How companies are changing their Performance Management Systems

Performance Management Systems around the world have been a handover of 19th century models of a time of industrial growth in the US. These systems which companies adopted en-masse, led by the behemoth General Electric, were stack ranking systems which got entrenched into the corporate culture of US and later was adapted worldwide. Even the performance management softwares that many companies use are based on these traditional systems and are more than a decade old. PM systems have traditionally been based on an annual or biannual review and set goals. Based on these goals employees are rated by their managers on their overall annual performance. Sometimes rankings are relative to the performance of peers like the much hated bell curve.

Only recently companies worldwide are questioning these rigid ranking and rating systems and again, led by some frontrunners and large corporations changes have been sweeping through the HR corridors of companies these past two years. The findings of repeated studies show that these traditional systems do more to harm to employee morale than good, and affecting performance too. Yearly reviews are also shown to be less effective than more regular feedback and research shows the feedback process should actually be as less as monthly. Therefore now, many large firms are replacing the old systems with more development and engagement based models which are being rolled out slowly even as we speak.

India: In India a PWC study in 2015 showed only 12% respondents thought their current PM systems were highly effective in achieving its objectives. While more than 50% planned to make changes to their current system, 16% respondents had already done away with all forms of individual rating as a system of PM.

Intel had started off this change trend with their “objective and key results” strategy or OKR. Last year Deloitte came up with their new PM strategy and was followed by Adobe, Microsoft and Accenture.

Here are some of the changes companies are bringing in especially this year:

·       Increased and open feedback. This leads to increase in transparency and managers can drive performance much more effectively. Frequent conversations also keep issues in the forefront rather than being forgotten. There is the added advantage of being able to identify future issues ahead of time and also keeping the employer aware of the training needs or bandwidth of the employee. Adobe has adopted this and has already reaped benefits of increased performance since 2012.

·       Setting goals and objectives focussing on the individual strengths and coaching them likewise. This would also include moving employees in positions best suited for their strengths rather than try a one-size fits all approach.

·       Setting team goals to improve collaboration

·       Making PM a day-to-day matter than an annual HR function. Employees and managers can collaborate to set their own goals and have reviews. This is used in Adobe. Employees own their successes and it also creates a relationship of trust between employee and manager.

·       Eliminating rating and ranking and making performance relative to personal strengths and talents. The stress will be on employee satisfaction and coaching to benefit the employee.

·       Creating a improvement culture rather than an annual rewards/punishment culture. Putting emphasis on training and development.

·       Using big data and analytics to identify high performing teams and individuals, disengaged employees and provide insights into how to increase performance, engagement and reduce attrition.

·       Creating a demography based system: Millennials have different requirements, they are more driven by growth opportunities and development leading to their talent enrichment. Fair and unbiased feedback to women employees is also being stressed upon.

Here are some examples of companies who have changed their PM systems in the past few years:

1. Adobe

Adobe were the forerunners of change when they abandoned annual performance appraisals back in 2012. They replaced them with regular ‘check-ins’, supported by frequent feedback – both positive and constructive. There are no ratings or rankings and they allow different parts of the organisation to determine how frequently they should hold check-in conversations according to their work cycles.

The result has been a marked increase in employee engagement, with voluntary turnover decreasing by 30% since check-ins were introduced.

2. Deloitte

Deloitte were the first big name to announce in 2015 that they were scrapping once-a-year performance reviews, 360 degree feedback and objective cascading. This was after they calculated that these processes were consuming 2 million hours a year across their organisation.

Deloitte’s new process requires every team leader to check-in with each team member once a week to discuss near-term work and priorities, comment on recent work and provide coaching. To ensure these check-ins take place frequently, the check-ins are initiated by the team members rather than the team leaders.

These weekly check-ins are supported by quarterly reviews in which team leaders are asked to respond to four future-focused statements about each team member. Rather than asking team leaders what they think of the team member which is what traditional performance ratings do, they ask what the team leader would dowith the team member.

3. General Electric

Under the reign of its former CEO, Jack Welsh, General Electric was the most well known proponent of annual performance ratings and forced distribution curves. For decades, GE operated a ‘rank and yank’ system whereby employees were appraised and rated once a year, following which the bottom 10% were fired. Not exactly a recipe for employee engagement.

In 2015 GE announced that it was replacing this approach with frequent feedback and regular conversations called ‘touchpoints’ to review progress against agreed near-term goals. This is supported by an online and mobile app, similar to our own Clear Review app, which enables employees to capture progress against their goals, give their peers feedback and also request feedback. 

Managers will still have an annual summary conversation with employees where they look back at the year and set goals, but this conversation will be more about standing back and discussing achievements and learnings, and much less fraught than their former annual reviews.

4. Accenture

As of September 2015, Accenture, one of the largest companies in the world, disbanded their former ranking and once-a-year evaluation process. Like GE, Accenture have decided to put frequent feedback and conversations at the heart of their new process, and focus on performance development, rather than performance rating.

As Ellyn Shook, Chief HR Officer at Accenture put it, “Rather than taking a retrospective view, our people will engage in future-focused conversations about their aspirations, leading to actions to help them grow and progress their careers.”

5. Cargill

Like Adobe, Cargill, the US food producer and distributer, started to transform its traditional performance management processes back in 2012 when it introduced what it called ‘Everyday Performance Management’. It removed performance ratings and annual review forms and instead focused on managers having frequent, on-the-job conversations and giving regular, constructive feedback. They have made this work by:

Regularly rewarding and recognizing managers who demonstrate good day-to-day performance management practices.

Sharing the experiences and tips of their successful managers.

Holding teams accountable for practicing day-to-day performance management.

Building the skills needed to succeed at Everyday Performance Management, including effective two-way communication, giving feedback, and coaching.

The outcome has been impressive with 70% of Cargill employees now saying they feel valued as a result of their ongoing performance discussions with their manager.