Current Challenges & The Future Of Performance Reviews

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Rethinking Performance and Rewards in the New Normal
Performance is always linked with rewards, what excites one set of people may not excite the other set. As an HR leader, first, understand what exactly excites your people in terms of rewards, do a small dipstick as things have changed now post the pandemic.

It is common knowledge that performance management often fails. But it still matters – for important talent decisions, business outcomes and impact.

Numerous high profile organizations viz., Deloitte, Accenture, Gap, Adobe, Microsoft, GE, eliminated the annual performance review and replaced it with a more dynamic and engaging process of on-going feedback and coaching.

However, the demise of performance management is greatly exaggerated. Most organizations still have a formal performance management practice that includes yearly reviews, the results of which are linked to compensation or other talent management decisions.

“According to a recent SHRM research report, the use of Performance reviews is extensive and only 1% of organizations surveyed had plans to eliminate these reviews from their performance process.”

However, there is no denying the fact that performance reviews always evoke mixed sentiments amongst employees and even from an organizational point of view, many times the results are questionable in terms of time, efforts, investments, and validity of outcomes.

In view of this – instead of ‘crystal ball gazing’ into what will happen in the next 5 to 10 years, it may be more pertinent for us to see how we can conduct PMS in a way that improves individual and team performance that supports organizational objectives and priorities. And the employee experience and business outcomes. For doing that, instead of reinventing the wheel, let us look at some of the major researches, surveys, and findings in recent times.

The SHRM research findings recommend the following (Typical versus recommended elements of Performance Management Systems)

  • Replace Complex System that serves multiple purposes: Compensation and other talent decisions, career development, etc. with simplified systems with a singular focus on improving performance.
  • Instead of having goals that cascade from the top of the organization down, resulting in individual SMART objectives set once a year, have a flexible goal setting that allows for format and timing to be tailored to the work; alignment to organizational goals by linking up instead of cascading down.
  • While doing Midyear and end-of-year performance reviews, including ratings and supporting narratives, accompanied by formal performance conversations-Emphasis should be given on performance measurement and streamlining administrative requirements and eliminating unnecessary documentation
  • Instead of the practice of informal feedback encouraged throughout the year; managers receiving training but having little to no real accountability for feedback – Provide Major emphasis on coaching and feedback; managers and employees receive training and are accountable for quality conversations.
  • Instead of Performance ratings used as the basis of all talent decisions, including compensation and promotion; calibration sessions conducted to ensure ratings are fair – Use Different criteria for different decisions; calibration is done when needed to ensure fairness.

In a recent report on performance ratings, Josh Bersin writes about his study and learning through 20 years on the topic that includes the following points:

Driven By The Economy, the Purpose of Performance Management has Changed- The highest-performing companies surveyed in Bersin’s new study said the goal of performance management is “growth and development” – helping people perform better in their role and grow their career. And this has been the new fad.

Today many companies have renamed the process to “performance development” or “performance coaching” or other positive terms, trying to get away with the “evaluative nature” of this process.

  • Feedback Has Become Buzzword -It’s important But Not Everything-Bersin urges us to think about feedback as a cultural thing and says that it takes time to develop. It takes a few years for people to feel safe giving good feedback, and the leadership team has to model and support this transition.
  • Teams vs. Individuals Matter- One of the major learnings of the last decade is that teams are often more important than individuals. In some ways the whole idea of individual performance reviews is archaic: none of us can function alone, it’s the way we work within the company that defines our success. The Bersin research found that companies that include team, project, or company objectives in their process far outperform those that only focus on individuals.
  • Fairness, Not Just Pay For Performance- Nothing alienates people more than getting a sense that their pay is unfair or unrepresentative of their achievement and contribution. So, it’s critical to create a pay process that has clearly defined criteria, one that is transparent and easy to understand, and that managers are trained and supported in communicating it.

McKinsey recently published a report on this topic and their research proves the relationship between pay-for-performance, fairness, and differentiated compensation

Bersin’s High-Impact Rewards study found that only 12% of companies “strongly agreed” that their pay practices are fully aligned with their business strategies.

  • Goal Setting; Understanding Intrinsic Motivators- Goal setting does matter, but doing it the old way (cascading from the top) is no longer enough. The goal-setting process needs to be “bottoms up” and driven by collaboration between individuals, their teams, and their manager. 
  • The Important Role of Technology – Integrated Into the Flow of Work- The Bersin research found that while the adoption of technology itself did not differentiate results at all, companies that integrate performance tools into the real workflow are much more likely to see positive results from the process. 
  • Developing People and Managers Too- Bersin states that one of the major learning in the last few decades is that development, coaching, and formal training is an integral part of performance management. There’s no point in giving someone feedback without showing them how to improve.  The Bersin study proves that ongoing support, talking about mistakes and rewarding managers for the development of their teams is integral to success. One of the important trends, in fact, is the need to evaluate managers based on their ability to engage their teams. Yes, managers have to get work done; but that alone is not enough. We have to show them “how” to get work done well, and that means they need development too.

Tony Schwartz in an article on creating a growth culture – not a performance-obsessed one – states that a growth culture also focuses on deeper issues such as how people feel and how they behave as a result. In their article on ‘Changing the role of top management: Beyond Strategy to Purpose, Christopher A Barlett and Sumantra Ghoshal rightly state that clinically framed and contractually based relationships do not inspire the extraordinary effort and sustained commitment required to deliver consistently superior performance. If employees are to put out extraordinary efforts to realize company targets, they must be able to identify with them. Employees don’t just want to work for a company. They want to belong to an organization.

Each organization should operate within the context of its own purpose of existence and performance objectives. It’s fine to stress what to aim for but people also need to know what the organization stands for.

It is therefore not a wonder that performance management often fails. It is a wonder that some get it right.

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Note- The views and opinions expressed in the article are the personal views of the author

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