Companies are experiencing a growing demand to examine their current performance management systems, analyse the loopholes and recreate a new system. This growing demand has emerged from the realization that despite the number of man hours and the review feedbacks which go into building and executing a performance management system, it is not yielding the results with the effectiveness that it should.

What is it about the conventional performance management systems that is not producing the desired results? Consider the two scenarios below:

Scenario A

Students are enrolled in a school which uses a single dimensional approach to evaluation. While the faculty provides unorganized random feedback to students over class assignments to encourage improvements, the student’s grade, promotion and reward all depend upon an end-of-the-year exam in a given subject.

Scenario B

Students are enrolled in a school which uses a multi-dimensional approach to evaluation based on regular assignments, class participation, practical projects and experiments and points are accordingly distributed across the various levers of evaluation. The end-of the year exam constitutes 50% of the evaluation grade.

Clearly students under Scenario A have that one day to prove their interest, participation and expertise in a given subject. Therefore, the day of the exam becomes fortuitous and it does not have room for mistakes or unforeseen circumstances. Whereas students under Scenario B have a wider palette to play with and display their strengths in a given subject across different evaluation levers – if the student fails or performs poorly in one assignment, he can work on the received feedback and work on the next project and pull up.

The two scenarios are simple, yet a logical parallel may be drawn to the present performance management systems in many companies. Similar to Scenario A, systems which set employee targets at the beginning of the year, rate people under every project and culminate all the rankings of projects under one end-of-year appraisal, a system which provides a very singular approach to evaluation. In fact, a survey conducted by Deloitte Services found that 58% of executives felt that the system wasn’t driving performance and engagement as it was meant to. The survey further revealed that that the inconsistency and skills rating from one reviewer to another – a comprehensive study later showed that ratings were a reflection more of the reviewer than the reviewed. This made them question the value of rating altogether. (Reinventing Performance Management, HBR.org)

Other companies like GE abolished their ‘rank and yank system’ which ranked employees relative to their peers and resulted in the lowest percentile being fired, almost ten years back but recently also got done away with the ‘whether to fire or not’ evaluation meetings between managers and employees. Eli Lilly has put in place systems which creates room for empowerment and offers voice to the employees. Adobe has aggressively implemented its practice of regular feedbacks and checking-in on employees. Accenture has created an internal application to assist in relaying feedback within the organization. And, finally Google which has always emphasized the importance of coaching has followed a strict model of development over evaluation.

The new wave of performance management system involves three basic components: (i) Understanding the performance of employees in a clearer, more tangible and frequent manner; and (ii) with a clearer picture of employee performance metrics, drawing a plan towards skill development and improvement; and (iii) reward performance accordingly

How do the companies implement the above?

• • Understand performance
    Companies have found that performance can be understood more clearly when it comes from the immediate team leader rather than the head of the pyramid manager, who may in most cases be disconnected with ground reality. For example, Deloitte has stopped asking feedback on skills altogether – instead reviewers are asked their own feelings and intention towards the employee: What would you do with them instead of What do you think of them – Deloitte does this by asking team leaders respond to 4 future focussed statements:
  • I would award the person the highest possible increase and bonus – this captures the overall performance view and value
  • I would always want this person on my team – this gets out at teamwork capabilities of the employee
  • This person is at risk for low performance
  • This person is ready for promotion today

The responses provide a snapshot of the performance of the employee at a certain point in time. Each snapshot is weighted according to the project’s duration.

• Improve Performance
  Frequent conversations between the team leaders and the team members and weekly meetings which evaluate and assess the performance of employees, creating room for constructive feedback has led to performance improvement on a more week to week basis.
• Reward performance
  Finally, with a clearer understanding of performance on a more dynamic basis and encouraging skill development though coaching and constant feedback, it is easier for companies to reward employees. In turn, employees who are now more actively involved in their own assessment and development, see the whole process as a fairer and more sustainable process.