Be Strategic About Changes to Performance Management!

It’s a stampeding herd! Companies large and small are significantly changing or eliminating their performance management systems. In one conservative estimate from the Conference Executive Board, approximately six percent of Fortune 500 organizations have replaced traditional performance appraisals. Bersin by Deloitte estimates that 70 percent of companies are planning to make changes.

Companies such as Adobe, Accenture, Deloitte, Microsoft, Juniper and even G.E., the mother of ratings and forced rankings, have made headlines by changing their performance management systems. Often, they are eliminating ranking and ratings and, in some cases, even any documentation of performance.

I have, however, found it good to avoid stampedes.

Think first. What is your strategy?

Does your performance appraisal system exist to build alignment to your company’s strategy and goals? Provide feedback and coaching to employees? Decide which employees deserve the highest raises? Identify your best talent? Determine what makes your best talent the best?

Depending on the answers to these questions, you can put a thoughtful performance management process in place to improve the organization’s ability to successfully implement business strategy, build a culture of learning, collaboration and performance, and develop your next generation of leaders and technical wizards.

1990s Performance Management Systems Needed to Change

There was never any real justification for them. The research they touted was conducted by Professor Steven E. Scullen and his colleagues. Scullen created a mathematical simulation from a sample base of employees in multiple companies, controlling for the impact of voluntary turnover, the quality of the applicant pool, and the validity and reliability of employee ranking assessments. Each of the companies identified the bottom 10% of their workforce every year, fired them, and then replaced them with the best available candidates from the applicant pool. The results suggested that:

A forced ranking system could lead to noticeable improvement in workforce potential. Most of the improvement should be expected to occur over the first several years, and the improvement is largely a function of the percentage of workers to be fired and the level of voluntary turnover.[i]

The higher the percentage of poor performers fired, the higher the jump in company performance, if you replaced them with better workers and didn’t lose your best employees due to voluntary turnover.

The research had one catch: “Up and out” has a diminishing return. 

If the bottom 10% of employees are fired every year, a company creates a very competitive environment. That kills collaboration, employee engagement and trust in management—the key ingredients for discretionary effort, productivity, and innovation. Companies using “up and out” in the 1990s missed this point.

So, what works for performance management?

In my experience, companies that have eliminated ratings and rankings gained an immediate benefit. Employees are more willing to listen to feedback and coaching because they are not braced to argue over their rating. Managers, in turn, spend more time delivering feedback.

Following are some best practices for performance management.

Provide continuous feedback, coaching and development—not an end of the year data dump. Managers should hold regularly scheduled one-to-one meetings with every employee on their team (at least weekly or biweekly). These meetings are an opportunity for employees to give managers updates on their work, discuss obstacles, and indicate what assistance they may need.  Managers need to vary their coaching and development advice based on the skills and experience of each employee so that it is relevant and helpful.

Don’t depend on a manager’s feedback alone to make judgements about who is or isn’t a high potential employee. Instead, collect analytics. Initiate at least semi-annual performance calibration meetings among managers to share reviews on employee accomplishments, how they achieve results, and their development progress. These meetings are twice as effective when there is a well vetted and understood set of work-based competencies in place—not just intuition. The competencies should be derived from an analysis that identifies the knowledge, skills and attributes that make your best employees THE BEST. This analysis can be completed quickly and without a lot of effort. Then, build on this knowledge base and allow it to adapt with the company’s strategies.

Train your managers to be “builders” and use what I call the “ACE” methodology:

  1. A-Alignment Business is fast paced. Goals can lo longer be planned for an entire year. Managers need to continually align employees to changing market conditions, customer preferences, and the company’s strategies.
  2. C-Constant Communications and Clarity. Change is a continuous, and it requires constant communication and clarity on roles, information sharing, timing, operating norms, decision rights, and progress against goals.
  3. E-Empathy and Empowerment. Mangers who show empathy, provide recognition, and let employees have a say in how they achieve their goals engender more engagement and obtain better results. We know this from numerous studies on emotional intelligence.[ii] The same goes for successful teams. (See my blog “What makes a Team Smart,” http://wp.me/p5FLSC-7.)

Finally, select managers who have the interest and skills to be builders. Builders align their teams with the organization’s purpose and strategies and constantly provide clarity on goals, roles, responsibilities and operating norms. They empower their teams and take an active interest in employee development. Hold your managers accountable for being builders, as well as their employees’ performance and results! Don’t use management roles as a plum reward for the technical expert who does not have these skills.

Have you recently updated your performance management system? What has worked for you?

Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and Managing Partner of InnovationOne.US. He consults on talent management, accelerating change, leadership development and coaching, and innovation. Please e-mail Victor atvictorassad6@gmail.com or visit Victor’s website at http://www.victorhrconsultant.com for free articles and white papers—including his white paper on Performance Management.  For innovation go to www.innovationone.us.

[i]Steven E. Scullen et al., “Forced Distribution Rating Systems and the Improvement of Workforce Potential: A Baseline Simulation,” Personal Psychology 58 (2005):3.

[ii] Daniel Goleman (2006) Working with Emotional Intelligence, Bantam Dell, Division of Random House, Inc., New York.

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