Bringing Performance Management Out of the Industrial Era

Let’s evolve performance management into an employee-driven conversation that engages your workforce and drives organizational performance.

There has been a lot of press recently about Microsoft doing away with their stack-ranking performance review system. This is not only a great move for Microsoft – it’s also a perfect opportunity for a discussion about changing our traditional views on performance management. Rather than continuing to apply a years-old system that shows little sign of improving business results, how do you instead open conversations, build excitement, and move the company forward?

First a little background on standard performance reviews: while the intent of performance management – to drive organizational performance and support individual development – is a worthy one, there are many voices challenging the value of how it is often implemented. Despite the broad use of performance management (in 97 percent of U.S. companies), researchers have found no significant data that confirms these programs are delivering the desired results. Some critics go so far as to say that standard review programs destroy trust between management and employees and do little to advance the development of the target employee groups.

The fundamentals of standard Performance Management emerged in the post-war era of the 1950s and they haven’t changed much to reflect today’s business environment, which has experienced significant changes driven by globalization as well as shifts in the expectations of today’s increasingly millennial workforce. Additionally, new technologies and new research (most notably on motivation and rewards) have debunked several of the common foundational assumptions of performance programs. All of these factors have raised awareness of the weaknesses of today’s common performance program designs. These weaknesses include:

  • Traditional approaches impede the reception of feedback and limit honest dialogue.
  • Performance reviews generally emphasize the negative, rather than focusing on strengths.
  • The focus is on the individual, rather than the system or organization – often system or organizational challenges have significant influence on individual performance.
  • Comparing people to one another erodes attempts to create a collaborative culture.
  • Fairness and standardization in ratings and the judgment of performance simply cannot be achieved, especially across positions.
  • Review output is unreliable for making talent decisions.
  • Pay-for-performance does not deliver improved performance.

Moving Forward

How, then, to do you build a performance program that moves your organization in the right direction? The following are a few shifts in emphasis that can help you develop a more effective program:

  1. Pass ownership of the review process from the manager to the employee. Ditch the once- or twice-yearly top-down review. Instead, set expectations that employees should ask for feedback when then need it, and when it feels right to them. This will help change the process into an ongoing conversation between employee and manager – in a way that helps the employee feel engaged and appreciated.
  2. Stop paying for performance, and instead pay for capabilities and reward for contributions. Rather than basing salary increases on performance goals reached in the past year, consider linking pay to an employee’s capability – their competencies, skills, and experience – which should increase as the employee gains expertise and participates in development activities. And base that pay on the value of those skills, competencies, and experience in the marketplace (which is what we all do, anyway – we might as well be honest about it). Then, reward for any goals that have been met or exceeded. In other words, give bonuses for outstanding performance, but leave their salary out of it. Remember, performance goals are often heavily reliant on market and organization factors that have nothing to do with the individual employee’s efforts; basing pay increases purely on performance goals can lead to feelings of unfair treatment and disengagement. It’s also far easier to link an employee’s contribution bonus to the performance of their team or the organization as a whole – a link that also creates a stronger individual connection to your company strategy and goals.
  3. Change the focus from past performance to future capability. Instead of focusing on what the employee did or didn’t do, focus on what that employee could achieve in the future, especially with the support of the manager and organization as a whole. As for addressing underperformance? Any issues should be discussed as they occur, with guidance provided to rectify the problem.
  4. Change the discussion from a few to many voices. Don’t rely on one manager to provide feedback. Instead, build a culture in which employees receive and give ongoing, real-time feedback and training from managers AND peers and colleagues. Also, think about adding an element of crowd sourcing (gaining insights and ideas from many employees) to add more voices to the mix. This can range from asking all employees for input on outstanding individual performances throughout the year as a way to assign bonuses, to more elaborate systems in which employees can publish their goals and get feedback and help from other employees. Because crowd-sourcing is most effective when implemented through a web or social media-style platform, it’s also an ideal way to reach those millennial employees.
  5. Look at team goals, rather than individual goals. Research has shown that people are more motivated by team goals than by individual goals. Shift the focus from individual performance metrics to a goal the team can work together on. This not only improves individual performance, it also helps build a healthy, collaborative culture.
  6. Manage the exception, not to control. Many performance management programs are designed to control the employee population. Instead of spending all that energy, time, and effort on controlling people who can work just fine on their own, try giving your workforce more autonomy (treat them like the adults they are!) and only manage to the exception – the person who is underperforming. This will allow you to spend more time where it’s really needed, and simultaneously empower the general workforce.

Now go!

Research has debunked the traditional review process as a drain on resources with limited – if any – real effect on organizational performance, and a negative effect on employee morale. Instead, change the paradigm a little. With a few modifications to how your organization approaches performance management, you can help build a culture of achievement and results, driven by an engaged and excited workforce.



About the Author:
M. Tamra Chandler

Tamra is a founding partner and CEO of PeopleFirm, LLC. With 25 years of experience in guiding clients through strategic programs, she has a proven track record of successfully managing complex business transformation projects requiring a unique blend of strategic, technical, and change management skills. Her results-oriented, down-to-earth approach and unwavering focus on the human element of organizations set her apart. Tamra’s trademark is an unerring ability to see the larger picture and achieve measurable and sustainable results. Today she brings her vast experience and passion for achieving strategic value into a single focus: People.

Update: She has written a book on bringing performance management out of the industrial age, based on her considerable experience helping organizations replace old-school review systems with engaged cultures of achievement and results. It is due to be published early in 2016.