Reflections on Performance Management: How to Make Meaningful Progress

Most acknowledge that performance management matters for all organization stakeholders both outside (customers, investors, and communities) and inside (individuals, organizations, and HR function) (see figure 1).

Despite its significance, it often fails to live up to its purposes as shown in many studies:

• SHRM found that over 90 percent of participants are dissatisfied with their appraisal systems.
• Mercer reported 44 percent of 218 companies had changed performance management systems in the past two years; another 29 percent expected to do so next year.
• Corporate Executive Board (CEB, now Gartner) found that only?14 percent of organizations are actually happy with their performance accountability system, and 23 percent say performance accountability reflects employee contributions.
• Institute for Corporate Productivity (I4CP) found that 8 percent of HR executives feel performance accountability made a contribution to the business.
• WorldatWork and Sibson found that 60 percent of HR executives give their own performance management systems a grade of C or below.

Performance Management Process: Four Steps

I suggest managing four steps in the performance management process to improve learning and development for individuals and organizations that leads to stakeholder value (figure 2).

Step 1: Clarify Expectations with Meaningful Goals

Performance management starts with a clear understanding of organizational purpose, which could be called vision, mission, strategy, objectives, intent, or plans. These aspiration statements then help organizations and leaders articulate expectations and set goals. Clarifying expectations informs employees what needs to be learned that will lead to stakeholder value.

Step 2: Measure and Track Performance

Expectations translate into measures (key performance indicators [KPIs] and objectives and key results [OKRs]) that can be tracked. Instead of merely cascading budget targets or establishing SMART goals, targets should prioritize individual and organizational development and learning plans. KPIs and OKRs should align with expectations and strike a balance between fostering learning and ensuring accountability for both individuals and organizations.

To help with measures, use the grid in figure 3. Divide 100 points across the cells to determine which goals and measures are the most critical—with a rule of thumb being that no cell has more than 60 and none less than 15 points. Keep in mind that organizational performance is always systemic: seldom do we succeed with just the results of individual effort.

When goals link to qualitative and quantitative measures (KPIs and OKRs), they can lead to individual and organization development and learning.

Step 3: Allocate Rewards (Financial and Non-financial)

To cultivate energy and trust within the organization, we must acknowledge employee contributions promptly and frequently. For example, a micro or spot reward celebrates success and provides recognition whenever someone achieves a significant outcome or makes an exceptional contribution. Conversely, when addressing under-performance, we should take necessary actions transparently, fairly, and without bias. Innovative financial and non-financial rewards continue to emerge that reinforce the right behaviors and outcomes (figure 3).

Step 4: Have a Positive Coaching Conversation

Meaningful conversations are critical for the performance management process. It is at the center of the four performance management steps because without a positive conversation none of the other three steps will work. With a positive conversation, different tools and approaches in each step may work.

Conversations rooted in high-quality relationships among equals have the most significant impact on performance. Performance conversations should become a regular, ongoing, and mutual process focused on learning. Conversations should be forward-looking and development-oriented, aiming to evolve and clarify purpose and expectations, shape meaningful and realistic goals, and facilitate timely and appropriate recognition. Most importantly, these dialogues should highlight that each person is a unique individual and nurture his or her potential. The objective is not merely to help individuals contribute to grow the business but to grow themselves.

We have identified four coaching questions that can shape a positive developmental conversation:

1.?? “What are your goals?”: Establish clear objectives that your employee wants to achieve, aligning them with organizational goals where possible.

2.? “Will you help me understand?”: Be seen as a coach who actively listens and supports rather than a commander who tells. Explore the situation together, discussing obstacles, opportunities, resources, and relationship dynamics.

3.? “What are the options?”: Once the current situation is understood, explore different approaches for improvement and evaluate pros and cons, fostering creativity and experimentation.

4.? “How can we can make progress?”: Focus on the future and inspire shared commitment to action. Encourage and motivate.

The outcome of coaching conversations is two-fold: employees increase their professional competences and gain increased self-awareness and agency. The right conversations empower employees to make informed decisions and unlock their full potential as individuals.?

Learning and Development Lead to Stakeholder Value

Effective performance management contributes not only to individual learning but also to organizational development by defining and implementing new organizational capabilities. These capabilities represent what the organization is known for and good at doing, ultimately shaping its identity, character, and reputation. Through a combination of individual and organizational learning and development, value is created for all stakeholders.

Implications for Action

When overhauling an existing performance management system to emphasize learning and development that creates value for all stakeholders, HR leaders should strive for simplicity, fairness , and coherence . Simplicity involves shifting the focus away from complicated and auxiliary processes towards on-going conversations. Fairness entails ensuring that all procedures are transparent, comprehensive, and free from bias. Employees should have opportunities to provide input and improve processes. Coherence demands a thorough evaluation of every existing practice and policy to determine whether it genuinely supports learning and development.?

Going Further

Performance management work has much to offer (figure 1). In addition to the insights I have suggested, I encourage HR and business leaders to guide conversations to be consistent with the recently launched Manifesto for Flourishing at Work (https://freedomtoflourish.world ), a collaboration among practitioners, consultants, and academics to reinvent performance management.

I believe three topics from this manifesto are especially critical. First, align performance and purpose by making sure that performance encourages progress towards a company’s purpose that includes all stakeholders . Second, manage the complex system of performance by focusing both on individuals within the system and also the system itself . Third, ensure that leaders are secure enough in themselves to use their power to empower others and to allow employees to contribute to their own improvement.

While much more can and will be done, I hope these reflections offer some insights into improve this important talent process.

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Dave Ulrich?is the Rensis Likert Professor at the Ross School of Business, University of Michigan, and a partner at The RBL Group , a consulting firm focused on helping organizations and leaders deliver value.