Future of Performance Management

Category: Performance Management.

Performance Management systems are adapting quickly to the changing business models and the requirements of evolving employee expectations.

Every organization has a performance management system in place. However, managers and staff don’t always find it very helpful. It evokes mixed feelings amongst employees. Many times the results are called into question due to insufficient time, effort, and investment spent on reaching the evaluation outcome.

As a result, managers and employees alike think that performance reviews are very subjective. The lack of motivation and belief surrounding this process might impact a review’s ability to improve employee performance. In fact, performance reviews might end up having a negative impact on employees, as they can get caught up worrying about compensation and the details of the rating system and feedback.

Douglas Contant Quotes

To win in the marketplace you must first win in the workplace.

Douglas Conant,
Former President & CEO, Campbell Soup Company

Changing paradigms of performance

There have always been issues with performance reviews– lately, they’ve become more obvious as job responsibilities have evolved. More and more positions need employees to have rich expertise, the ability to make judgement calls without guidance, and have stellar problem-solving skills. Employees are expected to live up to higher expectations each and every year– therefore, traditional performance appraisal processes simply don’t make sense for the modern employee.

And yet, so many companies still use outdated processes. So many organizations are hesitant to make a change because they don’t know what a new performance management system would look like. What will happen if year end performance reviews are gone? How will the new one work? Will it work well? Will performance become better or or will it become worse?

Future of Performance Management

Big companies are making changes. Soon smaller companies will follow suit. Patterns are beginning to emerge:

  • Big companies are testing new ideas that give employees constant feedback and coaching.
  • The nature of some companies are such that their objectives can change quite rapidly. Such companies cannot measure their employees’ performance against annual objectives.
  • Companies are collecting more objective performance data through systems that automate real-time analyses.
  • Better data is bringing about a shift in emphasis from reflective evaluations to fact-based performance and development discussions, which are becoming frequent and as-needed rather than annual events.

Research and surveys show that there’s no need to reinvent the wheel when it comes to new performance management systems. The key is to conduct performance reviews in such a way that they improve individual and team performance in alignment with organizational objectives and priorities, and the employee experience and business outcomes.

What constitutes a modern performance management system?

Modern management processes are moving towards customization, flexibility, and agility. Following are some of the key changes that will be considered essential for any progressive performance management system:

Modern performance management system

Let’s look at each of these in more detail:

  • Set flexible goals
  • Instead of having a top-down approach in setting SMART goals set annually, set flexible goals that allow format and timing to be tailored to the work.

  • Different criteria for different decisions
  • Use different criteria for different decisions to ensure ratings are fair, instead of using performance ratings as the basis of all talent decisions, compensation and promotion. Calibration sessions can be conducted to ensure ratings are fair.

  • Team performance vs. Individual performance
  • Organizations are not about individual performance anymore. As human beings, it’s hard for us to function alone. How an employee performs within a team and within an organization is what defines success. Organizations that focus on team or project objectives perform far better than those that focus on individuals.

  • Clearly defined criteria for compensation
  • It can be very demotivating when an employee feels that their pay is unfair and does not match with their contribution or achievement. Therefore, it’s very important to have a compensation plan in place that is transparent, clearly-defined, and easy to understand. This plan must be clearly established with everyone in the organization so that there is no ambiguity in what to expect.

  • Integrate technology in the performance appraisal process
  • Organizations that integrate performance tools into the real workflow are much more likely to see positive results from the process.

  • Coaching Employees, and Managers too
  • Giving feedback is a crucial part of the performance appraisal process. However, this feedback is of no use if employees don’t know what to do with the feedback, what to do with the feedback to improve. Managers need development to show their team how to get work done well. While this is beneficial to the employees, it’s also beneficial for managers who are evaluated on their ability to engage their teams.

  • Get data that matters
  • Organizations and people go through so many changes during the course of a year. Therefore, once a year evaluation of employees can never be accurate. Good data is very important for a fair evaluation. Organizations can get good quality data by using systems that collect information on the performance of people and teams. Performance data that is gathered year round gives much better insights and a much better chance at a fair evaluation.

  • Performance tools can automate activities, freeing up manual time
  • When performance tools are integrated into the workflow, it not only automates activities, freeing up time that managers and employees would have otherwise spent to gather data, but it also gathers more meaningful and insightful feedback. The quality of information gathered is of better quality because they are more recent, relevant to the review at hand, and therefore more credible. Companies are now using artificial intelligence and machine learning to gather continuous, real time information, improving the quality of data exponentially.

  • Un-link performance evaluation and compensation
  • Traditional reviews link performance evaluations, ratings, and compensation. This might seem very logical: better performance means more pay, weak performance means less pay. And by that logic, average performance levels would be pegged at market average. Exemplary performance would mean a compensation package that beats the market rate, to attract and retain high performing talent. And below par performance would mean compensation below market average. This logic is in line with the Bell Curve method. Given the changes that have been taking place in businesses in the past few years, and the recent findings in the cognitive sciences and behavioral economics, linking performance ratings and compensation in this way is just not the right way to go. Linking performance with pay can demotivate employees.

  • Prioritize ongoing communication
  • An informal communication between the manager and employee gives the manager a chance to check-in on the employee’s performance. It gives an opportunity for them to discuss priorities one-on-one so that their goals stay aligned.

    Employees appreciate frequent and consistent feedback. When managers check in with their team members on a regular basis, it has a significant impact on the employee’s performance and on employee-manager bonding. It leads to more trust and respect for their managers, and they believe that there is potential for them to grow in the organization.

    This clearly indicates that feedback is more relevant and effective when it’s given when the event occurs. Unlike traditional performance reviews where feedback is saved up for weeks and months — this is not effective at all because when feedback finally gets delivered to the employee all at once at the end-of-the-year review, it has lost all steam. Important achievements may have been overlooked and more recent events may have been given too much importance. Feedback offered at the end of the year is not relevant or reliable, it is very myopic, and too focused on the past instead of looking at the opportunities that lie ahead. This, in turn, makes employees feel unappreciated and unacknowledged, gradually leading to disengagement.

  • Help employees become successful instead of pulling them down
  • One-on-one check-ins help catch performance issues early on rather than waiting weeks or months to discuss them. Honesty goes a long way in gaining the employee’s trust and in helping them understand where they truly stand in the whole scheme of things. It’s about giving them feedback and working with them to put a plan together on how they can improve, instead of pulling them down. If the employee is successful, the team and the organization are, too.
    It’s important to have all of this information stored in one place that employees and managers have access to. The system allows managers across different levels of management to help plan what they need to achieve over the course of the next few months. When everybody can see everybody’s goals, employees can see what their goals are and how they can help their manager, which, in turn, helps them contribute to the bigger picture.

In Conclusion

The future belongs to those who adapt. Performance management is continually evolving and responding to the fundamental changes in organization structures, business models, the nature of work and the needs of the employees.

The nature of every organization is different and has its own performance objectives. It’s important that all employees know what the organization stands for, and what its purpose is. Only then can employees align their efforts with the purpose of the organization. And for that to happen, organizations must do away with old models of performance management systems and make way for updated, more effective methods.


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