Challenges with Current Performance Review Systems and Future of Appraisals

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It is no secret that many traditional performance appraisal processes fail to meet employees’ most basic needs for receiving feedback, coaching and recognition. Over a decade or so, Performance appraisal has transitioned from being called as ACR (Annual Confidential Reports) to performance appraisals to now being called as Performance Management. Although there is a change in the name that has happened over a period of time, but in essence there isn’t much change in the way this process was executed on ground and the experience it created for all stakeholders – employees, managers and organisations.

“ACR as a process was always confidential; the appraisal process was more like a post mortem where performance was evaluated after the year has already gone by, and in the end this process created more dissatisfaction than motivating employees to perform at a higher level. You will agree, effective performance management is not just about appraisals. It is about providing ongoing coaching and feedback that drives high performance year-round”

In the last few years, to bring deeper focus, more and more organisations are talking about completely doing away with the process or revamping the way it was being run to achieve the desired outcome.

In the below paragraphs, by finding answers to few questions we will try and analyse the shift…

What are the changes in business and talent ecosystem driving this change?

The businesses are moving from having focus on cost saving to more and more on the avenues to innovate. The businesses aren’t looking at incremental changes but more on shifting the paradigm and the way they have operated in the past. Companies are looking at revolutionary changes and adopt growth mindset to grow at 10X, 100X. Currently there is a feeling that the current system of performance is not helping much to enable these organisations achieve this and rather it is coming on the way of delivering performance, as it is a point of pain.

With the arrival of millennials and the world moving towards gig economy, the composition of workforce and the definition of work has changed drastically over a period time. With this change , the old methods of evaluations, ratings, and compensation has relatively lesser meaning. The new generation of workforce prefers more autonomy, mastery and sense of purpose in what they do, they prefer an environment which is conducive to learning & growth and the one which provides developmental opportunities. Also the ways of working of these millennials are very different, they need immediate feedback, immediate gratification etc. These characteristics are now introduced on the table to be included in the performance management architecture for any enterprise.

Recognising each organisation, culture etc are different, how does performance management take care of these different business spectrums and growth paths to create a differentiation approach and methodologies to suit the context for each organisation rather than following a one size fits all approach.

Why does this need a discussion now?

The reason why this topic is getting so much attention these days is because a majority of the organisations have come to the conclusion that either this system doesn’t work or it has lost its relevance as it has not evolved itself over a period of time.

The Managers and employees both often view performance appraisals as  a time consuming, subjective, demotivating process, they feel that this process don’t add any value to them in any ways rather it leaves a set of employees demotivated which is difficult for them to manage.

Over time, performance-management systems has evolved but did not change fundamentally. The bell curve as a word is associated with negativity across industries and is ridiculed everywhere. Add to the fact that majority of employees don’t even know the basis of the curve and how the ratings change in this curve, what they only know is that it’s a monster which converts and reduces everyone’s performance rating. The absence of regular and periodic communication to the employees adds to the misery of the process, one we rarely provide feedback and the limited cases where we provide we only try to share positive feedback, which creates a huge gap between self-impression and managers assessment on the individual leading to further dissatisfaction. so the bell curve monster remains a monster and HR is always projected as a devil in the entire process.

What problem it is creating and where is it not helping?

The rational of having a bell curve is that, most people think that stronger performance deserves more pay, weaker performance less. This approach, however, has a number of problems as the managers use desired compensation distributions to reverse engineer ratings. Then it comes to a stage where it is turn based, one year one get higher merit increase the other year someone else and hence has no performance considerations. These practices, creates more dissatisfaction leading to demotivated employees.

Since only a few employees are standouts, it makes little sense to risk demotivating the broad majority by linking pay and performance. More and more technology companies, for instance, have done away with performance-related bonuses. Instead, they offer a competitive base salary. Employees are free to focus on doing great work, to develop, and even to make mistakes—without having to worry about the implications of marginal rating differences on their compensation.

How can we make the future better?

For this process to be successful it requires a more detailed work from everyone, right from, defining the context of the business, what the organisation is trying to accomplish and then to how appraisal play a role in driving a culture of performance and developing a mindset which helps the organisation in meeting the overall objectives.

This is a starting step as we clearly need define what behaviours we are promoting , what values we cherish and what culture we are trying to develop to achieve the overall goals and then build these dimensions in the performance process around it.

Company to company, how these play out will vary, some companies may use multiple approaches to performance management, some will drop ratings, rankings  and reviews and have moved to frequent feedback discussions rather than focus on forward-looking coaching for development.

The changes that a majority of companies are making are new, varied, and, in some instances, experimental. But patterns are beginning to emerge. In the below paragraphs we discuss the transition:

Rating less Reviews

Many organisation are moving away from annual assessment, or summary of rating , the ratings are giving way to asking individuals the questions what is their contribution now and how are developing themselves to contribute in future.They also are giving managers more flexibility to decide on performance and recognise individuals. Yet nearly nine out of ten companies around the world continue not only to generate performance scores for employees but also to use them as the basis for compensation decisions.

Agile Goal Setting

Instead of time-consuming, long-term goal setting sessions held at the beginning of the PM cycle, effective organizations are moving to more real-time expectations and goals that change as the situation changes.These companies are drafting more fluid goals, to bring in the environmental considerations over a period of time. At GE, the managers keep a track of the company’s performance objectives even as they shift throughout the year. Netflix no longer measures its people against annual objectives, because its objectives have become more fluid and can change quite rapidly.

Continuous Feedback

Effective Performance Management ensures employees receive meaningful, real-time feedback from managers, direct reports, peers, and (when applicable) customers. Unlike old system, of arbitrary ratings delivered in the end of the year, the real-time feedback provides employees with the data they need to continuously improve their performance day to day. They focus more on continuous Feedback than ratings and at the same time they emphasize coaching and development rather than criticism.

Usage of Technology

With the advent of Digital pathways, employees get both quantitative and qualitative information about their performance, so they can readjust rapidly throughout the year. Crucially, the technology does not replace performance conversations between managers and employees. Instead, these conversations center on the observations of peers, managers, and the employees themselves about what did and didn’t help to deliver results.

Performance Management Training

Performance Management training goes beyond providing managers with instructions on how to complete the PM steps, and extends to training for all employees on effective PM behaviours (including how to set clear expectations, how to give and receive informal feedback, and how to work collaboratively to solve problems).

Communication

Communicate the value of ongoing performance management to keep it top of mind. It is vital to continually have conversations with employees regularly and not make it once a year process, this also helps monitor progress on goals and support development.

Support to Managers

Support managers with the right tools. Providing leadership training, tools to support managers in providing ongoing coaching and feedback. A centralized performance management system can help by automating key steps, such as tracking feedback, goal progress and development activities at regular intervals.

Conclusion

Many companies and experts are exploring how to improve the process to be more meaningful for all the stakeholders and how to move from being a painful process to how it can be a more value adding process to help achieve the organisation its objectives. With the advent of technology the pace of change in this area is fast add to the fact the need to new demography is for more and more transparency and feedback the process is slowly changing to align itself to newer realities and there will soon be time when companies will stop focussing on performance on rating rather they start focussing on being relevant , contextual and contributing to the cause for the organisation exists.

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