Despite only 4% cent of HR leaders viewing performance management as effective, the CEB have reported that ‘scrapping performance reviews’ results in a significant drop in productivity.
Many successful organisations have decided to move to a continuous performance management approach. This often involves removing the annual cycle of goal setting, performance reviews and ratings in favour of ongoing feedback and future-focussed conversations.
It all seems very positive, but the study shows these actions result in a drop in engagement and performance. Employees are less likely to discuss goals and feel the quality of performance conversations drop. Performance pay systems become a ‘black box’ and those most affected are the high performers.
Although I believe these new approaches can transform performance management into something that adds significant business value, I’m not altogether surprised by these results. It’s because doing performance management well becomes much harder, not easier, once you lose the annual ‘crutches’.
It’s not about what you remove, it about what you put in its place. And this means working even harder to:
- engage leaders, line managers and employees in the vision - especially important given frequent conversations will require more time than annual reviews. Sharing the theory (our top 10 PM reads are a good place to start) and using role models and internal success stories to play out ‘what’s in it for me’ will help
- develop the feedback skills of all employees – ‘no rating’ or ‘no review’ carries the risk that honest feedback can now be avoided. The skills required to give, and receive, feedback will become even more important, at all levels of performance
- establish a process that adds value – you still need a core framework and clear principles to guide your performance management strategy. For example, consider retaining objectives but as agile, near-term (e.g. quarterly) goals, and possibly retaining the 6m or annual meetings for the purpose of development planning
- link performance and reward – with no simple measure of individual performance, you’ll need to re-think your reward strategy. This means basing reward decisions on other factors (e.g. pay determined by market rates, and bonus by team/company performance) or empowering line manager to use more discretion in reward decisions. The challenge is ensuring ‘line manager discretion’ means decisions still adhere to a set of clear and consistent principles, are free from unconscious bias, and are communicated exceptionally well
- add value through technology – for many this does mean ‘scrapping’ your current system in favour of one that captures continuous feedback and agile goals, and encourages recognition and collaboration. It’s about adding value, not controlling a workflow
I think we are all pretty much agreed that performance reviews are not ideal. But they are better than nothing. Getting rid of them leaves a great big hole in a critically important aspect of people management.
The trick is to put something great in place instead. And that’s not easy.
So, if you are thinking of ‘throwing out’ your performance management bath water, make sure you keep the baby. But don’t just keep him, dry him with your fluffiest towels, and nurture him into someone to be proud of!
Photo by Janvier Gonzalez