You just spent the better half of your week soliciting feedback, trying to map your strengths back to core competencies and whip up some development opportunities while the person next to you does the same.
Question: Is it working? Because it's become clear to many companies that performance management as we know today, it is not working.
As of September 2015, 51 large firms have moved to no-ratings systems. According to research firm Bersin by Deloitte, around 70% of companies are now reconsidering their performance management strategy.
They have had enough with the forced rankings, the time-consuming paperwork and the frustration engendered among managers and employees alike. Six percent of Fortune 500 companies have gotten rid of rankings, according to management research firm CEB.
These much-needed trailblazers are trading the dinosaur techniques that focus on assessing the past for a system that's nimbler, real-time, and more individualized—something squarely focused on fueling performance in the future.
Not only is revamping performance management good for the employees, it's good for the company. Collaboration, performance, attrition, even stock prices, all has improved for those companies who dared. This November the NeuroLeadership Institute will publish a full set of findings from closely studying 30 companies that are changing how they do Performance Management.
Four Reasons Driving the Change
The Changing Nature of Work
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 one month, or even one week. Work is also happening in teams more than ever, and many people are involved in multiple teams that often are spread around the world.
Few managers accurately know their team members’ performance when that employee is involved in many other teams, often doing work the manager doesn’t see or even understand. In short, standard performance reviews, delivered once a year, are just not relevant to the ways we work anymore.
The Need for Better Collaboration
Studying companies that have made the change, there is a clear trend: conventional ratings systems inhibit collaboration, making a business less customer-focused and agile. Top ratings lead to high status, promotions, and raises—yet it’s not like at 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 only be allowed to give one or two of them the top rating. As a result, people directly compete with each other for rewards, hurting collaboration.
The Need to Attract and Keep Talent
Companies are removing ratings to get managers to talk to employees about their development more than once or twice a year. Millennials in particular crave learning and career growth.
Of the 30 companies studied, one preliminary finding that jumped out was that after a company removed ratings, managers talked to their teams significantly more often about performance (three or four times a year instead of only once). More frequent communication helps with employee engagement, development, and fairer pay, as managers better understand how their people are doing.
The Need to Develop People Faster
By removing ratings, early indications show that companies appear to be developing people faster across the board. It’s happening because of more frequent dialogues, which also tend to be more honest and open when neither party has to worry about justifying a rating at the end of the year.
Four Companies Leading the Charge of Change:
Over two years ago Microsoft kicked ratings, forced rankings and grading on the bell curve away and replaced it with a model that makes is easier for managers and leaders to allocate rewards in a manner that reflects the unique contributions of their employees and teams:
No more forced timelines. Through a process called “Connects” Microsoft optimizes for more timely feedback based on the rhythm of each part of their business rather than following one timeline for the whole company.
No more curve. Microsoft continues to invest in a generous rewards budget, but there is no longer a pre-determined targeted distribution. Managers and leaders have the flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget.
No more ratings. Forgoing the labeling eliminates demotivation and enables the focus to be on opportunities to grow and improve.
In place of the traditional performance review, Adobe introduced The Check In–– an informal system of ongoing, real-time feedback–– in the summer of 2012. There's no prescribed timing and no form to fill out and submit to HR. Managers decide how often and in what format they want to set goals and give feedback.
Rather than dwelling on workers' shortcomings, managers are told to focus on goals, objectives, career development and strategies for improvement. Employees are evaluated on the basis of what they achieved against their goals, rather than how they compare to their peers.
That facet is particularly important, says Donna Morris, head of the Adobe’s HR department, because Adobe's previous stacked ranking system effectively discouraged people from working in teams by pitting individual against individual and creating an environment of competition rather than collaboration.
Morris says that transparency has paid unexpected dividends. For one thing, fewer valued staffers are leaving. “People who have turned down other offers tell us it’s partly because Check In makes them feel like we’re helping them succeed,” says Morris.
Not only that, but more frequent talks between managers and under-performing staffers have led to a marked increase in what Morris calls “involuntary, non-regrettable attrition, because team leaders are no longer putting off having tough conversations with people who aren’t cutting it,” she says. “It’s not just about retaining talent. It’s about retaining the right talent.” Adobe experienced a 30 percent reduction in voluntary turnover in a highly competitive talent environment.
It’s also about boosting Adobe’s stock price. Getting feedback in real time, so everyone stays on track and is pulling in the same direction, has helped make Adobe’s 13,000 employees far more productive, Morris says. Adobe’s stock price has increased from about $30 to over $80 since Check In began.
Connect for Growth, is Cigna’s new approach to performance management, and is aimed at improving productivity and motivation among employees as well as retaining them.
These changes were in part made to address the concerns raised by Cigna employees responding to a 2014 survey. 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 has dropped formal letter or numeric ratings. The overall performance indicator will be On Track /Off Track, with the expectation that the large majority will be On Track. “Check-ins” or conversations about employee performances can occur at any point during the year with the current recommendation being quarterly at a minimum.
Check-ins focus on goals, progress, and career growth, personalized for each employee. Quality discussions are more important than written documentation, which are kept to a minimum. Regular feedback from team members and colleagues other than a direct manager is encouraged. Pay for contribution is the standard for rewards.
Just this September, multinational management consulting firm Accenture has officially shed its performance reviews as part of a “massive revolution” in internal operations. “Imagine, for a company of 330,000 people, changing the performance management process - it's huge,” Pierre Nanterme, CEO of Accenture, told The Washington Post. “We're going to get rid of probably 90 per cent of what we did in the past.”
The company is ditching these reviews as they failed to achieve their primary purpose: to promote better staff performance. Instead, the firm will switch to a more fluid system in which employees receive regular feedback from their superiors. One of the reasons why Accenture has made this move is that they wish to evaluate employees based on their individual roles and performance.
All this terminology of rankings - forcing rankings along some distribution curve or whatever - we're done with that," Nanterme said. "We're going to evaluate you in your role, not vis-à-vis someone else who might work in Washington, who might work in Bangalore. It's irrelevant. It should be about you." You go Accenture!
The writing's on the wall. Performance management is undergoing a transformation. Three of the four companies above made the list as one of happiest companies to work for. That should tell you something right there. Seems it's a change for the better.
P.S. Harvard Business Review has a whole study on how Deloitte upset their performance management apple cart for the better. This is a big leap for the largest professional services network in the world. Check it out.