. That rating, typically on a five-point scale, is then translated into a percentage raise for the employee that is annualized into their wage. For instance, the company has budgeted for a 2.5% annual raise to be shared by all. Sally receives a 4.2 rating on her review; she is given a 2.2% raise. Tom receives a 3.2 rating on his review; he is given a 1.6% raise. The gap between the ratings are minimal and arguably not very meaningful to Sally or Tom. Sally's boss is an easy rater and gives everyone high marks. Tom's boss is a harsh rater and tends to rate everyone down the middle of the scale. This scenario sounds so unfair, so unscientific, so flawed, and it is business as usual across the western world of business.
Enough! It's time to separate two very different concepts that, over time, have become tangled together to become the much-loathed "performance review process." Performance management and performance measurement are two different concepts.
According to Armstrong and Baron (Armstrong & Baron, 2000), performance management is "a process that contributes to the effective management of individuals and teams to achieve high levels of organizational performance." Simply put, performance management is the ongoing conversations and recalibration of goals or daily work between a manager and an employee. Performance measurement is a rating that is attached to performance metrics to assign compensation increases. And yet, when most business leaders refer to performance management in the traditional sense, they mean both management and measurement. Indeed, the outcomes of performance management conversations often inform the rating of someone's performance, but they are not the same thing. Additionally, when combined, studies prove that companies can discourage high performance by attaching ratings to performance conversations. In a 2017 paper published by Gallup, Wigert and Harter say, that while incentives can motivate, tying compensation to performance metrics cause employees to focus on the metric to the detriment of other important goals or outcomes. They use customer service and supporting coworkers as examples of outcomes that might be sacrificed for the sake of meeting a metric with a financial incentive.
While performance measurement is an incredibly complex concept, start your journey by doing your research. Here are six modern best practices to move away from outdated methods and move your performance management strategy into the 21st century:
- Engage with an evidence-based company that is already moving the needle on performance management. The Marcus Buckingham Company (an ADP company) and Gallup are the top two most data-driven companies that can also sell your business a platform and methodology to manage performance with statistics to back-up their claims.
- Train leaders to evaluate performance the same way. Define terms for them. Make sure they understand what performance looks like in the organization when a team member is: below standard, meeting expectations, or exceeding expectations. Don’t leave leaders guessing what these terms mean or they will make up their own definitions, which might not match the organizational definition.
- Have frequent conversations about work tasks with your direct reports. Leaders who have short conversations with their employees frequently (every week or two) on near-term future focused work can better focus the performance of their team members. If by chance, an employee is off target, they have the chance to course correct much earlier in their performance year, rather than hearing about their mistake in an annual review, when it's too late.
- Separate performance conversations from performance rating. Rate employees based on their ongoing performance and your weekly dialogue about that performance. Tell the employee where they stand, not their number or where their dot is in a scatter plot. (Sullen, Mount, & Goff 2000)
- Formulate questions in a way that minimizes the idiosyncratic rater bias. In Buckingham and Goodall's HBR piece they say, "To see performance at the individual level, then, we will ask team leaders not about the skills of each team member but about their own future actions with respect to that person." Instead of asking, "is Tom, a top performer?" we rate the statement, "I always go to Tom for extraordinary results." (TMBC 2015)
- Rate/Measure employees often, do it more than once a year. Have leaders answer questions or rate statements about their employees at least once per quarter. In this scenario, each rating represents a moment in time and is a single tool, among many other tools, like the frequent conversations that will all be taken into consideration to determine compensation at a later date.
- If you continue to rate employees for compensation, remove the number before sharing with the employee. Remove all of those partial percentage point increases. Instead, flatten compensation increase levels/percentage amounts to 3-4 tiers. For example, in a 3-tier method: below standard=0%, on-track=3%, and exceptional performance=standard 3% + an additional 5%. No longer would Tom and Sally receive seemingly random partial percentage increases based on their rating. Neither were "exceptional." They both fall into the "on-track" category and would receive a 3% increase. The number isn't the goal. The number is a measure.
It's time to overhaul our systems and advance our practices. Understandably, for seasoned leaders, it's hard to hear the feedback that performance systems have been flawed. However, like in many other professions, we must follow the evidence and learn from imperfect practices to advance performance management.
Armstrong, M., & Baron, A. (2000). Performance management. Human resource management, 69-84.
Buckingham, M., & Goodall, A. (2015). Reinventing Performance Management. How one company is
Rethinking peer feedback and the annual review, and trying to design a system to fuel improvement. Retrieved from https://hbr.org/2015/04/reinventing-performance-management
TMBC. (2015). Performance Pulse White Paper. Generating reliable performance ratings. Retrieved from https://www.tmbc.com/portfolio-item/performance-pulse-generating-reliable-performance-ratings/
Scullen, S., Mount, M. & Goff, M. (2000). Understanding the Latent Structure of Job Performance Ratings. Journal of Applied Psychology, Vol 85, No. 6, 956-970.
Wigert, B., & Harter, J. (2017). Re-Engineering Performance Management. Gallup. Retrieved from http://news.gallup.com/reports/208811/re-engineering-performance-management.aspx
© 2017 Nancy L Critcher-White