How employees relate to their performance goals says a lot about how effective the organisation’s performance management process is. In our recent survey, 46 percent of respondents said that the goals they set in their performance reviews are no longer applicable a year later when they sit down to measure performance.
Whichever way you look at it, that figure isn’t saying anything good about the state of performance management.
What’s more, nearly all respondents (96 percent) said real-time feedback and ongoing performance discussions with their bosses more effective than just relying on an annual review.
While performance management is, and has been, the subject of lively debate for some time, these responses show that there is still a lot of work to be done. Traditional systems aren’t agile enough for today’s mindset. They reward past performance while ignoring the future. And they spend too much time on performance appraisal process and not enough time on performance improvement. Performance management is ripe for a change.
Feedback, feedback, feedback
There can still be a place for the “annual” review, but it shouldn’t be the only way success is measured. Regular feedback can help employees course-correct in real time and can help them adjust as business needs change. Indeed, 43 percent of respondents to our survey said annual reviews do not help them understand what they should be doing differently to improve - this is where real-time feedback comes in.
Getting recognition right
One of the most interesting responses in our survey was in relation to reward: 71 percent of respondents agreed that it’s fair to base annual compensation remuneration (rather than compensation) increases on the result of the annual review. This is perhaps surprising given the other findings on the relevance of goals and the importance of feedback. But it reinforces the important and ongoing link between reward and performance.
Even in highly development focused organisations, with a strong emphasis on helping employees grow instead of paying them for past performance, there will still be some differentiation in reward to account for employee’s performance and value to the company. Our survey shows that employees accept and expect this to be the case.
This creates an opportunity for organisations. A well-designed performance management process that fairly and objectively links reward and performance is a powerful tool to motivate and engage employees in a way that also ensures return on investment for the business.
Three ways to improve performance management
- Keep separate goals separate
Many performance management systems suffer because performance and development goals are permitted to overlap or become blended. Often this happens when the traditional “annual review” deals with both development (which is about the individual’s future) and performance (which is about the past). The risk is that any development messages are lost, because employees become fixated on the performance aspect - especially when there are pay implications. The fix is simple: keep development and performance discussions separate.
- One size does not fit all
While keeping systems simple is important, simple does not mean rigid. Different segments of the employee population will be engaged and motivated by different things. A good performance management system can flex the emphasis placed on different elements, particularly on the strength of the link between pay and performance. While a sales team may be motivated by a strong pay-performance link over shorter timeframes, this might not work for an R&D team working on a multi-year development project.
- Empower managers
A terrible system, delivered by highly capable and enabled managers, will always beat a perfect system, delivered by unprepared and disengaged managers. Managers need to be empowered to deliver feedback, explain consequences to employees and to judge employees’ performance. They are the secret to making sure a performance management system performs for both individuals and the business.