Over the past decade, we have seen big changes in performance management. The trend continues. Out is the philosophy of “up or out,” take out the bottom 10% of employees annually, and only focus development and rewards on your high potentials. Instead, companies are moving to the philosophy of constant performance and development feedback. They are providing more clarity on goals, roles and operating norms. Their leaders are engaging all of their employees, building strong teams, and developing relationships with workers from diverse backgrounds.
In the past, when labor was plentiful, companies could sustain the “up or out” philosophy. In our current era of tight labor markets, constant change, rapid innovation and global workforces, this philosophy no longer holds water. The original research that the “up or out” companies used to justify their approach was, frankly, misunderstood. The research concluded that companies could significantly improve performance by taking out the bottom 5% or 10% of employees who were performing poorly and replace them with better performers. But, the research also showed that, if a company utilized this approach for more than two years, they destroyed employee collaboration and trust.[i] Collaboration and trust are the building blocks of the innovative cultures that companies need to create a sustainable competitive advantage and improved financial performance.[ii]
There’s a new model for talent management
The new model for talent management is to create an exciting work experience for employees, and align an organization’s culture to a higher purpose. Rather than leaders hoarding competitive information and customer feedback, as well as the latest technology trends, innovative companies share this information more broadly with their workforce. They invite employees to solve problems and create opportunities for the company. Rather than investing primarily on “high potential” employees, these companies provide timely development for everyone, beginning with onboarding, and as employees transition to new jobs, learn new technology, and begin major career transitions.
Rather than over dependence on the smartest top 10% of the workforce, innovative companies realize that collaborative teamwork, mutual respect, and empathy leads to better company performance and innovation. Rather than having a hyper focus on financials and operations, these companies also innovate by iterating current products, services and internal operations. They are also vigilant for new disruptive cultural trends and technologies.
Performance management needs to change
Performance management systems need to change as well. Out is the annual performance appraisal, which focused on the past, negative criticism, and an employee’s rating and rank. In is ongoing performance feedback and development. Now, managers build relationships with their employees and help them overcome obstacles. They know what really motivates employees: fulfilling a sense of purpose and achievement, rather than fear. New performance management systems still document performance as well as help leaders make decisions about who to promote, who is high potential, and how to differentiate rewards, but they are based on more than the immediate manager’s feedback. Calibration meetings are held, and the discussion centers around well-understood and relevant competencies and collective decisions on talent.
In the today’s tight labor market, with its fast rate of change and innovation, performance management systems need to attract, develop and retain a talented workforce. Companies need to generate the exciting work experience, sense of achievement and purpose that today’s workforce requires.
Are you making the transition? Join the discussion.
Victor Assad is the CEO of Victor Assad Strategic Human Resources Consulting and is a Managing Partner of InnovationOne. He consults on talent management, leadership development and coaching, innovation, and other strategic initiatives. Please e-mail Victor at firstname.lastname@example.org or visitwww.victorhrconsultant.com. For innovation visit www.InnovationOne.US.
[i] “Forced Ranking: Making Performance Management Work,” by Dick Grote, Harvard Business School, Nov. 4, 2005. Excerpts from his book, Forced Ranking: Making Performance Management Work, 2005.