While many organisations are rethinking their approach to performance management, they should avoid innovating for innovation’s sake, and instead take a realistic and measured approach to redesigning performance management processes, according to PwC.
Performance management has been a hotly debated topic of late, and PwC people business partner Emma Grogan said there is no need to further build the case for change.
In releasing a report on how pay and performance management is dramatically changing, Grogan said 96 per cent of surveyed organisations have recently changed, or are planning significant changes in the next 12–18 months.
While many large listed organisations agree that they could improve the execution of their performance management system, she said in the report that nearly all believe their system effectively contributes to strategic, commercial and operational outcomes.
And while considerable change is occurring, organisations are keeping the existing frameworks, but tweaking them to make them leaner and more impactful, for example by simplifying the mid-year review, shifting to a 3–4 point rating scale, and improving the goal determination process.
“In terms of fundamental change to performance management in the Australian market, only a few organisations are abandoning traditional performance management approaches,” she said.
“That said, we believe greater innovation in performance management approaches may be justified.”
The future of performance management
The report, which involved surveys of performance management system owners in 27 ASX150 companies, detailed one-to-one interviews with eight of the respondents and surveys of 220 system users (ie employees), found that the vast majority retain the key process steps associated with traditional performance management systems.
Furthermore, radical change to performance management isn’t widely seen yet in large listed organisations.
However, innovations to existing elements are occurring, and the more radical changes include removing performance ratings altogether, removing the link to reward and abandoning the annual review cycle.
More than three-quarters of companies said a focus on process rather than quality of discussion and outcomes was an issue, while two-thirds also said performance management was seen as a compliance exercise.
Importantly, all survey respondents endorsed seven key objectives for their performance management system suggesting there is significant opportunity to simplify:
- Think bolder and create opportunity for evidence based innovation, but don’t innovate for innovation’s sake.
- Be realistic about your organisation’s requirements and capabilities and the steps required to implement a change.
- Establish measures to support the case for change, and quantify impacts and report on these.
- Test and correct if desired results aren’t being observed.
- Be less ambitious – obtain consensus on two to three key objectives and nail those.
- Reduce process but maintain strong sponsorship from leaders within the business.
- Ensure you effectively manage risk where your business is increasing discretion.
Avoid the silver bullet approach
The report observed that there is no silver bullet in performance management, and it is important to manage what matters: over-service the executive population, drive more effective conversations, and provide timely feedback with structure.
“And as with any change, move at a pace that your business can sustain, and consider the full scope and implications of any change,” said the report, which also recommended that any change should be testable.
“Are organisations managing their performance management systems using testable ideas? Not really. Most are making do with what they have – semi-relevant questions from engagement and culture surveys, and analysis of rating distributions.
“While these have some value, you won’t be able to test whether your changes – to coaching, goal setting, simplifying – are responsible for achieving results.”
Many ideas in performance management can benefit organisations, however, the report stated that few will be adopted unless there is proof that they work and there are people to make them happen.
The case for change
In simplifying their approach to performance management, the report recommended organisations:
- Be bold: Start with the right question (eg What does fantastic performance management look like?) and design around that rather than starting with the existing frameworks and asking ‘how do we make these better?’
- Establish measures that can be used before, during and after the project is complete: Without evidence, storytelling rules (‘If it works, it’s because of us. If it fails, it’s because of the economy’). To verify whether your changes are having an impact, establish measures that are sustainable and allow you to test the effectiveness of the change, ideally using pilots and control groups.
- Report on performance against measures: Reporting performance is a key part of involving and engaging others throughout the project.
- Take action when the measures turn up good news or bad news: Measures are meant to drive action, so use the information to guide the decisions that you make.
For the full report see Performance management: change is on the way but will it be enough?. Image source: iStock
