Over two incisive articles, we’ll be exploring performance management’s evolving shape – past, present and future.

In part 1 of ‘Is performance Management dead?’ we explore what’s happening to performance management reviews — whether the existing model is actually driving towards or away from delivering improved performance. We also explore how courageous conversations can underpin future performance reviews and take them where they need to be.

Part 2 looks at taking what we’ve discovered and applying it to new models of performance management — ultimately deciding whether it is indeed dead and if there is a case for ‘managing over measuring’. We also explore how courageous conversations can build trust and the benefit of a high-trust organisation on performance and productivity.

PART 1

IS PERFORMANCE MANAGEMENT DEAD?

With the likes of Accenture, Deloitte and Google among many major players beginning to ditch performance management reviews, is there still value in the process?

Uncovering better ways of working often begins by asking surprisingly simple questions. Over three presentations I gave this month about improving performance through courageous conversations and building high trust, I asked one such question to around 150 HR Directors: Have you ever seen a performance management system that actually improves performance?

The answer didn’t bode well for the status quo: Only 4 of them said ‘yes’. Given that the bones of the traditional annual performance rating system have been roaming corridors, meeting rooms and boardrooms since 1954, it would seem that there’s a case for etching out performance management’s headstone and drafting up its eulogy.

But before we don our mourning suit, it’s worth exploring why both employers and employees are unhappy with what it provides, and where it needs to go to have a life in today’s real-time working economy.

PERFORMANCE RATINGS ARE UNDERPERFORMING

It sounds ironic, but ask any one of us how we feel about the process, and we’d be well within our rights to rate the ratings’ system itself. It’s not trying to be over-smart about it; it’s seeing past the ‘why’ – their clear purpose is a very worthy one – to improve performance, and getting to the mechanics of ‘how’ it’s failing to deliver on its positive intention.

In a nutshell, here’s why performance ratings are underperforming in the three key areas of time, culture and results—

TIME

Managers spend 210 hours per year on performance reviews
Employees each spend 40 hours a year
Annually or bi-annually is not enough – A Harvard Business Review survey found 72% of employees said their performance would improve if managers provided “corrective feedback” as they go

CULTURE

Too much focus on individual performance (rather than team effort)
Creates unwanted internal competition
Discourages employees from sharing resources and information with peers creating silos

RESULTS

90% HR leaders say the process is inaccurate
78% of HR leaders are changing or reconsidering performance management
80% of employees believe their performance review is inadequate

It seems that subjectivity is also rife. The journal of Advanced Psychology found that out of 4,492 managers rated by two bosses, two peers, and two subordinates, 62% of the variance in ratings was personal bias. Performance itself accounted for only 21% of variance. The result is objectivity out, subjectivity in. There’s also the question of knowing who rated you – with clear objectivity issues arising.

And that’s not even adding in how millennials feel about them. There’re gaps, perhaps chasms, between process and benefit appearing, so who’s doing what to challenge it?

FRESH APPROACHES

In a large organisation, the time factor is vast — Deloitte estimated that it costs them 2 million hours a year. Their own research went on to reveal that “more than half their questioned executives (58%) believed their current performance management approach drove neither employee engagement nor high performance.”

It’s certainly a question of timing to them and looking in the right direction— being prospective instead of retrospective. Rightly, Deloitte has begun unpicking goals and targets that may well have evolved, changed or simply been discarded in the year. Moving forward, Deloitte has now asked for predictions and opinions about what will happen in the employee’s future. They’ve boiled it down to four questions:

Given what I know of this person’s performance, I would always want him or her on my team (1-5)
Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus (1-5)
This person is at risk for low performance (yes or no)
This person is ready for promotion today (yes or no)

These are questions asked at the end of each project rather than annually. They’ve called it the “performance snapshot” in order to evaluate moments, rather than a year’s work. However, as much as the system has been tweaked and the ratings streamlined, it’s not yet getting to what millennials are after in performance ratings. It’s touching upon intrinsic motivations and aiming for the best performance but whether it’s building trust – a key to high performance and high engagement, the jury is out.

NEW MILLENNIAL THINKING

Millennials will make up 75% of the world’s workforce by 2025. What’s unsurprising is that according to Fast Company and articles in Forbes magazine, is that 69% of millennials think the performance rating system is flawed, 62% feel blindsided by a performance review, and 74% feel ‘in the dark’ about how managers and peers think they’re performing. Worst of all, over half reacted to a review by looking for a new job or complaining to colleagues.

It’s clear that what’s needed now and in the future will demand an evolution.
Millennials echo this in their response in the survey with 72% wanting to be their own boss and if pushed to work for someone else 79% wanted a boss to serve as coach or mentor.

So, the question is — how do we move into a performance review system that begins to satisfy these needs?
Alastair Woods, PwC’s reward team director, describes the shift:

“Companies need to be careful not to throw the baby out with the bathwater. Without the year-end rating, the danger is that the distribution of pay and bonuses can become even more of a dark art as shadow systems evolve without proper governance and infrastructure behind them. Our research shows that when done well, with a balance between rewarding past performance and considering future development needs, performance conversations can really motivate employees. And many employees appreciate the clarity that an effective formal assessment provides.”

COURAGEOUS CONVERSATIONS ABOUT PERFORMANCE

It’s a lovely idea to be able to talk openly about performance both good and bad, but of course, the reality with underperformance is that it needs to be handled correctly. With 70% of managers unwilling or unable to have a courageous conversation, and 8 out of 10 managers stating that difficult conversations are a key part of their job, the case for performance management reviews as they stand currently is looking shaky at best.

It’s clear hiding behind the annual performance review is not going to cut it to boost productivity and address underperformance in the right way. The fact is that organisations are sensing the need for a shift away from the rigidity of ratings in their current form, and instead initiating more forward-looking and more specific ways of measurement. But there’s a long way to go and frameworks for behaviours to instil.

Learning how to have courageous conversations is the first step forwards. Look out for part 2 for how courageous conversations around performance build trust — the foundation for dramatically boosted productivity and performance.

PART 2

IS PERFORMANCE MANAGEMENT DEAD?

In part 1 of this exploration, we looked at the state of annual performance reviews and began to assess their relevance and value in today’s fast-moving digital economy. Now we look at evolving the model and whether better performance approaches could build high trust and higher performance — ultimately answering if performance management is indeed dead.

We know that the traditional performance management process isn’t giving HR professionals, employees and management the goods. From accuracy to usefulness, from objective insights to actually achieving high performance, the negative reaction is translated into action by the likes of Accenture, Google and Deloitte among many others – who are all instigating a step change in the way they measure performance.

Of course, measuring is one thing and managing is another. Before we get to that, it makes sense to look at intrinsic motivation— the very source of good, bad and indifferent performance.

LOSING THE CARROT AND THE STICK

Tastier carrots and bigger sticks are useless compared with understanding and leveraging the three building blocks of intrinsic motivation — Autonomy, Mastery and Purpose. These are the sentiments from author Daniel Pink. In the context of getting to high performance, there’s a logical move through the stages.

Autonomy – the desire to direct our own lives. For high-performance motivation it’s nurturing the freedom to reach goals and objectives in everyone’s own way.
Mastery — the urge to get better and better at something that matters. When we have the skills and tools in-hand, we’re in ideal shape to perform better. Ideally, that’s powered by careful feedback and on-the-job coaching.
Purpose — the yearning to do what we do in the service of something larger than ourselves. In terms of meeting business objectives through performance, it’s knowing where we are through consistent feedback along the road to our objectives, and the wider goals of the organisation.

But there’s a fourth to add to push motivation and performance to the next level. And that’s trust.

HIGH PERFORMANCE THROUGH HIGH TRUST

In today’s digital economy, trust is at an all-time low. From the machinations of social media to ‘fake news’, to the lack of credence to certain statements inside businesses, there’re numerous factors that erode trust.

According to sociologist David Halpern, In 1960s Great Britain, 60% of the population believed other people could be trusted, today it is down to 29%.

Arguably, now more than ever there’s a need for business to be true to itself and the wider public with their actions inside and out. It’s not just lip-service to a CSR initiative for example, it’s the building blocks for trust and by extension, productivity and performance.

The compelling case for trust

As a quality to aim for, the bottom-line effects are significant.

GETTING TO HIGH TRUST

So, how do we get to high-trust?

Visualising the movement as a pyramid, the foundation for trust is acknowledging individuals and their strengths and weaknesses. When people are acknowledged for what they’re doing and how they’re doing it regularly, then we can move up the pyramid. It’s part of building a realistic performance measurement and management model that supports intrinsic motivations and the fourth which we’re exploring here.

The progression to respecting and ultimately liking an organisation — in terms of its values and wider objectives — is part of mastery and purpose in intrinsic motivation. It’s more than giving people the tools and the skills to reach company and personal objectives— it’s cultivating a culture of transparency and openness.

The apex of trust is underpinned by ‘liking’ the organisation and where it’s headed. And this is the sharp end of creating a performance management system that works for organisations of many unique shapes and sizes. All these layers grow trust along the way throughout people’s performance.

MANAGING VERSUS MEASURING

We’ve talked about motivation to get high performance and building trust as fuel for that journey so the question must arise— is managing performance almost more important than measuring it?

Millennials seem to strongly believe so – as exemplified in the stats in part 1 – with 74% feeling ‘in the dark’ about how managers and peers think they’re performing, with traditional performance reviews and 80% of them saying they prefer on-the-spot recognition over formal reviews. It’s realistic to say that millennials and indeed most people are used to a ‘now culture’ – where instant gratification in terms of information access, social media interaction and even entertainment on-demand is standard issue. They have a point— the need for more fluid conversations around performance with changing priorities and goals in line with the shifting economy and volatile market forces has never been greater.

To support this view, Wiley published a report in 2015 on annual performance reviews and found that managing performance is more important than measuring it, and in terms of general performance management systems, those set-ups with ineffective benchmarking are associated with lower performance. If a business hasn’t got its benchmarking right, then management gets pushed right to the top of the to-do list.

IS PERFORMANCE MANAGEMENT DEAD?

The short answer is— yes, but only as we know it. A more accurate response is— it’s evolving. And quickly. The Washington Post cites ‘To date nearly 10 percent of Fortune 500 companies have done away with annual ratings, according to Cliff Stevenson, a senior research analyst for the Institute for Corporate Productivity, a research network that studies management practices.’ That was in mid-2015. Now that number would be significantly more – perhaps in the mid-20% mark.

The move in the direction of change is clear with Adobe, Accenture, and Deloitte (and other majors) announcing ‘scrapping ratings’ in favour of performance review to the performance prediction. That’s on a functional level. On a cultural and holistic level the evolution and future looks to new models. As we’ve explored, these are having a profound impact on the bottom line — something I’m sure the 1954 model would have approved of.

The case also grows for the demise of annual performance ratings factoring what millennials want and need — the group that will comprise the majority of the world’s workforce very soon. A yearly review is far-too clunky, cumbersome, out of touch and HR managers aren’t following up on the results. It’s a system that eats time, energy and is quite simply not delivering.

Obviously, not losing sight of the intent is key and ratings in themselves aren’t bad, just the way they’re responding to today’s needs undermines their case. There is a fresh approach and that’s becoming clear through coaching, regularly defining what good looks like, and having courageous conversations when low performance has become an issue. There is no sense in not addressing underperformance as soon as possible, and not amid cumulative issues with multiple individuals at annual review time. Regular and frank conversations are also the key to an open culture, harnessing intrinsic motivations and adding to why we all get up in the morning.

The final piece of the jigsaw seems to be developing ways to build trust relationships and grab hold of the holy grail of the high-trust organisation. It’s up to the individual business to not necessarily find an entirely new model for performance management, but look at managing performance first, measuring it second, and do everything possible to open up the conversation around performance— motivating, enriching and building trust along the way.