Transition Management Consulting, Inc.

Changes in Performance Management (3 of 5)

by Jackie Eder-Van Hook, PhD

Changes in Performance Management

Global consulting firm, Deloitte surveyed executives about their experience with their current performance management systems and published their findings in 2014. They found that the traditional ranking- and ratings-based performance management systems damage employee engagement, alienate high performers, and cost managers valuable time. Deloitte estimates that their performance management program consumes nearly 2 million staff hours a year. Adobe, the technology firm calculated that its performance system process consumes 80,000 hours annually.

Deloitte further found that only 8 percent of companies reported that their performance management process drives high levels of value, while 58 percent said it was not an effective use of time and it neither drives employee engagement nor high performance. Leading organizations are eliminating the annual evaluation cycle and replacing it with ongoing feedback and coaching designed to promote continuous employee development. The executives reported that they needed a system that is real-time, and more nimble and individualized, and drives future performance rather than assessing it in the past.

Based on feedback received from managers and employees alike, some large companies have redesigned their performance management programs. They have eliminated 360-degree reviews, annual feedback, forced rankings, numerical ratings and “cascading objectives,” an attempt to tie a manager’s objective to each employee. Some companies have gone further. Deloitte, for example, stopped asking multiple people to weigh in on each employee’s performance, relying instead on the sole input of the manager or team leader. They also eliminated evaluation questions that focused on a general assessment of an employee’s skills or competencies and replaced it with four questions asked at defined intervals (monthly, quarterly) or at the end of a project.

  1. Given what I know of this person’s performance, and if it were my money, I would award this person the highest possible compensation increase and bonus?
  2. Given what I know of this person’s performance, I would always want him or her on my team?
  3. Is this person at risk for low performance?
  4. Is this person ready for promotion today?

Deloitte also believes that a critical feature of their new coaching and development model is to separate performance feedback from compensation decisions (both salary and bonuses). Compensation decisions, they believe, should be based “on the critical nature of an employee’s skills, the cost of replacing them, their value to customers, and the external labor market.”

Deloitte is very early in their redesign process and, consequently, have not resolved whether, how, or when to share the data with 65,000 employees. Ideally, this new approach will focus on how to develop and retain employees in the future given their current performance, and free up time and resources currently spent on performance management.

In 2012, Adobe abolished its stack ranking and annual performance reviews. Up until that time, employees received annual written performance reviews from managers would rank them as “strong”, “solid”, or “low”. Managers would use “forced rankings” to identify the 15 percent of top performers. The written appraisals and forced rankings were unrelated and did not build on each other. Managers made salary adjustments based solely on the rankings and their budget. According to Donna Morris, Senior VP of People and Places, Adobe now uses “Check In,” a system in which managers and staff agree on goals and review performance on an ongoing basis. The system allows employees to receive feedback from managers on a more regular basis. As a result, Adobe has decreased attrition for staff they wanted to keep and increased involuntary attrition of poor performers. 

Links to the other parts of this series.

 

Cutting Edge Approaches in Performance Management (1 of 5)

Current State of Performance Management in Associations (2 of 5)

Changes in Performance Management (3 of 5)

Decoupling Compensation from Performance Ratings (4 of 5)

Performance Management Systems – A Conclusion (5 of 5)

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