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Updated Feb 14, 2024

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

Traditional performance management techniques aren’t effective so try these alternatives.

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Jennifer Post, Senior Writer & Expert on Business Strategy
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Table of Contents

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You 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 work? Many companies have realized that traditional performance management isn’t effective. They have had enough of 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 These companies traded outdated techniques that focused on assessing the past for agile, real-time, continuous performance management systems squarely focused on fueling achievement in the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 traditional 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 consider 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 worldwide.

Few managers can gauge a team member’s performance accurately 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 irrelevant to how we work now.

TipBottom line
If you have teams worldwide, monitoring tools can track remote staff’s 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 performance management 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 may be allowed to give only one or two a top rating. As a result, people compete directly 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, the latter are less engaged and employee turnover is higher. Communication about learning and career growth is crucial 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, more remarkable development and fairer pay because managers better understand how their people are doing.

FYIDid you know
Managers need to be available and open to communication when trying to keep remote employees engaged.

4. 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 worries 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, CEO 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, which can impact the employee’s productivity.

Bottom LineBottom line
Open, honest communication encouraging company transparency is an excellent way to support employees’ mental health while increasing engagement and fostering trust.

6. Annual reviews don’t 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 step. Project goals tend to be precise while annual performance reviews typically use a numerical ranking system and are more general. 

They focus on whether an employee completes work on time and works well with others. However, these questions don’t often get to the root of an employee’s goals.

4 companies leading changes in performance management 

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

1. 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 that reflect 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 can 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.

2. 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 human resources (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 staff members 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, nonregrettable 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.”

3. Cigna focuses on goals, progress and career growth.

Connect for Growth, Cigna’s approach to performance management, seeks to improve employee productivity and motivation and 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 the 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. Pay for contribution is the standard for rewards.

4. 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, former managing director and senior HR business partner at Accenture.

Best practices for modern-day performance management 

Following these performance management best practices can help your business learn about your employees on a deeper level and use that knowledge to improve communication, increase trust and exceed company goals.

Provide consistent reviews

While traditional performance management consisted of a vague, once-a-year meeting, companies recognize the need for frequent check-ins. The more consistently you engage with employee performance, the easier it will be to improve productivity, exceed goals and build internal leadership.

The time and management needed to keep up on reviews can be costly. However, if ongoing performance reviews are implemented, you should see positive effects for your business across the board both internally and through customer loyalty.

Invest in performance management software

Utilizing the best performance management software can automate the tedious process of remembering to consistently “check in.” Instead of a vague questionnaire, the software can maintain performance journals, planning tools, anonymous peer reviews and frequency calendars. Performance management software is available for all sizes of businesses, whether you are getting off the ground or managing at the enterprise level.

Build relationships

Use the time you save and data gathered from automated software to build a deeper relationship with each employee. The more you know about the worker’s strengths and weaknesses, the better you can prepare them for the work ahead. 

According to Quantum Workplace, 36 percent of employees prefer a weekly one-on-one performance meeting with their manager. When you actively engage with an employee one-on-one, you not only improve their work but the overall performance of the company as well.

Celebrate wins

While individually completing a goal can be satisfying, being recognized for a job well done can solidify relationships between manager and employee. Recognition shouldn’t be reserved for the end of the project. Celebrate wins publicly throughout the project to motivate and engage employees to get excited about the finish line.

Employees who are celebrated are more likely to communicate creative ideas, collaborate with peers and work until the job is complete.

Frequently revise the performance management process

Once you have completed the first four steps, analyze your specific performance management process. Revise any areas that don’t meet the needs of your growing business.

Ask employees through surveys, polls or short interviews about how the performance management process could be more effective. Changing the frequency of reviews or increasing transparency could maximize your employee and overall company potential.

Julie Thompson contributed to this article. Source interviews were conducted for a previous version of this article.

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Jennifer Post, Senior Writer & Expert on Business Strategy
Jennifer Post brings a decade of expertise to her role as a trusted advisor for small business owners. With a strong foundation in marketing, funding, human resources and more, she teaches entrepreneurs about the software and tools necessary for launching and scaling successful ventures. From email marketing platforms to CRM systems, she ensures businesses have the technological edge they need to thrive while also sharing best practices for everyday operations. Post's recent focus on risk management and insurance underscores her commitment to equipping business owners with the services needed to safeguard their businesses for long-term success. Her advice has appeared in Fundera, The Motley Fool and HowStuffWorks.
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