Five Reasons to do Performance Management and Future Directions

Many organizations have a process in place to manage employee performance. Although often cumbersome, these are continued because they provide one or more of the following benefits:

1. Aligning company leaders around top priorities to ensure we are pulling in the same direction and aimed at strategic objectives. Without this alignment, different teams and locations risk acting like different companies all doing their own thing with no unifying strategy. 

2. Build skills - performance management processes create a structure where leaders can regularly develop their people and improving their skills with solid feedback and coaching. It is too easy to get caught up in everyday urgency without this structure for many organizations.

3. Holding leaders accountable - Goals and KPIs are measured and tracked to ensure the people with the responsibilities are delivering the results needed

4. Talent Management - an accurate and objective understanding of performance is important for deciding who to promote and who to move out of a role, as well as critical evidence for making pay and termination decisions

5. Culture of candor - leaders already have opinions (often subjective) of how well someone is performing. A performance management process provides a venue for a boss to tell an employee where they stand - these discussions can be awkward and many managers will avoid them if not for the process.

FUTURE DIRECTIONS

Because performance processes are seldom embraced (see Alan Colquit's excellent book), there is a movement to re-think and reboot this entire process. This usually takes the form of attempting to decouple compensation and/or coaching. Three articles describe some pilot attempts for how large organizations do performance management.

http://deloitte.wsj.com/cio/2014/06/10/its-official-forced-ranking-is-dead/

http://www.washingtonpost.com/blogs/on-leadership/wp/2015/07/21/in-big-move-accenture-will-get-rid-of-annual-performance-reviews-and-rankings/

http://www.shrm.org/hrdisciplines/employeerelations/articles/pages/performance-reviews-are-dead.aspx

Are things really changing? And if so, which new model will take hold? The popular press is always eager to announce a trend even if only for 6% of the corporate world (according to CEB). It'll be interesting to see how many are able and willing to follow Microsoft and Accenture on this. In fact, early returns are not promising, as a CEB/Gartner survey two years after these articles showed that performance dropped by 10 percent at the companies that abandoned a rating system while employee engagement dropped by six percent. Wiles (2018) reports that this was because managers did NOT provide as much feedback without the structure of the process requiring it.

In my experience various companies follow Deming's advice from decades ago and periodically will make headlines for their radical innovation of departing from appraisals. Usually however it turns out that they are in fact collecting performance data and giving feedback to improve and develop their employees another way, just jettisoning a time consuming and unpopular process that has evolved out of control. It seems to me that when things naturally make sense for a business then they keep re-appearing to fill the vacuum and in order to manage talent and allocate rewards as a leader you need to know (with confidence, fairness and accuracy) who your best players are. Hard to do any kind of strategic talent management without calibrated performance and potential data and you would be vulnerable to subjectivity and favoritism.

Some companies get value out of performance management systems simply by using them to ensure goal and priority alignment. This is particularly helpful in companies that are franchised or decentralized as they can be working on many different (even conflicting) goals instead of getting the power of scale. The recent article from Gartner (Wiles, 2018) supports value from the pay differentiation connection too, especially because it makes messaging easier and more objective when talking to and engaging top talent.

If we follow the advice of SHRM's article to simply replace a formal appraisal process with informal feedback and make pay decisions "some other way", it seems to me that we run the risk of replacing an often painful process with a higher error rate process filled with even more subjectivity and favoritism. This lack of measurement could create a situation that potentially skews pay distributions and relies heavily on managers to make the time (since it is no longer structured) to deliver the tough feedback that often causes true growth. Vitamins and exercise are good for you even if you don't like them. Performance management needs a new model, more efficient and streamlined to reduce the bureaucratic time footprint. In fact, this is way overdue, so I applaud pilots, but we need to determine a smart route through the woods before breaking camp.