This New Approach to Performance Management Can Take It From Necessary Evil to Competitive Edge

December 5, 2019

Photo of two women meeting at a table with open laptop and cups of tea

The classic performance review — here’s how you did, here are your goals, here’s your pay bump (or your pink slip) — is widely reviled. Employees don’t like getting them. Managers don’t like giving them. They can be an enormous drain on morale, energy, and time. A CEB study found managers spend an average of 210 hours a year compiling and delivering them.

The ROI on that time investment appears to be very little. The reviews are often viewed as punitive or incapable of reflecting the fast pace of business, and the ratings have been found to have little correlation to company results. But for many years, they were also seen as a necessary evil. 

Then a few companies started asking if they were really that essential. Businesses, including GE, Deloitte, Gap, and Accenture, did away with them. But then, further research showed that eliminating them led to a drop in performance and engagement.

Is there no way to get this right?

High-performing companies are combining performance management with employee engagement

Best-in-class organizations have begun transforming their performance management to focus on engaging and developing their workforces, rather than sorting and assessing them.

Companies that have found a way to combine performance management with employee engagement outperform other companies on revenue growth, productivity, and customer satisfaction, according to recent research done by Harvard Business Review Analytic Services and sponsored by Glint.

The study, Peak Performance: How Combining Employee Engagement and Performance Management Fuels Organizational Success, surveyed 717 business leaders from around the world and across many industries. And the report suggested four crucial steps organizations can take to reengineer performance management.

1. Senior leadership needs to commit to a new approach

Hating on performance management doesn’t solve anything. Senior leaders need to champion an ongoing approach that places more emphasis on goal alignment, employee development, and coaching.

“Leaders stand apart,” the report says, “by changing the goals of their [performance management] efforts to focus more on employee development and creating a better experience in the strong belief that this will improve performance — not only of the individual employee but of the organization overall.”

Company leaders can successfully position a new approach to performance management by:

  • keeping performance management and employee engagement on the agenda by regularly discussing them and their linkage at executive meetings;
  • investing for leadership development training for managers across the organization (see point No. 3 below); 
  • tying manager bonuses to employee performance and engagement.

Senior leaders at best-in-class companies are twice (53% to 28%) as likely as those at laggards to tie manager bonuses to employee performance and three times (29% to 10%) as likely to tie them to employee engagement. Leading organizations discuss employee engagement at management meetings often or always, and they’re twice as likely as laggards to share the results of engagement surveys across the company.

2. Managers need to have frequent check-ins to exchange feedback, discuss goals, and chart development opportunities

The most distinctive feature of the new approaches to performance management is the radically altered time frame: Companies are no longer looking to a single yearly review at which to discuss performance and map goals (which have usually been aimed at business targets rather than professional growth). Instead, they are adapting management models that rely on frequent — quarterly, monthly, or even weekly — check-ins that can better respond to quickly changing business priorities and that are more focused on development than assessment.

This doesn’t necessarily mean scrapping the more formal annual review. But more frequent and more timely performance discussions can also allow managers to go from solving problems for employees to empowering them to find the solutions themselves.

“The manager,” says the report, “is the linchpin.”

And respondents to the survey said that an employee’s relationship with their manager or supervisor has a bigger impact on engagement than anything else, with 63% naming it one of the top-five factors.

Engagement data plays a key role too, with best-in-class companies three times (90% to 29%) as likely to use insights from engagement surveys to drive changes to the employee experience by, say, identifying personalized learning and development opportunities.

“Having more regular check-ins and increasing the frequency of engagement surveys,” the report says, “ensure this process is as current and relevant as possible.”

3. Leadership development should be offered to managers — to boost their own engagement and improve their team’s

It’s vital that managers themselves are engaged — which increases the chances they’ll have engaged and highly performing teams. Some 89% of respondents said that engaged managers meet more frequently with their team members than disengaged managers. And just as with their employees, managers tend to be more engaged when the company invests in their development.

“Some form of leadership development is one of the most important tools you have to drive the organization in the direction you want to go,” says Josh Bersin, the founder of Bersin, Deloitte Consulting LLP, in the report.

Leading companies are teaching managers how to coach people (70% of best-in-class companies), to communicate clear expectations (67%), and to encourage growth and development (66%).

This kind of investment pays off: Managers at top companies are three times (78% vs. 26%) as likely to be effective at differentiating between poor, average, and stellar performers. They are also nearly four times (73% vs. 20%) more likely to have the training and skills necessary to hold effective performance management discussions with members of their teams.

4. Companies need to invest in software and systems that deliver the data and insights that managers need

“Effective performance management that also increases engagement requires not only training for managers,” the report says, “but also data and tools that allow them to be proactive.”

But because the two areas — performance management and employee engagement — have typically been rooted in separate parts of an organization, they generally use different data, systems, and people.

While 83% of survey respondents said it’s very important to have the data to understand what motivates and engages employees, only 23% said their managers have a single place where they can find information on both their team member performance and engagement.

That data may go well beyond the manager’s individual experience with an employee and may include feedback from teammates, colleagues in other departments, and customers and clients. Collectively, the data can provide rich insights into where to best invest in an employee’s development and engagement.

Final thoughts

The report found that fully two-thirds of the business leaders who were surveyed considered performance management to be a “check-the-box” activity.

But when done poorly, or when not done at all, performance reviews not only waste time, they can deflate morale as well as performance. Is that a box companies really want to be checking?

Instead, companies should consider embracing a model that marries performance management to employee engagement and makes the process an ongoing one with frequent (and less-foreboding) check-ins between managers and their team members. And managers should put employee development and engagement at the center of those conversations.

Performance management doesn’t need to die. It just needs to be reincarnated as something that helps both employees and companies grow.

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