(Re)thinking Performance Management

Performance management is due for an overhaul!

What’s the Problem with Traditional Performance Evaluation?

A lot of companies still use the old A/B/C type of performance management system, but evidence shows these systems often miss the mark on real performance. They tend to say more about the managers than the employees!

When managers rate employees, their assessments often reflect (1) their own experience, (2) personal values, and (3) whatever data they can recall - usually just recent events (hello, recency bias) instead of systematically collected historical data points. These factors tend to colour their (our) judgment more than the employee's actual work!

Scullen et al. (2000) found that 62% of rating differences came from the evaluator’s own quirks and preferences, and only 21% was based on real performance! Boom! (grinning troll face)

What Can Be Done Differently?

Step 1: Standardized, Systematic Project-Based Assessments

To assess performance at the individual level, at the end of every project (aka. frequently), you will ask managers NOT about the skills of each team member but about their own future actions with respect to that person!

1. "Would you give this person the biggest raise/bonus?"
2. "Would you want them on your team always?"
3. "Are they at risk for low performance?"
4. "Are they ready for promotion?"

These questions are specifically designed to capture managers' future intentions rather than subjective skill assessments, as research shows people rate their own intentions more consistently than they rate others' abilities!

This creates a longitudinal view of performance that can be visualized and tracked over time, revealing patterns that might be missed in traditional review cycles. Here is a quick and clickable example I prompted on how it may look like in real life.

Step 2: Measure Real Impact

Track useful metrics before and after starting this approach. Look at things like:

1. Employee well-being (e.g., psychological safety surveys, etc.)
2. Innovation (e.g., features launched, experiments done, etc.)
3. Growth (e.g., promotions, retention rates, etc.)

Step 3: Be Transparent with the Team

Let employees know what’s being tracked and why. Without transparency, it’s hard to build TRUST, and the whole system could backfire!

Bringing It All Together

Obviously, this is not a silver bullet, but in my opinion, it’s more effective and robust than most of what we use today.

The future of performance management is all about using data-smart, bias-aware systems that focus on regular feedback and objective measures instead of once-a-year, subjective reviews. With structured assessments, ongoing data collection, and open communication, organizations can build a more effective and fair performance system. Sure, it takes time and a shift in culture, but the payoff - higher employee engagement, more accurate evaluations, and smarter development decisions - makes it well worth it.

This brief write-up was inspired by Deloitte's work on performance management (Buckingham & Goodall, 2015) and builds on research by Scullen et al. (2000) on performance rating systems.

Reference

1. Scullen, S. E., Mount, M. K., & Goff, M. (2000). Understanding the Latent Structure of Job Performance Ratings. Journal of Applied Psychology, 85(6), 956–970. https://doi.org/10.1037/0021-9010.85.6.956
2. Mautz, S. (2020, February 19). A 5-year, 50,000-person Gallup study says this is the single biggest challenge managers face. Inc. https://www.inc.com/scott-mautz/a-5-year-50000-person-gallup-study-says-this-is-single-biggest-challenge-managers-face.html
3. Buckingham, M., & Goodall, A. (2015, April). Reinventing performance management. Harvard Business Review. https://hbr.org/2015/04/reinventing-performance-management
4. Edmondson, A. (1999). Psychological Safety and Learning Behavior in Work Teams. Administrative Science Quarterly, 44(2), 350–383. https://doi.org/10.2307/2666999