Business leaders, HR departments, managers and employees each have different expectations of performance management programs. This can mean that no one’s needs get met. Thus, instead of inspiring stellar performance, these programs often frustrate employees and waste managers’ time and money.
To get the value they expect from their performance management programs, companies should answer three pivotal questions:
1. Why do we want to have a performance management program?
2. Which performance management strategy best meets our needs?
3. How can we systematically implement each building block of our selected strategy?
Why Have a Performance Management Program?
Companies use performance management systems for a variety of reasons, ranging from a backward-looking evaluation of past performance to driving innovation and team behavior. Most companies use annual performance review results to inform decisions regarding incentive compensation and promotions, and retain data gathered for such forms for potential disciplinary actions, according to PwC research conducted in 2012. While there is nothing inherently wrong with such an approach as long as the company’s needs are met, issues can arise when:
- Performance management practices are communicated or applied inconsistently.
- There is a belief that the process accomplishes more than it actually does.
- The process fails to build the capabilities required in leaders and managers.
Recent studies highlight the magnitude of this problem. Fewer than half (45 percent) of employees in the Cornerstone OnDemand/Harris 2012 US Employee Report published in December 2011 said their manager’s feedback at the annual review was fair and accurate. In the Sibson Consulting 2010 Study on the State of Performance Management, more than half of the respondents felt their managers were ineffective at driving performance.
Despite the fact that managers devote up to eight hours a week on coaching and performance reviews, according to The Coaching Conundrum, a 2009 report by BlessingWhite, they are often ineffective in this role. In the 2010 Sibson study, 65 percent of senior HR leaders agreed, citing “managers’ ability to coach” as their top performance gap.
These results point to the importance of clearly defining and communicating the rationale for the performance management program. Lofty messaging about transformation and culture, coupled with a seemingly arbitrary evaluation process and poorly delivered coaching and feedback, will inevitably lead the workforce to distrust the program and the organization’s commitment to its performance and development.
A Performance Management Strategy Aligned with Business Needs
PwC has identified three performance management strategies that companies can use like building blocks, starting with the foundational level, to identify gaps in current programs as well as to figure out how to move up the performance management curve systematically (see Figure 1).
Figure 1: Three performance management strategies. The Driver and Transformer strategies build on the Rater strategy. (PwC)
One reason for the frustration surrounding performance management is that companies mix and match building blocks from different levels without setting a solid foundation first.
Enhancing the Performance Management Strategy
To build a more effective performance management system:
Get real. Take a hard look at current practices and outcomes. Ask questions such as:
- How are employees and managers perceiving the effort, and how well are they participating?
- On balance, is our current approach to rating employees helping or hurting our efforts to motivate and retain talent?
- Do our incentive schemes have any unintended consequences?
- What behaviors are we driving?
- How good are our managers and staff at setting goals and giving feedback?
Take aim. Evaluate the business strategy and reassess the role that performance management needs to play in it. Determine which performance management strategy (Rater, Driver or Transformer) best supports current business objectives and best fits the organizational culture (or the desired culture). Alignment between business leaders and the chosen strategy is a critical part of this step.
Take stock. Assess current performance management practices against objectives. For each block, determine whether a change in approach is needed. For example, determine whether existing processes and systems enable sufficient participation and dialog, or if a more “social” approach is needed. Similarly, assess whether the approach used to ranking staff sends the right motivational messages, then prioritize a list of necessary changes.
Adjust. Based on the priorities set in the previous step, implement changes as needed. Communicate “quick wins” to demonstrate early traction and show business results (e.g., improvements in productivity) and employee sentiment (how managers and staff feel about the new process). Use whatever strategy that has been selected to create greater alignment with business executives and leaders.
Sayed Sadjady, a principal with PwC’s People & Change practice, co-authored this article with Jan Seele, a director with the practice and Colin Mahon, a manager with the practice.