Almost half of employers intend to change their approach to performance management within the next 18 months, according to research from Mercer.
And of the 48 per cent of employers planning to make imminent changes to their performance management systems, 67 per cent say the changes will be significant or evolutionary, rather than minor adjustments.
Despite having different operating models and business objectives, organisations such as Deloitte, SEEK and GE were all responding to the perceived inflexibility of traditional performance management, according to Tim Nice, Mercer’s rewards business leader.
“Companies are looking to be more flexible, agile and responsive in the way they operate, and it’s natural to apply disruptive thinking to a process like performance management,” he said.
“We know from research we have conducted on a regular basis that there is a high level of dissatisfaction with traditional performance management.
“Chief among the concerns driving this dissatisfaction are the limitations of the annual review process: it is highly formal, it doesn’t focus on real-time information, it removes responsibility from managers to have meaningful discussions with their employees on an ongoing basis, and, at its worst, is reduced to a rating out of five.”
“There is a high level of dissatisfaction with traditional performance management”
The shift to the next generation of performance management will require organisations to evolve existing practices, rather than revolutionise their approach, according to Mercer.
“The traditional performance management model has served Australian employers well for decades and there are many elements worth retaining,” said Nice.
“However, there are some fundamental changes that need to be made if organisations are to foster a high performance culture and remain an attractive value proposition to current and prospective employees.”
The Mercer research, which took in 64 organisations across 18 countries including Australia, identified eight emerging trends that employers need to understand to evolve their thinking on performance management:
- Performance management will evolve – not disappear: the focus will shift away from annual performance evaluations to a continuous dialog on performance, development and coaching – more about talent management than purely management against objectives.
- Closer link to corporate culture and values: a shift away from “fixing” performance to enabling employees to be at their best. Embed this as an ongoing activity, rather than a once a year “event”.
- Different approaches for different parts of the workforce: different types of jobs (e.g. sales versus senior executives versus designers/developers) need different types of models – one size doesn’t fit all.
- Abandon the performance rating: the rating ends up being a label but not helpful for enabling performance. If ratings aren’t eliminated altogether then they will be simplified into broader categories.
- Separate performance from reward: formulaic approaches to reward, based on performance ratings, are questionable particularly where the objectives are more qualitative or delivered through team collaboration.
- Continuous feedback: the frequency, focus and quality of interactions will all change to enable a more real time conversation about feedback and more contemporary data on how the employee is tracking.
- Technology to enable, rather than record: mobile technology can be used to allow for more immediate and personalized feedback.
- Enable managers to become leaders: development of managers to enable them to become better coaches and mentors for their employees. Enable them to focus conversations with employees on capabilities and performance rather than what went wrong.
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