Modern business landscape is evolving at a very fast pace. This has prompted numerous companies to go after innovation to keep up with the trends. Human resource management is one such area that demands constant restructuring. It’s not surprising that some companies still drag their inertia from the past. They rely on traditional methods of determining employee compensation through performance ratings.
Performance ratings were commonplace in the 19th and 20th centuries. Because it was easy to make a direct connection between work hours of an individual and their output.
However, in the information economy, such metrics do more harm than good. A reality that numerous smart companies have noticed. Adobe, Accenture, Microsoft and GE for instance, have already started moving towards agile performance management. Thereby adopting more efficient employee compensation methods.
Why are performance ratings becoming obsolete?
It is no more a secret that corporations no longer see the need for annual performance reviews. These reviews frustrate employees and managers feel good postponing them. Here are some reasons why dreaded performance reviews present an absurdity of corporate life:
They consume too much time and resources
Deloitte had to revamp its performance management system in 2015. By then its annual spending on the system nearly reached $2 million. In 2016, Adobe estimated that its employees invested 80,000 hours on performance reviews. These are some examples of the excessive resources companies around the world dedicate to reviews. All for the end result of ratings. Mind you, these are the resources that can be put to better use. For efficient operations in any company.
They tend to be excessively subjective
Performance appraisals are rarely devoted to the development of employee’s abilities and skills. They are lectures, conversations & one on ones delivered by managers who do not know better. They give their subordinates a hard time about past performance and the things they never did well during the year.
This tends to demotivate employees. When the manager starts by telling them how they never did well, some employees even tend to switch off. Even otherwise great employees can get frustrated by the negative feedback they get during their annual reviews or performance appraisal process. Even in the best-case scenarios, each manager has their own biases which hinder the process outcome.
They do more harm than good
Performance appraisals tend to be inaccurate due to factors such as employee favoritism. As such, some employees may get ratings that are higher or lower than warranted. In other cases, managers rarely find the time to exhaust the performance ratings in an honest manner. The reviews they prepare, in effect, are inaccurate and do not help the company.
As no one likes negative feedback, most issues will be papered over or even left out completely. At other times, employers use the ratings to decide on employee performance, pay raises and promotions. When used in such a manner, the appraisals lose their ability to imbibe employee performance growth.
They rarely compliment the modern business climate
Traditional performance rating systems focus on a lengthy period such as a year or more. But that discounts today’s rapidly changing competition. It is very common in today’s business environment where goals change way more quickly – where employees are rated on goals that are somewhat irrelevant at the end of the year instead of having one on ones with their managers and understanding what they can do well.
Modern teams also need knowledgeable employees who have great aptitude, skills, and capabilities. Grading them on the bell curve, more suited for traditional workers, breeds unhealthy competition. Each employee focuses on how they can perform better than their colleagues. Being a team player loses value.
What are the performance reviews alternatives?
Numerous companies have carried on with traditional ratings systems instead of going on a search for a better alternative, merely due to inertia. By putting a wrecking ball to the system, most managers fear that mediocre employees will have an opportunity to lean back. How will people even be paid?
Answers have been fronted by some of the most innovative companies on the planet like Google. Netflix also no longer relies on annual performance ratings as their objectives are very fluid. With performance ratings being on the deathwatch, it’s time to innovate your company’s performance management. Here are some better approaches you can adopt:
Shorter review schedules that are heavily invested in feedback
Here, you get to retain the idea and can continue to have meetings to discuss employee goals and progress. Your employees still have metrics, but with more frequent meetings rather than on an annual basis.
This calls for quarterly, monthly, or even weekly meetings tied to smaller, short-term goals. You can still have the appraisal attached to performance but smaller and more frequent instalments for bonuses. This allows managers to get continuous feedback and eases pressure since it is more frequent. Individuals can evaluate and correct courses to stay on top of business needs.
Think, for instance, about how frequently your company evaluates and revamps its operational goals. If it is a start-up or under a restructuring process, schedule frequent one on ones or project based reviews with your staff. Ensure that everyone is on the same page and is informed and working on the right objectives.
Continuous feedback from managers
One biggest drawback of annual reviews is that managers tend to shelf feedback up until the year end. As such, employees are rarely informed on what they have to change during the year. They might carry on with bad habits increasing the likelihood of poor organization performance.
Encourage managers to give continuous feedback to their subordinates. Even if it is in an informal manner, that is ok. This not only applies to bad habits but to the good ones as well. When the employees get word that they are doing well, they get motivated. The managers should help the employees to know where they stand at all times in terms of performance.
Use of technology to keep employees updated throughout the year
A simple search reveals numerous feedback apps that you can integrate with your current systems. The apps can act as platforms where employees seek feedback from others. The managers can also use them to solicit advice on how to handle complicated scenarios.
This can generate potentially millions of data points. Using emerging data science techniques, companies can search through and make sense of this data. Employee profiling based on potential, performance & adherence to organization values becomes easy, like project based reviews. Managers can use such profiles for continued employee development over a long period. Nonetheless, it is essential to ensure total employee privacy with this approach.
General Electric, which used to be a strong advocate for annual performance reviews has moved on. They now rely on such tools as we discussed above. This radical change has allowed them to keep their employees focused on things that really matter. This eradicated the flaws brought about by the traditional system. And has kept them ahead of the curve.
Frequent project based reviews that rarely focus on compensation
With this option, separate issues of pay and promotions from performance discussions. This helps to ease the excess pressure typical of annual performance review meetings. Employees and managers can have discussions about progress without anyone’s appraisal being on the line.
A 360-degree feedback mechanism
This involves soliciting feedback from all individuals who work with the employee, which can include one on ones. This deviates from the normal pattern of having only managers weigh in. Feedback can be sought from the employee’s peers, their juniors, and other appropriate players in addition to managers. This ensures that individual biases are rooted out.
Self-assessments could also help your employees to improve on their results efficiently. Most people tend to know their weaknesses and strengths. When they have differences with their managers on such characteristics, a counselling meeting can help to ensure amicability.
How is 360 degree feedback used?
360-degree feedback is used for two major reasons – to enhance the participants’ perception of fairness, and to increase the evaluation accuracy. The perceived fairness improves trust and job satisfaction.
To start with the self-assessment part increases employees’ perception of fairness, as the performance review would hinge on the ratings given by the employee. This self assessment is then used by managers to create a complete picture of the employee’s strengths, weaknesses and chart a course that traverses their desired career path.
Performance review tips for businesses
The aim of a good performance management system is to enhance collaboration between employees and managers by providing real-time data. But as the system takes care of the routine part, managers and employees still have to contribute positively to make the review meeting a success. Here are a few pointers that can prepare managers and employees alike.
Focus on regular, informal feedback reduces the pressure to provide a solution then and there on managers, and helps employees discuss small issues with their team. Also, this provides a great way for employees to collaborate and contribute, while learning to improve on their weaknesses.
Being honest where employees and managers understand their shortcomings and improve on them, is vital for the performance review process to succeed. If managers approach review meetings only to search and highlight the employee’s positives and negatives, the meeting wouldn’t be fruitful.
Using tangible examples to highlight the contributions and missteps of an employee puts them on the receiving end, but also makes them listen. With tact, managers can nudge employees to understand where they improve and chart a plan to get them there. Similarly, when employees give examples of instances where the manager could have responded differently, the one conducting the review can focus on something to improve too.
Ending on a positive note where both employee and the manager have a mutual understanding and respect, paves way for future interactions. Instead of just focusing on achievements and improvement areas, managers can also encourage employees and express appreciation, Positive reinforcement and constructive feedback boost the confidence of employees, and propels them to perform better.
Using performance review software
Depending on the requirements of the workforce (or as detailed by HR), organizations can incorporate an open API system, or use third party solutions that integrate with the current platform. Third party solutions also offer the flexibility of tailoring the software to the needs of the organization, dedicated help, and more. Tertiary employee management tasks like leave management, record search, lookups, etc. are also featured.
Role of Company Culture
Regardless of the course you take to implement performance evaluation and compensation, it is essential to ensure a great culture. Employee attitude and company culture go hand in hand in ensuring the success of your company.
You might have to deal with managers who consider performance management as unimportant because they disrupt routine activities. Your employees, as well, may be too focused on getting the perfect score by the review period. This leaves them with less time and attention to their actual job. This is why communication is an important change management tool. Make sure that everyone involved knows the benefits and objectives of the new system.
One of the most important shifts you can make in your performance reviews is delinking them from rewards. Your employees should be more motivated to enhance their strengths and work on their weaknesses. Managers will continue to facilitate the performance evaluation process, especially when they get to be evaluated by their superiors. Training can help them to become better coaches.
Many companies are pioneering the transformation by adapting to the new era of digital work. More companies will follow suit as they shed old models that rarely recognize individual employee contributions.
In the future, incremental changes in pay will mainly be based on drivers of motivation. However, it is still important to keep the search on for outstanding talent and struggling employees. Is your company ready to ensure fair employee compensation across all levels? What changes would you implement in your current performance ratings model?