What’s the problem with Performance Management?
I believe that the first and fundamental problem with Performance Management is that there is confusion in many organisations as to its purpose. Is is there to motivate, to set expectations, to control spending on reward, to develop.. ..or some combination of the above? And if the latter, what’s the priority? Let’s face it, performance reviews are pretty awful for employees, line managers and HR alike. It’s time consuming, often demotivating and can lead to division and conflict. There is little evidence to suggest that it improves performance, and considering the time involved the costs may well outweigh the benefits. Of course, when I talk about the problems with Performance Management, I’m principally talking about what’s now considered ‘conventional’ – annual goals/objectives and formal reviews once every year, 6 months or quarter, and a rating that leads to bonuses etc. The issues can include:
- There’s little encouragement to talk about performance outside of the formal review, rather than giving timely, helpful feedback
- It’s often focused on measuring what’s already happened and can’t be undone
- It focuses on goals that employees feel little control or influence over, or ownership of which impacts motivation
- Objectives set at the beginning of a period can become redundant over the course of a year, given the increasingly dynamic nature of work
- Reducing a role to a handful of objectives, no matter how well constructed, can fail to capture the inherent complexity of many roles
- The direct relationship to bonuses means that the process can descend into bargaining rather than a quality performance conversation
- Similarly, if there is forced distribution of any kind, the manager can end up being focused on justifying a lower grade that they don’t necessarily believe in. This is just a lack of honesty and transparency (as an attribute of the process rather than the manager).
- Performance Management can often reinforce a culture of individualism, which may be at the expense of teamwork and collaboration.
Employees can react to such issues in many ways. I’ve found that I’ve generally used my ‘prescribed’ goals or objectives as a statement of expectation but not to guide my day-to-day efforts. For that I’d rather rely on live discussions with my manager. If an objective has been set at the start of the year but we’re not talking about it, it’s not relevant, even if it might affect my bonus. On the other hand, some employees will treat their written objectives as a rule-book to be followed. If it isn’t in there it isn’t getting done. Although this is a bit of a caricature, it’s true that objective tend to narrow our focus (what’s measured gets done) and that can hinder creativity and innovation.
So, lots of problems. What’s the solution?
Many companies have started to move away from more conventional Performance Management practices, including Accenture, Microsoft, Adobe and GE (from where many of the ‘best practices’ came in the first place). There have been reports of companies scrapping formal reviews and ratings. What we’re most likely seeing is more of an evolution than a revolution towards more frequent, less formal reviews based on feedback and manager-as-coach. This all seems pretty logical, though as yet the evidence that these approaches are more effective is as yet unclear (CIPD). Only time and further research will tell. For anyone reviewing their Performance Management framework I’d offer the following advice:
Take an evidence-based approach
Being evidence-based means using a number of sources to answer an underlying question and to guide solutions. Review the literature – what do empirical studies suggest works and doesn’t work. However, organisations seeking to differentiate themselves can’t just follow, so be prepared to start with first principles from psychology (or “behavioural science” to use the trendy term) rather than just the applied literature. Talk to practitioners – and understand their experiences. Analyse the data that’s available within the organisation – which may come from employee surveys, and should absolutely include business strategy, values etc. Listen to your internal stakeholders. This is fundamental. If your Performance Management process isn’t working, employees and managers will queue up to tell you why they hate it. Quite frankly, if you can take those issues off the table without contradicting the strategic requirements, why wouldn’t you? I would add: Don’t be limited by “best practice”. If the evidence is telling you something that others aren’t already doing, and you act on it, that’s innovation! At its worst, ‘best practice’ may be wrong and harmful for your business. Less dramatically, it might be that you’re cutting off one source of differentiation from the competition.
Work with a simple framework
Going back to my point about starting with first principles, I’d advocate using putting your current approach to Performance Management through a psychological lens. A very simple question to ask, is “Does this fit with what we know about motivation?” To answer this question, a useful guide is Self Determination Theory, which is the core of Intrinsic Motivation (which is in operation when we do something for its own sake). According to Deci and Ryan, we have a natural or intrinsic tendency to behave in an effective or healthy way. Organisational practices can encourage this tendency by facilitating: Autonomy – by giving the employee a voice in setting, assessing performance and providing solutions when needed Competence –through frequent, effective feedback and opportunities to learn and experience improvement Relatedness – building positive relationships both with individuals (e.g. line manager) and a sense of belonging (contribution to the broader purpose of the organisation) I’d suggest that if your Performance Management process does these three things, and people find it motivating, then they’ll pull support from HR and be less reliant on being told when to talk about performance.
If it ain’t working, break it
(The title of this article was, after all, “Breaking the Negative Performance Management Cycle”). It’s amazing how long organisations will persist with processes that clearly don’t work. Sometimes you really do have to break out and do create radical change. If you’ve been struggling with an ineffective Performance Management framework for a number of years, evolution just might not cut it and a revolutionary step needs to be taken.
My solution to this in my last organisation was to completely decouple bonuses from from the review process as I perceived that the annual review was little more than a bonus negotiation to many employees. To break that cycle my suggestion was to base bonuses on some combination of company, business unit or functional performance. The closer we could get to team-level performance the better, but sticking with hard, strategically linked measures. This would free up individual reviews to be open, honest dialogues about performance, requiring managers to become coaches, more effective goal setting (with more emphasis on the process and less on the result) and better use of data.
Like mine, at the time, your own organisation (and its culture) that might not be ready to be radical in their approach. But if they’re ready to try something new, that might mean getting rid of bonuses altogether (in favour of spot rewards or offering slightly better salaries). More radical yet, just scrap formal Performance Management – and see how people react (what do they end up asking for?)? Maybe then you’ll know what direction to go to). I’d encourage you to consider what radical steps you might take in your own organisation.
CIPD (2016) White Paper: Could do better? Assessing what works in performance management More on Intrinsic Motivation and Self-Determination Theory