AHRMIO Webinar, 25 October 2018
Traditional performance management (PM) is no longer suited for today’s organizations. With infrequent feedback, the perception of biased and subjective ratings, and its backward-looking approach, the Annual Performance Review is a poor driver of performance and unsuited for today’s work context.
Carissa Palmer and Liz Woods, presented McLean & Company’s research on the rationale for shifting from traditional performance management and the alternatives when shifting. Insights from neuroscience help clarify why traditional PM often misses the mark.
Moreover, the lack of timely and quality feedback has a negative impact on organizational engagement and productivity. Less successful performers are identified too late, with lost opportunities as a consequence.
Over the past five years, this dissatisfaction with the traditional approach has led many to adopt an agile approach. Agile consists of the elimination of ratings and the annual performance appraisal, and the introduction of fluid goals and frequent feedback & coaching from multiple sources. Research has shown that about 10% of Fortune 500 companies have fully switched to Agile PM, about 31% have integrated some aspects of Agile PM and 33% are currently determining what to incorporate. (Human Resources Executive, 2016).
What McLean & Company’s research found is that Agile PM is not a cure-all and getting rid of ratings doesn’t mean getting rid of evaluations. It doesn’t necessarily fit every context or every employee group. Around 86% of companies are keeping the annual review but are adding agile elements. (Ledford et al 2016, Human Resource Executive 2016)
Their research identified that for most organizations, a more middle ground approach should be adopted – Modern PM. McLean & Company’s Modern PM approach consists of four mandatory elements: the process (how many times managers and reports are expected to formally meet), goal setting, feedback & coaching, and competencies – and two optional elements – ratings, and crowdsourced (peer-to-peer) feedback (CSF). Ratings and CSF are optional, as their inclusion in performance management will depend on the existing organizational culture. Many will choose to continue with ratings, but move to a more accurate scale as opposed to forced ranking or number ranking. Though CSF is a building block of modern performance management, it is a new concept for most organizations. It is recommended to use CSF for recognition only until the performance management process is robust enough to support it.
The result of these enhancements to a more traditional approach is improved performance and engagement.
Edna Diez presented the case of ADB, that made the choice to improve, rather than eliminate performance reviews. Important aims of the improvements were to motivate and engage staff, to grow talent, to improve poor performance, recognize good performance, and most importantly, structure opportunities for staff and supervisors to have meaningful conversations and build a culture of feedback and growth.
ADB strengthened goal setting by using clear expectations and aligning the individual goals with the organizational goals for increased accountability. As priorities change throughout the performance year, so should goals. These should be dynamically managed to serve as a business performance tool.
Growth conversations with frequent and quality feedback are forward looking and focused on development. The emphasis is on a discussion rather than a rating.
The frequent performance discussions, a minimum of twice a year (ideally quarterly), helps in managing decreasing performance and avoiding surprises at the end of the year. Decreasing performance should be captured any time and an opportunity to improve provided. Supervisors are supported by training for handling difficult conversations, as well as, techniques for conducting growth or coaching conversations.
ADB kept the annual review as an important mechanism to award merit increases and to maintain accountability for results and behaviors. ADB eliminated forced ranking, or distribution curves, yet maintained a cap of 10% of staff for the highest performance rating to reward and differentiate top results and behaviors.
A lively Q&A allowed the speakers to dig more deeply into merit pay, 360-degree assessments and possible alternatives.
The primary objective of Modern PM is to support employee’s success by setting clear expectations supported through more frequent manager feedback and coaching. While it is a process that informs compensation and promotion decisions, it’s important to keep in mind this primary objective.
Edna stressed the importance of training for supervisors to move the organization to a culture of constructive feedback. Training is also needed to support supervisors to coach and develop their teams. People management and coaching is specifically part of the supervisors’ performance assessment.
ADB also introduced an annual 360-degree assessment for all Directors and above which serves as development and as an input into the supervisor’s performance appraisal. The changes were positively received by staff and supervisors alike, but it will be interesting to see whether people will feel a fatigue in the longer term.
Finally, when asked about future trends, Liz noted that McLean & Company conducts an annual Trends & Priorities Survey which will continue to provide insight into this. One expectation is that supporting technology solutions will continue to become more flexible and adaptable to more modern approaches. While documentation is part of this process, it is important to be careful not to demand so much documentation that it inhibits more frequent discussions about performance.