Many global companies including Accenture, Adobe, Deloitte, Eli Lilly, Grant Thornton, IBM and Microsoft have recently lead the way by radically reinventing their performance management systems. The key drivers for changes lie in the following:
Misuse of performance management and rewards systems: Traditional ratings in performance management strongly link to a reward system – pay and promotion, which sounds logical and sensible. After the assessment is completed, the manager will rate their staff’s performance. Some use numbers while others use labelling words like average, below average or exemplary. Some organisations use a three-scale rating while some use a five-scale rating. In practice, a manager needs to justify his decision to his boss. In some companies, a “calibration meeting” is held where all managers meet to discuss the decisions made by different managers to ensure they are consistent before they are proposed to upper management. This has been a normal practice now for decades. However, people have now arrived at the conclusion that this system is just a means to an end. If they want to propose a wage increase or a promotion, they will rate their staff highly. For some, they even over rate staff just in case of bargaining. Moreover, managers and upper management waste hours and days in meetings. Many who participate end up frustrated because their decisions are often overruled.
The science of rating: Research conducted in 2000 by Michael Mount, Steven Scullen and Maynard Goff and published in the Journal of Applied Psychology, concluded that “although it is implicitly assumed that the ratings measure the performance of the ratee, most of what is being measured by the ratings is the unique rating tendencies of the rater. Thus, ratings reveal more about the rater than they do about the ratee.” For instance, David, whose strength lies in marketing plan development, is Jane’s manager. David may rate Jane’s skill in marketing plan development as “average”. Jane later works for Chris who is not very good in marketing plan development so he may rate Jane “above average” or even “exemplary”. Consequently, staff lose trust in the system as they perceive it lacks consistency or standard measurement. Some may even believe that it is purely based on the luck of getting a tough or lenient boss.
Not only does the traditional performance management not meet the objective, but it also creates negative consequences: From the above-mentioned problems, neither managers nor staff enjoy participating in the process. This creates morale and motivation issues in the organisation. There is no need to ask what the performance management system is designed to achieve because it obviously does not deliver.
Key changes that have been made by leading companies include:
- Separating performance management from the reward system.
- Throwing away all rating systems, regardless of the format.
- Changing the mindset (difficult but possible) of assessing in order to rate to assessing in order to develop. Development should focus on strengths rather than weaknesses.
- Increasing the frequency of conversations between staff and managers who act as coaches.
- Focusing more on future rather than past performance by conducting more “performance previews” than “performance reviews” because it will collectively ensure the success of the staff and eventually the company.
It’s time for a revolution!
The idea of removing ratings drives many HR executives a little crazy because companies love to quantify and analyze almost everything. The thought of getting rid of a metric is almost heretical. Executives who contacted us after reading our research often assumed that removing ratings was an anomaly, perhaps driven by smaller companies who don’t realize how important pay-for-performance is.