Performance Management is Broken. Let's fix it

The existing performance management system based on annual reviews, rating and forced distributions was designed with one goal in mind. It was to drive higher performance by differentiating top from low performers, based on a once-a-year goal setting process and assessment. It has been sufficiently proven that the system has failed to accomplish its main mission. Unfortunately, along the way it has left many more terrible effects. Performance management is broken, and it has to be fixed right away. 

Forced preset distributions and annual reviews are perverse. They don't leave enough room for corrective and timely actions on low performance, or more challenging tasks for high performance. Also, they oblige managers to make decisions constrained by budget restrictions and not real performance criteria. Much worse, an annual review doesn't really promote manager-people coaching conversations throughout the year. And when these conversations do happen, employees are usually told that they're doing a good job. Later in the year, during the performance assessments, good performers don't get their deserved acknowledgement. Why? Because of the forced distributions and ratings that force managers to reward someone today, and a different person the following year.

In most organizations, the existing approach to performance management is deeply demotivating and frustrating. Jim Collins says that people who do a great job are usually very self-motivated and self-inspired. Thus, the job of their leaders is to avoid demotivating them. Well, that's exactly what the existing annual-review-rating-based approach achieves, killing people’s motivation and energy to do and give their best.

One of the perversity of the existing performance management system is that goals are set and their accomplishment assessed on an individual basis. This violates one of the most important principles and demands over the current workforce: smart collaboration.

Organizations with individual annual reviews based on ratings are sending a terrible message. And it is that regardless of the pressing need for collaboration and breaking down silos, and the efforts for collective achievements, what is truly important is the individual entity and not the collective one. How do you reward and acknowledge the work of a successful team of three people when all you can do within the forced distribution is to reward one of them? What kind of incentive or disincentive does this approach create for the team as a whole?

Some companies decided to get rid of this annual rating approach. Among them, Adobe, IBM, Microsoft and, more recently, Accenture, Deloitte and General Electric. The fundamentals behind the change is that the existing system is frustrating people and managers. This is no surprise, since most research shows that nearly 90% of corporate leaders consider that the annual-rating-based performance approach is not working.

These companies have moved to a more flexible approach. Managers and people meet on a very often basis to discuss project and task based coaching and performance. They don’t wait for the end of a given year to provide feedback, since it would too late by then. It is just ridiculous to think that providing feedback about a project that happened several months before will have any real impact now. Feedback and coaching have to be timely, otherwise they are useless.

In addition, another way to fix the problem created by the perverse existing system is to have a transparent mechanism of reward. Such a mechanism would take into account budget constraints, and without telling high performers that they are not performing well, only because there is not budget to give them a salary increase.

The existing system is sending the wrong message to high performers who can’t get through the forced distribution. I’ve actually talked to many people who have gone through this very situation. Most of them think that even though money is always a good incentive, it is not necessarily the most important. For them, a much more powerful reward is the acknowledgment of a job well done and performed. Many people value more the opportunities to become a role model to other colleagues, or getting more challenging assignments than simply the money associated with their performance.  

Unfortunately, the conversation usually revolves around the ratings and forced distribution, making it hard to have important developmental conversations. The focus has been on ratings, because people feel that if those are the rules of the game, they have to play by them. In my opinion, 99.9% of the career and professional development conversation gets lost as soon as you mention the ratings somebody has received. This is creating a big coaching and developmental vacuum that can’t be filled within the current performance management model.

Organizations need to awake soon before it is too late. Employee disengagement is up to a whopping 70%. And money is not precisely among the top causes, but rather the lack of timely and effective coaching, or opportunities to thrive, and support from leaders to continually step up to a next level of personal and professional potential.

Some managers have constantly put the blame on the performance model. I know there’s got to be a conversation around leaders’ role in coaching their people, regardless of performance appraisals and budget constraints. But, sometimes people shape and change culture and processes. Some other times a new culture is created based upon new processes. In this case, I think people will have to begin the conversation about a better approach and, hopefully, the processes will change along.

I have repeatedly laid out my ideas about a better performance approach: providing timely coaching and feedback; giving people the opportunities to thrive and step up in the quest and realization of their potential; supporting and challenging them in their career and professional development; getting rid of the annual-rating-based reviews, focusing on project and task based performance assessment. In addition, separating the financial compensation discussion from the performance conversation will be very helpful. Compensation will always be tied to performance, but budget restrictions can’t constrain the feedback and coaching conversations anymore.

Let’s fix this mess.

Follow me on Twitter: @erubio_p
Visit my blog: www.innovationdev.org

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About the Author: Enrique Rubio is an Electronic Engineer and a Fulbright scholar with an Executive Master’s Degree in Public Administration from Syracuse University. Enrique is passionate about leadership, business and social entrepreneurship, curiosity, creativity and innovation. He is a blogger and podcaster, and also a competitive ultrarunner. Visit the blog: Innovation for Development and Podcast. Click here to follow Enrique on Twitter. 

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