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Break Free From Performance Management Shackles: Companies That Are Paving the Way

Jennifer Post

Traditional performance reviews are no longer working. See how and why these big players have moved to a new way of evaluating employee performance.

You just spent the better half of your week soliciting feedback, trying to map your strengths back to core competencies and whipping up some development opportunities while the person next to you did the same.

Does this kind of exercise really work? Because it's become clear to many companies that traditional performance management isn't effective. Companies have had enough with forced rankings, time-consuming paperwork, and frustration among managers and employees.

Here's a look at why traditional performance management methods are failing, along with profiles of four companies that changed their performance management ways. These companies traded outdated techniques that focused on assessing the past for nimble, real-time, individualized systems squarely focused on fueling performance in the future.

Did you know?Did you know? Revamping performance management is good for employees and the company. Collaboration, performance, employee attrition and stock prices can improve.

7 reasons why performance management can fail

Many factors have driven traditional performance management methods out of favor. 

1. Annual performance reviews are too rigid.

Numerical performance management systems don't take into account how work gets done today. Who sets 12-month goals anymore? Some workers need goal cycles of a month or even a week. Work is also happening in teams more than ever, and many people are involved in multiple teams spread around the world.

Few managers can accurately gauge a team member's performance when the employee is entrenched in multiple teams, often doing work the manager doesn't see and may not understand. 

Standard performance reviews, delivered once a year, are just not relevant to how we work anymore.

TipTip: If you have teams spread around the world, remote monitoring tools can track productivity and help keep projects on schedule.

2. Annual reviews create competition.

When you study companies that have changed their performance metrics, you'll see a clear trend: Conventional rating systems inhibit collaboration, making a business less customer-focused and agile. While top ratings can lead to high status, promotions and raises, it's not like school, where everyone can get an A if they work hard enough.

With a forced curve, a manager with a hardworking team of 10 people may be allowed to give only one or two a top rating. As a result, people directly compete with each other for rewards, hurting collaboration. 

3. Yearly reviews may cause employee turnover.

Companies are removing rating systems because they want managers to talk to employees about their development more than once or twice a year. When management is out of touch with employees, employees are less engaged, and employee turnover is higher. Communication about learning and career growth is particularly important when managing millennials and Gen Z in the workplace.  

According to a study from Bersin by Deloitte, after a company removes ratings, managers talk to their teams significantly more often about performance (three or four times a year instead of only once). More frequent communication promotes employee engagement, less absenteeism, greater development and fairer pay because managers better understand how their people are doing.

FYIFYI: When trying to keep remote employees engaged, it's highly important for managers to be available and open to communication.

Yearly reviews stagnate employee development. 

Removing ratings can help develop employees more quickly and efficiently. This is likely because there are more frequent honest, open dialogues between managers and team members when no one is worrying about justifying a rating.

5. Traditional reviews are bad for morale.

"Removing annual performance reviews can be a great boost for morale, where employees no longer feel they are working toward one day that can affect their future in a company," said Brad Cummins, owner of Insurance Geek.

Cummins noted these meetings could be bad for an employee's mental health, given the stress of such a significant event. The stress leads to a lack of honest and open conversation, because the employee can't think straight if they're stressed out.

Bottom LineBottom Line: Open, honest communication is a good way to support employees' mental health while increasing engagement and fostering trust.

6. Annual reviews don't actually help employees.

Most of the criticism around annual performance reviews lies in the fact that they happen only once a year. If the fundamental goal of this type of performance management is to help keep employees on the right track, discussing progress once a year doesn't seem helpful. The employee could have been off track for the last four months of the year without knowing it because there was no regular oversight or communication.

7. Yearly reviews aren't goal-focused.

In many companies, work is very project-based, with specific goals for each project and maybe even each step. Project goals tend to be very precise, whereas annual performance reviews typically use a numerical ranking system and tend to be more general, focusing on whether an employee completes work on time and works well with others. These questions don't often get to the root of an employee's goals.

4 companies leading the charge of change

The businesses we highlight here have implemented good employee performance management processes and changed the conversation about performance management with new techniques that are proving more successful than the old methods.

Microsoft focuses on growth and improvement.

Microsoft was an early adopter of more enlightened performance management methods,  getting rid of ratings, forced rankings and grading on the bell curve way back in 2013. Microsoft's performance evaluation model makes it easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams.

  • No forced timelines: Through a process called "Connects," Microsoft optimizes for more timely feedback based on the rhythm of each business segment rather than following one timeline for the whole company. 

  • No more curve: Microsoft invests in a generous reward budget but doesn't have a predetermined targeted distribution. Managers and leaders have the flexibility to allocate rewards in a way that best reflects the performance of teams and individuals (as long as they stay within their compensation budget).

  • No more ratings: Without forced labels, no one feels demotivated. Instead, the focus is on opportunities to grow and improve.

Adobe's transparency yields dividends. 

Adobe's Check-in is an informal system of ongoing, real-time feedback. There's no prescribed timing or forms to fill out and submit to HR. Managers decide how often and in what format to set goals and give feedback.

Rather than dwelling on workers' shortcomings, managers focus on goals, objectives, career development and strategies for improvement. Employees are evaluated based on what they achieved toward their goals rather than how they compare to their peers.

That facet is particularly important, said Donna Morris, former executive vice president of employee experience at Adobe, because Adobe's previous stacked ranking system effectively discouraged people from working in teams by pitting individuals against each other and creating an environment of competition rather than collaboration.

Morris said that transparency paid unexpected dividends. For one thing, fewer valued staffers left the company after it implemented Check-in. "People who have turned down other offers tell us it's partly because Check-in makes them feel like we're helping them succeed."

As managers and underperforming employees started to talk more often, Adobe saw an increase in "involuntary, non-regrettable attrition because team leaders are no longer putting off having tough conversations with people who aren't cutting it," Morris said. "It's not just about retaining talent – it's about retaining the right talent." 

Cigna focuses on goals, progress and career growth.

Connect for Growth, Cigna's approach to performance management, seeks to improve employee productivity and motivation as well as retain top talent.

Cigna instituted performance management changes after employees responding to a 2014 survey raised concerns. When asked to describe the review process, both employees and managers most often used the words "frustrating," "unfair," "cumbersome," "time-consuming," "forced" and "inconsistent."

Cigna dropped formal letter and numeric ratings. The overall performance indicator is "on track" or "off track," with the expectation that the vast majority of employees will remain on track. Conversations about employee performances are called "check-ins," and they can happen anytime during the year. 

Check-ins focus on goals, progress and career growth, personalized for each employee. Quality discussions are more important than written documentation, which is kept to a minimum. Regular feedback from team members and colleagues other than a direct manager is also encouraged, and pay for contribution is the standard for rewards.

Accenture's digital tool is ideal for remote workers.

Multinational management consulting firm Accenture reimagined performance management with its Performance Achievement approach, which drew from the company's different facets to create a custom digital tool.

​​The cloud-based Performance Achievement system lets employees worldwide follow a performance achievement process that includes feedback, support, and communication from managers and team members.

"Performance Achievement is enabling the strengths and potential of our greatest asset – our people – to achieve greater performance for themselves, their teams and our clients," said Maeve Lucas, Accenture's global performance lead.

Image Credit: fizkes / Getty Images
Jennifer Post
business.com Contributing Writer
Jennifer Post is a professional writer with published works focusing on small business topics including marketing, financing, and how-to guides. She has also published articles on business formation, business software, public relations and human resources. Her work has also appeared in Fundera and The Motley Fool.