Performance management is an ongoing exercise between a supervisor and an employee to ensure that the employee is equipped to and, is in fact helping, the organization meet its goals. Traditionally, this process has focused on the performance appraisal as a way of measuring the quality of work an employee produces. It generally included a supervisor rating an employee on several goals or objectives and the results of the appraisal were often tied to employee compensation.
When structured effectively, performance management has tremendous strategic potential. I once worked with a manufacturing firm that made high-tech agricultural controls. The organization began to see its profits and market share slowly erode. In response, they sought to make improvements by teaching their manufacturing teams the basics of Lean/Kaizen. Over the next couple of months, the company saw a lot of great ideas and improvements, but a few months later, those great ideas dried up.
What got in the way? The annual performance cycle. The company didn’t change its performance measures and continued to define success by the volume of products/things produced. When the workers saw a “pay cut,” they gave up on the Lean/Kaizen way of working and went back to focusing on producing things and not ideas. The great ideas, improvements, and innovation resurfaced when we convinced the leadership team to rebalance the appraisal to focus on and reward both production and innovation.
Designing performance management to achieve desired strategic ends can be challenging, and as a result, some organizations have eliminated it completely in favor of regular outcomes-focused conversations between supervisors and employees. Organizations today expect employees to become more engaged through frequent, informal, outcome-focused conversations with their supervisors. As a result of this engagement approach, organizations also expect supervisors to be able to make informed decisions around the career development of their teams.
In our work with clients, we’ve observed several challenges stemming this more informal and conversational approach. Yet, from these challenges, we also believe there are several opportunities for organizations to optimize performance management by striking a balance between the old and the new. The balance sits within culture.
The Limitations of a Less Formal Approach
In some cases, employees have become less engaged and motivated. In others, supervisors spend less time having conversations with their employees – and employee perceptions of the quality of those conversations has decreased. Additionally, some employees now believe there are fewer opportunities to enhance their careers due to the lack of the formalized performance appraisal system of the past.
From an employee perspective: Existing performance management and appraisal processes can seem flawed. Employees across industries have the desire to receive feedback that relates to their work and guidance on how their performance affects their total compensation package. Simply removing a rating scale only increases employee’s lack of connection between their actions, organizational results, and their compensation. Lack of structure for supervisors often leads to inconsistent use of self-identified metrics and documentation of objectives. This can result in unreliable performance assessments, feedback to employees, and decisions around growth opportunities. Employees expect supervisors to deliver consistent, meaningful, forward-looking feedback based on objective criteria.
From an organizational perspective: Inconsistent evaluation approaches by supervisors can hamper an organization’s ability to drive consistent performance management; and limits the ability to match employee skill-sets to operational performance needs. Beyond internal resource management, inconsistent evaluation methods can increase this risk of litigation by former (and current!) employees regarding the decisions around their performance.
As organizations develop or update their performance management process, culture can help them strike the right balance between the old and the new approaches. To find balance between archaic performance appraisals and unstructured performance management, organizations should understand key motivators for their employees. These motivators can include:
- Compensation that is seen as market leading and internally fair
- Formal and informal recognition that is specific for work well done
- Employee involvement in areas such as determining their work and able to positively impact the organization
- Work that is challenging; i.e. work that makes them learn, grow and become more valuable to the organization.
A strategic cultural assessment can inform the key aspects of a performance management system: the role ratings should play, metrics that drive results, creating capability for managers to deliver feedback, leveraging appropriate tools, and a balanced approach between formal and informal feedback techniques. Leaders should have a clear roadmap of what employee experiences lead to strong-performance and which are not effective.
We have found that employees that receive objective performance feedback are often more motivated and better producers than those that do not. When that feedback also includes performance metrics and opportunities to address them, it becomes even more valuable to employees and the organization. I’ve experienced the importance of objective performance feedback firsthand. In leading a utilities company through a major culture change (away from command and control to more empowered), HR decided to also change the performance appraisal process for all corporate groups. They “empowered” line managers with no experience and little training to decide on what criteria to appraise their teams. Some reached out for coaching and guidance while, many did not. Within a year those line managers who did not seek coaching and guidance were having trouble filling positions, especially from within. Our research found that their appraisals were perceived to be arbitrary, one-sided and ‘made to favor a few.’
An Ongoing Journey
Organizations should note that implementing a new or updated performance management process is not the end of the talent journey. We know that identifying, developing, and retaining talent ensures the long-term success of business. To support that effort, leaders should commit to regular data-driven evaluations of their performance management process aimed at ensuring that culture remains at the heart and helm of performance management.