Transition Management Consulting, Inc.

Cutting Edge: Performance Management (1 of 5)

by Jackie Eder-Van Hook, PhD
Cutting Edge Approaches in Performance Management (1 of 5)

Cutting Edge Approaches in Performance Management

A client recently asked, “What are the cutting edge approaches to performance management in associations?” To answer this question, Transition Management Consulting, Inc. (TMC) communicated with a number of human resource (HR) professionals who have worked in or are currently working with associations as staff or consultants, and reviewed a number of relevant articles and websites.

In general, there appears to be three main approaches to performance management systems, the traditional (status quo) approach, a strengths-based approach, and a coaching and developmental approach. This blog post provides a brief overview of the issues and current state of performance management (1 of 5), and a second blog, addresses Current State of Performance Management in Associations (2 of 5). You might also be interested in …. Changes in Performance Management (3 of 5), Decoupling Compensation from Performance Ratings (4 of 5), and our Conclusion about Performance Management (5 of 5).

Current State of Performance Management

By all accounts, traditional performance reviews are time consuming, infrequent, impersonal, burdensome, excessively subjective, unreliable, and stressful according to employees and managers across a variety of industries, including associations. Annual performance reviews are often seen as a bothersome task that takes an inordinate amount of time to conduct with little impact or payoff for the employees, managers, or employer.

Employees regularly report leaving their once-a-year, backwards-looking performance conversation feeling deflated. Managers say that they are inadequately trained to provide feedback to their employees and resent the amount of time that the process requires and the consternation it generates among their employees. When performance reviews are designed to have impact, human resource professionals are forced to deal with difficult situations like the impact of rank-ordering employees that then requires them to cull the bottom tier (vitality curve). This stacked ranking approach, colloquially called rank-and-yank, decimates their talent pool. Organizations often are left with an unmotivated or, at times, bitter workforce.

In a recent surveys undertaken by the consulting firm, CEB (formerly the Corporate Executive Board, recently acquired by Gartner), found that failed performance management systems are costly, demotivate employees, and decrease corporate performance overall. (If you are interested in seeing how much your organization spends on performance management, visit the productivity cost calculator[1] on the CEB website. The calculator quantifies the cost of the time spent on performance management approaches, including typical activities like training, goal setting, documenting, rating, and performance review meetings.)

While flawed, CEB does not suggest doing away with performance ratings altogether. In one study, CEB found that when ratings are removed without sufficient behavioral support, organizations see a 10 percent drop in performance and engagement. In another study of 9,000 corporate managers and employees across 18 countries, CEB found a 14 percent drop in the number of performance conversations by organizations that had eliminated performance ratings. Managers reportedly found it more difficult to have performance conversations without a clear focus provided by a rating; thus, the lack of ratings resulted in less time spent on performance management. Instead, CEB encourages more informal feedback, including feedback from the employee’s peers who likely will understand the employee’s job better than the manager.

In general, three main approaches to performance management systems have emerged, the traditional status quo approach, a strengths-based approach, and a coaching and development approach.

The strengths-based approach has been popularized by Donald Clifton, his grandson Tom Rath, Marcus Buckingham, and the Gallup Organization. According to the Gallup website, the assessment tool is based on a general model of positive psychology, a framework that focuses on “healthy, successful life functioning based on optimism, positive emotions, spirituality, happiness, satisfaction, personal development, and wellbeing.”

The authors and publisher assert that all people have a unique combination of strengths derived from their talents, knowledge, and skills. They claim that people will transform their lives once they understand and utilize more of their strengths. Critics, however, say that focusing on strengths alone is not viable because not all strengths are valued in the workplace; overdone strengths can become weaknesses; and, understanding one’s weaknesses can be useful, among others.

The coaching and developmental approach has been promoted by the those in the coaching, learning, and talent management fields. In 2014 the Brandon Hall Group reported on their study of 223 executives and HR leaders in 15 countries across more than 12 industries. They found that

  • Performance management strategies are prevalent, but largely ineffective
  • Too little focus on employees; too much focus on the process
  • A significant lack of executive engagement in performance management
  • Realtime feedback improves performance
  • Few managers are skilled development coaches
  • Most organizations rely on technology as a part of their performance management process
  • Performance management data is not fully integrated with other talent data
  • Executives and senior leaders receive more performance planning attention than all others
  • Pay-for-performance remains the typical PM approach
  • Pay and performance discussions should be separate

Based on these findings, they recommend that organizations: teach managers to be effective development coaches; eliminate forced distributions; engage executives in performance management; hold leaders accountable for developing employees’ strengths; and, automate performance management and integrate it with other talent processes.

McKinsey & Co. points to companies that are making some changes to their performance management systems, including piloting and experimenting with different approaches to streamline their systems. Some companies are starting to focus on those employees at either the high or low end of the performance scale, instead of the majority of employees who are in the middle. The logic is that high performers help everyone improve their performance and those behaviors and actions should be encouraged. Conversely, sub-par performance should be discouraged quickly. Addressing it requires a separate strategy.

Some organizations are experimenting with limited approaches, including the following, for example.

  • Eliminating annual performance reviews altogether
  • Eliminating multi-rater (360-degree) evaluations
  • Relying on only supervisor feedback
  • Relying on those with direct knowledge of the employee
  • Weighting those with direct knowledge of the employee more heavily
  • Engaging groups of managers in making shared enterprise-wide performance decisions
  • Eliminating forced rankings (aka stacked rankings, rank and yank)
  • Decoupling compensation (salary and bonus) from performance management ratings
  • Adding regular and frequent coaching and development meetings to their existing system
  • Focusing on enhancing strengths instead of deficits with their existing system

While limited, management and HR professionals are starting to tackle their performance management systems. Some clearly want to reduce the pain, cost, and workforce impact of the current performance management system. However, “old habits die hard,” and the majority of organizations continue to hold on to a traditional approach, as a way to make compensation decisions or document poor performers. While we see a lot of opinions and approaches to improve performance management, we find no clear consensus about the best approach or practice.

Many HR professionals believe that historically the performance management system has been geared towards the lowest common denominator, the sub-par performer, as a risk management strategy. The irony is that substantial time, energy, and money is spent on employees who may not be with the organization 90 or 120 days later, making the ROI, or return on investment, exceedingly low.
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