As we approach the end of the calendar year, and perhaps, the business year, there is for many a sense of dread as we contemplate the prospect of annual performance appraisals. As an integral part of an organisation’s performance management system, the appraisal has been a key tool used to motivate people. However, if anything it often achieves the opposite.
Performance Management (PM) has had an increasingly negative press over recent years. This is a pity as we genuinely need it: people want to feel they are progressing in a positive direction and that they are doing the right things to stay on track in their careers; and companies want to attract, keep and develop their talent to achieve their vision. Aon Hewitt tell us the companies with the highest levels of employee engagement are also those with the most effective PM processes, and that PM is a direct driver of engagement.
Twenty years ago I was part of a mini-industry designing complex PM processes with annual timetables anchored to the business planning cycle and decisions about pay. A central goal was to ensure a structured and standardised approach that would enable people to be rewarded fairly. The assumption was that people would be motivated to develop in order to achieve these rewards. As an add-on feature, PM processes gave support in how to achieve this development through ongoing feedback and coaching.
However, our faith in such processes is falling away. The link between pay and motivation is not nearly as strong as we had assumed. It seems it’s not the financial reward that matters but the quality ongoing support and involvement of a line manager in helping someone improve that really counts. This is what drives loyalty and motivation and which underpins the development of personal performance. Sadly, linking PM to pay, only serves to undermine the more important benefits.
As a result many large organisations are shifting their focus; cutting loose the decisions about reward and using PM first and foremost as a vehicle to help people develop. Obviously people still need a sense that their salary is competitive and calculated in a fair and transparent way. However, there are other ways to deliver that without linking it directly to the achievement of annual performance objectives.
There are major problems in using PM for reward:
1) It creates mind-numbing bureaucracy. Deloitte estimated that 2 million hours were spent per annum largely by their managers trying to agree ratings. HR can become pre-occupied with processes that prove how ratings and reward decisions were derived rather than focusing on what will actually make the greatest difference to performance and motivation.
2) It focuses on the past. There is a demand for evidence of what people have DONE to justify reward decisions. Therefore PM looks backward with a view to analysing and assessing the value of past performance. This does not encourage open and honest conversation about what and how to improve.
3) It comes too late. Due to the above two points, PM activities become loaded towards the end of the year. By this time the objectives established the year before are often irrelevant as the organisational world has moved on. The more useful performance conversations will need to have taken place in the moment, throughout the year, to keep pace with change.
4) It encourages the wrong behaviours. Offering financial reward based on an individual’s performance, encourages self-serving behaviours, rather than doing what is best for the long term success of the team. It also encourages people to focus on the activities they can measure and prove rather than those that genuinely add value.
By decoupling decisions about pay, organisations can unleash the true potential of Performance Management. In practice this means ensuring that PM is no longer associated with the dreaded Annual Appraisal. Rather it is all about what happens along the way. This means:
● Building trust through regular positive and informal interaction
● Learning from successes in order to develop confidence
● Quality coaching conversations with managers to find ways to improve
● Real-time feedback after key events and as a day-to-day norm
● Honest interpretation of multiple and diverse feedback
● A focus on what is needed today and tomorrow rather than what has been done before
● Embracing a team ethos and seeing success as a joint endeavour Less Inclusive?
This comes with risks. By truly focusing on managers’ conversations with their team members rather than a bureaucratic process we are forced to acknowledge the reality that success is dependent on management skill and motivation. Unfortunately, managers, like all of us, are subject to bias. In fact, the more informal the process, the greater the risk of bias with the result that Performance Management becomes less inclusive over time. We know that managers will naturally have more frequent interactions with those people they feel more comfortable with and whom they identify with due to homophily. This immediately creates more frequent and possibly richer opportunities for certain team members to gain developmental support and can become a relative barrier for others. As this type of bias is largely unconscious, new style performance management needs to work hard to give managers strategies to ensure the same opportunities to learn and grow are extended to everyone and that everyone feels engaged and enabled.