Performance management matters for all organization stakeholders both inside (individuals, business strategy) and outside (customers investors, and communities) (figure 1). Business and HR leaders committed to improving performance empowers the entire organizational ecosystem.
Performance management is one of the most disliked of any HR process as indicated by key groups who have studied performance management.
- SHRM survey found
- >90% are dissatisfied with appraisal systems
- “do you think the annual performance reviews are an accurate appraisal for employees’ work?” 55% of HR professionals said “yes”
- DDI survey found overwhelming dissatisfaction with performance mgt.
- Mercer survey: 44% of 218 companies had changed PAMs in the past two years; another 29% expected to do so next year
- Corporate Executive Board (CEB) found that only 14% of organizations are actually happy with their performance accountability system and 23% say performance accountability reflects employee contributions
- Institute for Corporate Productivity found that 8% of HR executives feel performance accountability made a contribution to business
- Achievers (consulting firm) found that 98 percent of 645 HR managers believe yearly evaluations are not useful.
- World at Work/Sibson found that 60 percent of HR executives give their own performance management systems a grade of C or below.
Moreover, meta-studies show that in many cases conventional performance appraisal has little impact on performance (see work by Kevin Murphy).
We suggest a logic of managing four steps in the performance management process to improve learning and development for individuals and organizations that leads to stakeholder value (Figure 2) This overly simplified logic begins with the four steps of the performance management process.
Figure 1: Why performance management matters
Figure 2: Overall Logic of Performance Management Process
Step 1: Clarify Expectations with Meaningful Goals
Performance management begins with clarity about organizational purpose and accountability for desired outcomes which could be called vision, mission, strategy, objectives, intent, or plans..
This leads to more detailed expectations and goals that are not just SMART (specific, measurable, attainable, relevant, and time-bound) but include individual and organization development and learning plans that then create value for all stakeholders inside (employees, business strategy) and outside (customers, investors communities) the organization
Step 2: Measure and Track Performance
Expectations translate into measures (KPIs, OKRs) that can be tracked to ensure learning. There is a great debate about how to effectively measure and track behaviors and outcomes and to create meaningful measures that encourage the right performance.
But, in general, measures drive behavior. Students who audit a class do not study as hard as those who get grades. Keeping score helps people know how they are doing and whether they are improving.
Using the grid described in the four cells of Figure 3, 100 points can be divided across the cells to determine goals and measures with a rule of thumb being that no cell has more than 60, none less than 15 points. It is important to keep in mind that organizational performance is always systemic, seldom just the result of individual effort.
Figure 3: Four Types of Goals and Measures
| Behavior or Development Goals and Measures | Outcome or Business Goals and Measures | |
| Collective Measures | 2 Team Processes (e.g., high-performing team audit, psychological safety and relational trust, employee engagement) | 4 Team or Organization Performance (e.g., customer NPS, financial results, community reputation) |
| Individual Measures | 1 Individual Actions (e.g., personal competencies, personal development, career progression, 360) | 3 Personal Outcomes (e.g., annual goals like sales, financial contribution – where outcomes attributable to single person) |
When goals link to qualitative and quantitative measures (KPIs, OKRs), they can lead to individual and organization development and learning
Step 3: Allocate Rewards (financial and non-financial)
We build energy and trust by recognizing employee contributions often and in a timely fashion. If someone achieves an important outcome or makes an exceptional contribution, celebration, and micro or spot rewards should follow.
In general, we are moving away from high-powered financial incentives and excessive pay multiples, seeking instead to use fair and living wages, combined with more extensive profit-sharing arrangements.
When it comes to under-performance, we take necessary action, in a transparent, fair, and bias-resistant manner. Figure 4 lays out recognition options that matter to encourage individual, team, and organization learning and development.
Figure 4: Recognition that Matters
Step 4: Have a Positive Conversation
Meaningful conversations are critical for the performance management process. We put it in the center of the four performance management steps because without a positive conversation, none of the other three steps will work.
With a positive conversation, different tools and approaches in each step may work. Conversations clarify expectations and goals, make metrics personal and real, and become key to rewards.
Our work has consistently found that the conversation based on high-quality relationships among equals has more impact on performance than the system or process.
At the collective level, conversations are meant to create a context for shared success, accountability, and stakeholder engagement.
Individual feedback, on the other hand, is a distinct, regular, ongoing and mutual process that should be owned by the learners, characterized by a forward-looking and development-oriented nature.
We have found four coaching questions that can shape a developmental conversation:
- “What is your goal”. Establish the objectives that your employee wants to achieve. Share data (see figure 2 for types of metrics) as clearly as possible.
- “Help me understand.” Be seen as a coach to listen and help more than a commander to tell. Explore the situation, obstacles and opportunities, resources and relationship.
- “What are the options”. Understanding current reality, explore different approaches and evaluate pros and cons.
- “How can we can make progress.” Focus on the future and inspire shared commitment to action.
The outcome of a coaching conversation is that the employee learns and develops by increasing self-awareness, and agency to take informed decisions and ultimately realize their full potential as a human being.
Learning and Development
Learning and development is the outcome for both individuals and organizations of the performance management process. It should support individuals not only in their professional growth but also in enhancing their personal, relational and moral competencies.
Structured mentorship or apprenticeship programs and the formation of professional communities can accelerate organizational learning.
Organization learning and development also occurs through effective performance management as new organization capabilities are defined and implemented. Capabilities represent what the organization is known for and good at doing.
Individual and organization learning and development then create value for all stakeholders inside and out.
Summary
Overall, performance management has undergone a remarkable transformation in recent decades, with innovative organizations leading the way in redefining its principles and practices:
- Agility: rigid performance appraisals are replaced by continuous and flexible feedback systems
- Human-centric: organizations are increasingly shifting from a top-down to a collaborative and personalised approach
- Systemic and social: emphasis is placed on social, team and organisational development practices, rather than primarily on individual achievements
- Tech-enabled: data analytics and AI-driven can provide actionable insights for continuous improvement and make it easier for employees to engage
If applied in a remote setting, it is important to intensify communication and feedback, with regular virtual check-ins, and to promote shared goals and team retrospectives to strengthen collaboration and teamwork.
Adaptability and flexibility are key. Additionally, technology plays a crucial role in tracking and monitoring performance. However, it is worth pointing out that technology can have both positive and negative impacts on performance and people:
| Opportunities of technology | Risks of technology |
| Data-Driven InsightsPredictive AnalyticsGoal setting and alignment on digital platforms Personalized Development PlansSkill development and micro learningContinuous Feedback through digital toolsRemote Work EnablementEfficiency gains & automation of routine performance management tasks | Surveillance and Privacy ConcernsAlgorithmic BiasOver-reliance on quantitative metricsLack of transparencyIncreased workload and stress through technology-enabled performance management systemsLack of Human InteractionAbdication of leadership responsibility |
Courageous Leadership
As mentioned at the beginning, performance management is not easy. Business and HR leaders have an important job to ensure that the performance management process is fair, simple and continually improved to develop individual competence and organization capabilities tat create stakeholder value.
- Fairness means that all performance management procedures are transparent and comprehensive, and important decisions are bias-free and contestable. Employees should be given opportunities for input and improvement of the processes. Figuring out and tracking the right measures becomes a leadership challenge shared by managers and employees. Managers should be trained to ensure non-discrimination and promotion of diversity & inclusion.
- Simplicity means focusing much less on a complicated and demanding process and much more on continuous conversations and mutual and organizational development. The process should ultimately enhance the joy of working together for bother leaders and followers.
Also Watch: How to Give Feedback to Underperforming Employees and Keep Them Motivated: Marc Effron
One of the best tests of good leadership, as Ben Zander says, is “shining eyes”. If people at work feel a genuine sense of purpose and enthusiasm it will enhance the commitment to their work and their team, and foster a culture of creativity, collaboration, and excellence.
How often employees leave an interaction with a leader feeling better or worse about themselves is often a simple indicator of how well leaders are inspiring employees.
Co-Author- Otti Vogt, Founder, Good Organisations and Former Chief Transformation Officer, ING
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