While there has been much talk of organisations killing their traditional performance review process, only 5 per cent of organisations are considering, or planning to, eliminate their rating scale entirely, according to recent research.
It found that managers spend more than 200 hours per year on activities related to performance reviews, while companies with more than 10,000 employees spend around $47 million a year on performance management related activities and technologies.
Despite this significant investment, 95 per cent of managers dissatisfied with the way their companies conduct performance reviews and nearly 90 per cent of HR leaders say the process doesn’t yield accurate information.
The research (which took in about 800 Australian employers) found 96 per cent of organisations still use a rating scale to measure employee performance, however, only 5 per cent of these organisations are considering, or planning to, eliminate their rating scale entirely.
“While global organisations like Accenture, Deloitte, Adobe and Microsoft have publicly stated they are substantially changing the way they conduct performance reviews, for most, abandoning the process won’t be the answer,” said Aaron McEwan, HR advisory leader at CEB, which conducted the research.
Common performance review challenges
“The performance review process is faulty. While the annual review process is intended to help employees improve their output, the irony is that performance reviews today have little to do with – and even less impact on – corporate performance.”
McEwan said the issue is that companies have become increasingly focused on evaluating performance using quantitative measurements that look only at the past, and haven’t invested enough in measurements that stimulate future performance.
While rankings and scores were popular in the 1990s because they supported a tougher, more pervasive ‘up or out’ corporate mentality, he said businesses today are embracing cultures that foster greater collaboration and communication.
“In this new work environment, companies need to think about the implications that scores and rankings have on their workforce, as many view them as disruptive and create a barrier between employees and managers,” he said.
“Formal performance management approaches often undermine the very behaviours that lead to high performance and can pit employees against each other, stifle performance conversations, and even result in manipulation of the system to achieve a particular rating level.”
Implications for HR leaders
While the debate about the value of appraisals rages on, McEwan said it is important to note that very few companies have abandoned performance evaluations altogether.
“However, there is no question that the traditional, approach is defective,” he said.
“Effective performance management provides meaningful, real-time feedback, ensures employees have clear expectations, helps employees solve problems, and coaches employees to achieve their maximum performance levels.”
If companies are to realise value from their performance review investments, he said they need to re-engineer the review process to be more forward-focused.
“Organisations looking to overhaul their performance review process should focus on identifying the issues with their current approach and from there refine and improve the process,” said McEwan.
“Before organisations think about abandoning their review process altogether, they should consider how some of the best organisations are investing time and efforts to help improve performance management.”
HR professionals play a critical role in the process, and he said they need to teach managers how to: give feedback on an ongoing basis, better define goals that will challenge and improve future performance, and gather performance feedback from a variety of sources (such as peers, co-workers and customers) to help managers build a true picture of an employee’s contributions.
3 shifts for maximising employee potential
CEB identified three shifts that companies must make to enable their employees to perform to their potential:
1. Innovate on traditional objectives by introducing practices that link goals to organisational priorities.
“Each business unit and employee should set their own goals by ‘linking up’ to the organisation’s objectives,” said McEwan.
“This avoids having to wait for each business level to cascade objectives; allowing for greater ownership and direct line of sight between an individual’s goals and company priorities.”
Ultimately, a goal should challenge and encourage an employee to put in a significant amount of effort, and he said each goal should be brief and include only the key results the employee is expected to achieve.
“As such, it’s important not to get too wrapped up in making goals SMART (specific, measurable, attainable, relevant and time-bound) that you lose sight of what’s most important for employees to accomplish,” he said.
2. Provide employees the guidance and structure they need to practice new, critical skills in their day-to-day work.
“When providing feedback, managers should use examples of past performance to help employees understand how to improve their productivity and reinforce goals and expectations,” said McEwan.
“Instead of viewing the feedback as an initiative to pursue in addition to existing work, encourage team members to integrate the feedback into their day-to-day approach.”
To ensure employees are making progress, managers should identify the critical skill that a worker needs to develop, as well as opportunities and different experiences that will help them build and test these skills.
They should also engage in regular discussions on performance and provide constructive feedback, according to McEwan.
3. Focus employee performance discussions on the performance itself, instead of numerical ratings.
McEwan explained that the biggest challenges in appraisals lie with companies using scores, rankings and in-frequent feedback that only evaluate an individual’s past performance.
“Backward-looking evaluations are demotivating and current neuroscience research shows that this approach causes employees to become defensive and triggers the ‘fight or flight’ response in our brain,” he said.
“To re-engineer the review process, organisations need to adopt performance measurements that spur future performance and facilitate continuous, forward-focused feedback that will help employees understand how to improve their productivity moving forward.”
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