Fresh thinking needed to fix performance management

Global study finds only eight per cent of respondents feel process delivers high value

By Claudine Kapel

A new study by Deloitte Consulting boldly declares that performance management is “broken.”

Now, the perspective that performance management doesn’t work very well in many organizations isn’t exactly new. Studies have been finding that performance management is broken probably for as long as there has been research on what people think of the process. What makes the Deloitte study interesting is that the hue and cry about performance management has a global tenor. The findings from the Global Human Capital Trends 2014 report reflect responses from more than 2,500 organizations in 94 countries.

Only eight per cent of respondents reported that their performance management process drives high levels of value. Meanwhile, 58 per cent said it is not an effective use of time.

The survey results indicate that a strong majority of respondents are rethinking their approach to performance management. Fully 70 per cent of the respondents reported they are either currently evaluating or have recently reviewed and updated their performance management system.

As well, a notable percentage of respondents rated their performance management capability levels as being weak in a number of key areas including:

  • Driving engagement and high performance through performance process (58 per cent).
  • Driving business value through performance process (48 per cent).
  • Driving feedback and development through performance process (48 per cent).

Deloitte takes particular umbrage with the practice of adjusting performance ratings so they conform to a prescribed curve – also known as forced ranking. “This process, widely known as ‘rank and yank,’ has been found in many companies to demoralize employees, create animosity, and spur good people to look elsewhere for work.”

Deloitte suggests organizations need to shift away from annual performance evaluations toward a process of “continuous coaching and improvement.” It adds this will require a “new role” for managers – one in which “managers become coaches, rather than evaluators.”

That makes good sense – but it is likely easier said than done. One might even suggest the challenges organizations have faced in getting managers to facilitate continuous coaching and improvement is likely what prompted them to implement performance management processes in the first place.

Deloitte also suggests organizations should separate feedback provided to employees from compensation decisions. “Rather than directly linking ratings and salary increases or bonuses, compensation decisions should be based on the critical nature of an employee’s skills, the cost of replacing them, their value to customers, and the external labor market.”

Organizations, however, may find that guidance a bit problematic to fully implement. Indeed, compensation should align with competitive market practice and the external value placed on the skills and requirements associated with a given job.

That’s why competitive market practice is a central consideration when designing compensation programs. But this doesn’t really inform how much an individual should be given as a salary increase or a bonus in any given year.

And if performance shouldn’t be a consideration when making pay decisions, what should be? If the answer is to give everyone in the same job or at the same level the identical salary increase and/or bonus, how motivating would that be to top performers? How would that help raise the performance bar? And how long would top talent stick around if they received no acknowledgement of their superior contributions?

Ultimately, performance management needs a bigger – and more accurate – context to be meaningful. It does need to be more than a “once a year” activity that results in ratings and pay decisions. Fresh thinking is needed so it is acknowledged as the foundational management practice that it is really meant to be.

It may help to start by acknowledging that the process – which at its core is all about authentic and timely communication – isn’t easy. Managers need coaching and support on how to provide coaching and support – including how to focus employee efforts, acknowledge contributions, resolve conflicts, and have the tough conversations with employees about their performance when needed.

Challenges in relating to others authentically don’t arise because there are links to pay. They arise because relating to others effectively necessitates the ability to deal with nuance and ambiguity and so some level of skill and effort is required to do it well.

When this is understood at the level of both heart and mind, effective performance management can become part of the cultural fabric and stop being just a bunch of forms we all hate to complete.

Claudine Kapel

Claudine Kapel is principal of Kapel and Associates Inc., a human resources consulting firm specializing in compensation design, performance management, and employee communications. Claudine is also the co-author of The HR Manager’s Guide to Total Rewards and Straight Talk on Managing Human Resources.
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