According to recent research, few managers or employees have positive experiences with their company's performance management process. A focus on the past and lack of management skills are among the causes. And automating the process with new software doesn't solve the problem.
Only 30% of employees say they receive feedback of real value, according to McKinsey research. Half of companies in a Sibson survey say that their system is less than effective, and fewer than a third of employees said they trust the process used in their companies. Additionally, the only task managers dislike more than doing appraisals is firing an employee.
Part of the problem is confusion about what "performance management" is. Experts agree that the primary objective should be to improve performance and align individual and team efforts with the organization's goals. That does why effective systems are forward-looking and emphasize helping people improve their skills.
But the system used in many companies is often the exact opposite. The primary purpose of these systems is to judge past performance and determine pay increases. They force managers to focus on completing forms and pressure them to inflate ratings to provide better pay increases and avoid uncomfortable discussions about performance. The process is driven by the manager and done to the employee who is put in a defensive, reactive posture. Often performance objectives are not well defined nor linked to the business strategy, and performance information is soft or hard to access. Plus the focus on individual performance can result in destructive competition and conflict among team members. In summary, it is an administrative burden that does little to improve performance.
Significant investments made in performance management software may automate the process, but have yielded little improvements in performance.
Companies that want to improve business results can take one of two approaches: Making upgrades to their current systems, or using a more direct and simplified performance management process.
A process can be made more effective by shifting the focus from judging the past, to forward-looking performance planning and coaching. This involves three key areas: Program design, management sponsorship and skill development.
While most efforts at improvement involve tweaking the rating definitions or redesigning the review form, these actually have little impact on performance improvement. Much more effective is to emphasize performance planning and coaching while increasing the objectivity of the performance factors.
Clear job accountabilities, behavioral competencies and quantifiable metrics help employees focus on what's important. Creating a clearer line-of-sight between an individual's objectives and the organization goals helps people understand what they need to deliver. And ensuring that the system is truly a year-round process with an ongoing focus on coaching for performance improvement is important.
90% of a manager's performance management time needs to be spent where it will have the most impact - on performance planning and especially coaching. By contrast, in traditional performance appraisal programs, 90% of a manager's time is spent on the appraisal.
Many, if not most, managers lack the skills to plan and coach and will need training.
Managers throughout the organization legitimize performance management through their actions.
The system will be significantly less effective if it is seen as a personnel program, rather than a way of managing the business.
Line managers in particular, can have a substantial impact on the effectiveness of the program if they emphasize the importance of the program and model how to use it. Line management support is the most important factor determining whether employees trust the system.
Senior leaders can strengthen their sponsorship by clearly identifying how performance management fits into the overall management platform of the business, especially in regards to goal setting and accountability. They can also emphasize the importance of goal alignment through the organization, differentiation of ratings based on performance and the connection to employee development. Finally, senior leaders can ensure that an audit process is in place to help ensure rating consistency across the organization.
Employee Responsibility-- When employees feel that performance management is something that is done to them, they have a very different level of engagement than when they play an active role in the process. Employees are more engaged when they take responsibility for developing their own performance plans, providing regular updates to their managers and doing their own self reviews. Of course all this requires good education about the system and training in how to do those tasks.
Manager Skills -- The most important factor driving performance improvement is how individual managers use the process. The least effective managers will either ignore the system, or turn it into a power device to manipulate people. The most effective managers will use it to coach employees, helping them see how they are doing and working with them to improve performance. This typically requires significant management training and practice. Very few newly promoted managers have the skills to do this at an acceptable level to improve performance.
Most performance management processes are designed to judge performance and determine merit increase decisions, not to improve performance. They are focused on the past and create dysfunctional behavior and negative experiences. While automating the process will reduce time spent in administration, it won't help improve the performance of employees, teams or the organization.
The key to improvement is the critical interface between the manager and employee - just like a coach and an athlete or teacher and student. Some judging is inevitable, but it is coaching to succeed that drives performance improvement. Performance management programs, particularly in today's world of knowledge workers, needs to be focused on ongoing coaching to improve performance. This in turn must be supported by management, and it requires specific management and employee skills.