How employers are modernising performance management

Most employers believe scrapping performance management programs, including the use of performance ratings, is not the solution

Despite dissatisfaction with their performance management programs and attention-grabbing headlines, most employers have no intention of eliminating their use of performance ratings.

Instead, many are making significant changes to fix the overall process, such as replacing annual performance review cycles with more frequent employee and manager interactions, applying a more future-oriented definition of performance and potential, and implementing new technology.

A recent research report found that 37 per cent of companies said their performance management programs are effective, while 26 per cent said their managers and employees are satisfied with the process.

However, half the companies surveyed agree that employees and managers just don’t spend enough time on performance management.

“For many organisations, performance management as we know it today is not working,” said Laura Sejen, a managing director in the talent and rewards practice at Towers Watson, which conducted the research.

“These programs haven’t delivered on their promise to improve performance, and there are widespread signs of frustration among managers and employees.

“Employers recognise the importance of these programs and that significant changes, not tweaks, are needed.

“That said, most employers believe scrapping performance management programs, including the use of performance ratings, is not the solution.”

“In part, this is a reflection of HR’s focus on measuring compliance rather than the quality of goals set”

The research, which took in primarily HR executives at almost 170 US companies, found that only 8 per cent have eliminated performance ratings, although 29 per cent are either planning to or are considering eliminating them.

A further 50 per cent said they have either changed or eliminated the annual performance review cycle in favour of more frequent interactions between employees and managers, or are planning or considering this change.

Nearly three-quarters have implemented new performance management technology, plan to, or will consider doing so

Only 18 per cent of organisations indicated they are making or considering these changes in response to a change in their business model or business strategy.

The most frequently cited reasons are feedback from managers (77 per cent) or employees (61 per cent), and the need to increase the frequency of employee and manager touch points (60 per cent).

The research also indicated that many companies are rethinking the purpose and business alignment of performance management altogether, and nearly a quarter of companies are taking a more future-oriented approach, changing the focus to include performance achievement and future potential.

While too many organisations are still spending an inordinate amount of time making marginal improvements in the effectiveness and efficiency of their core performance management processes, the most progressive organisations are taking more of a forward-looking approach, said Ravin Jesuthasan, managing director and global leader of Talent Management at Towers Watson.

This approach incorporates the skills needed for future business success in both the performance management process and in pay decisions to increase the impact of performance management on the execution of their business models, he said.

“Every organisation can make its performance management program better and make it matter”

The research also identified several barriers contributing to ineffective performance management programs.

Some 64 per cent of companies don’t believe their managers and supervisors have the necessary skills, while just over a half said there is a lack of effective feedback and 51 per cent think managers don’t have the time to do performance management well.

“While most organisations are good at planning the strategy and design of their performance management programs, they are falling woefully short when it comes to executing on and delivering these programs,” said Jesuthasan.

“We know from our research and consulting that a key element to effective performance management is having managers devote sufficient time and skill to the process. “Unfortunately, managers who are pressed for time tend to give performance management a backseat and view it more as a compliance exercise.

“In part, this is a reflection of HR’s focus on measuring compliance rather than the quality of goals set or whether feedback and coaching are happening throughout the cycle.”

A further 81 per cent of employers said managers spend too little time in ongoing conversations with employees about their performance.

More than six in 10 (62 per cent) also say that managers spend insufficient time helping employees set goals. Interestingly, 63 per cent of employers say their managers spend four hours or less per employee on performance management each year.

“Getting performance management right shouldn’t be that difficult,” said Sejen.

“Every organisation can make its performance management program better and make it matter.

“But that will require companies to focus on how to best align their performance management process to the organisation’s business strategy, while at the same time enhancing the key drivers of an effective program — manager effectiveness, process, communication, measurement and technology.”

Image source: iStock