Performance Management Needs More than Just a Fresh Coat of Paint
Posted inHR Trends
onOctober 25th, 2018
- Updated onOctober 29, 2018 - 12:00pm
What key data and insights emerged from the study and the meeting discussion?
Steve Safier: In a nutshell and not surprisingly to those in the HR profession, few organizations are happy with their performance management process. It has been reported in the literature, consulting firms have studied, and many companies have tried to make changes.
We want to be able to coach people on their performance for the success of the individual and the organization. That should involve multiple conversations over time to help someone understand his or her strengths and opportunities to improve. The challenge is that those conversations are difficult. Plus, because organizations rely on the performance management process to make a number of decisions (compensation, high potential identification, and leadership development, for example), we end up with putting people into categories for efficiency purposes. And, managers and employees often focus more on the categorizing than they do on the conversations.
We have been unhappy with performance management systems for over twenty years and according to our survey, we are still not there. In fact, 93% of organizations in our study indicated that they are considering changes to their system today.
To what extent did HRLE members believe performance ratings impact actual employee performance?
Steve Safier: Performance management isn't having the desired impact in terms of individual or business performance and at the same time, people are not often good at giving and receiving feedback.
What were some of the recommendations that came out of the study?
Steve Safier: In an effort to be more strategic, HR leaders have over engineered performance management systems. We recommend:
- Simplify your performance management system – Four out of five organizations in our study use performance management categories and two-thirds employ four or more categories for rating performance.
Adopt three categories with positive rating labels for the middle and top category, i.e. Valued Performer, Outstanding Performer, with Needs Improvement as the bottom label. If we consider that most people will fall in the middle, tie performance to compensation and give employees the same "valued performer" increase. If there's no difference between 2.5% and 3.5% increase, don't spend time and effort trying to justify it. Instead, save money for your "outstanding performers".
- Link annual incentives, not base salaries, to performance, especially for your middle and top categories, with heavier bonuses for outstanding performance. The added benefit? You don’t end up paying in perpetuity for annual performance, as you would with a merit increase.