It's time for HR leaders to ask: Does performance management make any difference?

Across the world of work, people managers are still sitting down once a year with their direct reports to have a conversation; the dreaded annual performance review to document their achievements, give feedback and capture their development needs.

We've all got memories of the kind of forced chat that’s little better than having to remind a friend they owe you money, or talking to that neighbour to get them to clean up after their dog.

And for under contributors, their performance conversations, euphemistically called Performance Improvement Plans (PIP) can often be a clear signal that their days at their employer might be numbered.

Not only do performance management conversations feel awkward; according to Gallup, just 14% of employees strongly agree that their performance reviews inspired them to improve. With that efficacy, if performance reviews were a drug, (Appraisazine!) they wouldn’t get FDA approval.

Even more regrettable is how so many performance management systems are not designed to help employees become better at their job, or achieve more.

So why does HR continue to argue that performance management is essential to align all employees, resources, and systems to meet strategic business goals?

For most organizations, performance reviews are perceived as the right thing to do. As Drucker is often famously misquoted for saying “What gets measured gets improved?” It’s obvious right? I mean, how else do you set pay and hold others accountable?

Or, are performance reviews, as one Washington Post journalist wrote in 2013, a “rite of corporate kabuki” that “dull our brains, restricts creativity, generates mountains of paperwork, and serves no real purpose?"

While it may be heresy to some, in an article for People + Strategy, a Deloitte manager referred to the performance review process as “an investment of 1.8 million hours across the firm that didn’t fit our business needs anymore.” Other thought leaders argue that annual reviews are an obsolete practice that reduces collaboration and innovation.

Whatever the truth, change starts with a question: Why should we continue doing this? Does any evidence exist that performance management systems help workplaces and people to become more successful and engaged?

Employers acknowledge that managers and their teams loathe the appraisal process, and addressing this perpetual problem has become even more urgent during the skills shortage that threatens the global economy.

In well publicised accounts of their practices, Adobe, and Microsoft, as well as consulting firms like Accenture, Deloitte, Microsoft, and KPMG, who sell HR consulting solutions, put their own performance management system under a microscope, and with a resounding “No way!”, they eliminated the performance review entirely.

Not only did these employers decide that their performance management did not inspire, or improve performance, they also observed that performance reviews, forced ratings rankings and PIPs are not an optimal system for deciding pay and promotion.

As jobs change shape and become ever more complex, change-focused employers realise that it has become implausible to set annual goals and expect them to still be meaningful 12 months later.

 And that is before we consider the time and cost for people managers, who spend, according to the HBR, around 40 hours each per year, looking in the rear-view mirror at prior year performance - generating lots of paperwork and little else to show for their efforts. Although digitalising the process can help.

So what? Should organizations rethink and abandon performance reviews altogether? If so, does a focus on improvement and growth make more of a difference than measuring transactional accountability?

In my assessment, the purpose of performance management is a business tool to enable organisations to identify their mission priorities, and align their people and teams to the desired behaviours, skills, values and results that contribute to success.

I believe the biggest constraint of annual performance reviews is an obsessive focus on levers of reward and sanction. With their cumbersome structures, they hold people accountable for forensically analysing past behaviours and achievements at the expense of improving future performance and growing long term talent, both of which are critical for long-term survival.

Worse still, when individual full year performance ratings are mechanically and robotically linked to salary and variable pay, employers can be certain that maximising the bonus payout is the only item on the mental agenda of the employee, during the awkward annual rating discussion.

With traditional appraisals, the pendulum swung towards a transactional, command and control view of workers contribution, which is hard to maintain in an era of skills shortages, low unemployment, and cautious reward investment budgets.

While abandoning performance management may feel like a step too far, organisations can transition their approach to;

·      Individual and team SMART goals

·      Frequent, focused informal check-ins between people managers and employees

·      Digital technology that facilitates the process and supports dialogue

·      Training managers to act as a coach

·      Instant feedback, including from peers, subordinates and external stakeholders

·      Small, visible and timely recognition when good things that are done, are seen by others

·      Democratised and self-directed learning opportunities

Regular conversations about performance and development shift the focus to building the capability and capacity that workplaces need to be competitive today and for decades to come.

Industry thought leader, Josh Bersin estimates that about 70% of multinational companies are moving toward this model, even if they’ve not begun the journey.

Profound change is long overdue in the world of performance management. This is not because HR says so; it’s a business imperative.

While some people won’t hesitate to demand debt repayment from friends (or are happy to say no in the first place), there’s probably a fundamental reason why many others find it uncomfortable and will say nothing, rather than asking in a direct, yet thoughtful and empathetic way.

Performance management doesn’t need to remain most despised and least trusted business practice. As HR leaders, we own the conversation.

Let me know what you think in the comments below.