Rethinking Performance Management

Performance management is a challenge for most companies. Ideally, each employee would perform to his or her highest possible level every day. However, in reality the company must protect itself from employees who would abuse a free and unmonitored performance system. But, rigid performance management styles are falling out of fashion in favor of more progressive methods. For those who want to remain a cutting edge employer, knowing these trends is vital.

The Standard: Forced Ranking

This method is the most common and, frankly, the least creative. Yearly performance reviews set employees into ranks. These reviews are very stressful and many companies experience a steep drop-off in employee morale and review time.

Top-performing employees receive rewards such as higher pay, while the lowest performers are instructed to improve their performance, and in some models are at risk of losing their jobs. The basic idea is, work harder and better than everyone else and you will get rewarded. If you work hard but still fall below the standard of others, you may lose your job. This model is losing favor because it decreases morale and places more emphasis on individual performance, resulting in decreased teamwork and less willingness to help others.

What’s New

In 2015, research by Deloitte University Press showed that 89% of respondents recently changed their performance management process or planned to change it within 18 months. Why? Because companies are coming to realize that the “up or out” performance management process affects engagement and doesn’t take into account different levels of capability or hardship.

Here are some of the strategic changes many companies are making:

Put less emphasis on evaluation and more focus on goal setting, regular feedback, coaching, and development. Train managers to coach their employees to succeed rather than just evaluate and grade. Employees nowadays want regular feedback so they can progress in their careers. Gather feedback from employees to help managers improve as well so both leaders’ and teams’ performance constantly improve.

In the OKR (Objectives and Key Results) method, the company, teams and individuals have objectives to be achieved. Key results are then used to measure whether or not the objectives were accomplished. OKRs are kept public, and this transparency ensures that everyone knows what is expected of them and encourages teams to move in one direction. OKRs were invented at Intel but are used at companies like Google, LinkedIn, Twitter, and more.

Weaken the link between performance management and compensation. Performance ratings decrease morale and are even more stressful and threatening when they are directly linked to raises. Many companies are expanding the compensation process by considering not only ratings, but employees’ competitive value and real-market conditions.

Emphasize team goals in order to improve collaboration and group performance.

Manage to strengths, not weaknesses. Move people into roles that play to their strengths in order to see their best performance and maximize their chances of success.

Good Performance Management

Deloitte calls good performance management the “secret ingredient” to building a highly engaged culture because of its power to boost employee morale, engagement, performance, and teamwork. Evaluate how your company is doing in this area, make needed changes, and fully utilize performance management for the powerful tool that it can be.