High-impact HR has caused a radical shift in the way performance is being measured and managed in order for companies to be able to attract, engage, and develop their top performers. Organizations are overhauling their performance management programs and focusing on developing the right mix of total rewards and development opportunities to help keep high-performing talent engaged. According to Deloitte’s 2017 Global Human Capital Trends research, 79 percent of surveyed executives consider redesigning performance management a high priority, and organizational capabilities to implement performance management have greatly improved. This “next-generation” performance management addresses today’s workforce issues through three shifts in approach to more strategic performance management.
Next-generation performance management shifts the process from a fixed-cadence annual cycle to a more flexible cadence with intermittent check-ins.
Historically, many organizations have used a performance management approach where goal setting takes place once a year. This antiquated, ineffective approach occurring over the course of the year does not account for changing employee development goals, evolving business strategies, and employees moving to various roles and/or teams within the organization. Goals set annually are inflexible by nature and do not accurately reflect the change in business needs nor development in employee skill sets.
Additionally, the traditional annual review process typically does not meet the needs or expectations of today’s more dynamic workforce. Today, over 70 percent of employees work in service or knowledge-related jobs, where performance is driven by an employee’s evolving skill set, innovation, and ability to work in teams. Since these abilities and skills should be gradually cultivated over time, successful performance management focuses on continually developing these capabilities rather than measuring year-over-year improvement during annual evaluations.
Research has shown that managers who provide more regular feedback are far more likely to have high-performing teams than those who retain once-a-year rankings. Also, companies that revisit goals quarterly can see an increase in productivity of 30 percent compared to those that set goals annually.
2. More data driven.
Next-generation performance management involves moving away from rankings and ratings to focusing on truly developing talent.
An output of the rigid, old-world performance management process is the concise rating, or an ordinal ranking of an employee against their peers. Such rankings and comparisons often fail to fully consider the various work and career paths of employees. About 36 percent of companies still use a competitive assessment model designed to award high performers and weed out poor ones.
Ordinal and normal distribution (or bell-curve) rankings can also contain implicit assumptions about performance distributions that are not actually expressed in many typical working populations. These approaches are inflexible and often cause too many employees to be forced toward the middle of the distribution and labelled as “average” performers. Symmetrical models such as a bell curve can also tend to “yank” employees on the lower end of the spectrum, contributing to an overly competitive work environment among employees who know they are contending against one another for performance rankings and incentives.
In response to these issues with the “rank and yank” and bell-curve performance models, various research has been conducted to help determine a more accurate representation of the true distribution of performance among employees. One of these emerging models is the Power Distribution model, which accounts for a small number of “ultra-high” performers, and is also skewed to the right to account for a larger number of average performers.
Another approach to delivering effective performance management to employees is gathering far more (and more accurate) data points about performance via multiple documented performance conversations throughout the year. This method does not necessarily do away with nominal ratings, but rather moves away from an annual, all-inclusive rating in the form of one number, which could inaccurately reflect a person’s overall performance. Here at Deloitte, we are shifting to using a much richer and likely more accurate data set collected throughout the year to tell the entire performance story. While there is no one-size-fits-all model that will accurately capture the distribution of performance among employees, this new attention given to rethinking the traditional performance distribution models is a step in the right direction.
3. More development focused.
By moving from evaluating historical data to evaluating an employee’s future potential, next-generation performance management is changing the type of data used in evaluations and how it is assessed.
Traditional performance reviews often result in a catalog of an employee’s past performance, without a focus on proactively improving future performance (counter to the primary goal of employee development). Social/Informal learning activities that enable experiential development through access to coaches, mentors and experts should be a critical part of development plans.
With employee retention and workforce capability now in the spotlight, the performance process has evolved to focus on continuous coaching. Managers are encouraged to coach individuals for success and to focus on managing to strengths by giving employees work that draws on their unique skill set and professional interests. Increasingly, creative performance management schemes and emphases on employee development are viewed as key recruiting tools for attracting top talent, opportunities absent from traditionally backward-looking appraisal.
This forward-looking feedback lends itself well to today’s dynamic and transparent job market, where young employees expect ongoing career coaching. Research shows that companies that revisit goals quarterly drive more than 30 percent more productivity than those that set goals annually.
Evolution of a new performance model is a process of continuous innovation. The goal is not to reach a design, then implement it and simply walk away. Organizations should constantly re-evaluate their approach, determine what is working and what can be improved, and adjust the programs or processes to adapt to ever-changing needs of the workplace. The 2017 Global Human Capital Trends report chapter, Performance management: Play a winning hand, gives examples from companies on the front lines of evolving performance management and ideas for where to start (or continue) your own initiatives.