According to a study by Deloitte, only 8 percent of companies report that their performance management processes drive high levels of value, while 58 percent state that their performance management processes are not an effective use of time. Facing these statistics, we wonder why does performance management not drive high performance? And what does further research show?

What People Think Performance Management Is

In most companies, if you ask HR professionals and managers alike what performance management is, you will get an Investopedia definition that it is the process by which managers set SMART goals to their team members, follow up on the achievement of these goals, and evaluate employee performance accordingly. Even more, some companies employ the practice of stack-ranking employees against each other to distinguish the ‘superstars’ from the rest and consistently follow the practice of linking compensation with performance management scores. 

What Performance Management Really Is

With these practices in place, performance management, surprisingly, ends up derailing performance. In a Deloitte survey, 58% of the executives surveyed believed that their performance processes do not drive employee engagement and high performance and 48% believed that their performance processes are “weak” in improving employee development and driving business value. 

So how does performance management end up derailing performance?

Donald Sull, Senior Lecturer at the MIT Sloan School of Management, proposes an answer to this question. According to a survey by Sull, two-thirds of managers stated that, in their organizations, individual performance is a top driver of promotion decisions and more than half of them said experimentation and failure hurt careers. In other words, most current performance management systems prioritize individual performance over teamwork and favor ‘playing it safe’ to taking risks and conducting experiments– practices that do not fare well in today’s high-paced changing business environment. 

With employees understanding the risks to their careers involved, it is only reasonable to expect that such performance management systems drive fear and politics into the culture of the organizations, rather than openness and collaboration. So how can we drive fear and politics away and invite openness and collaboration?

What Performance Management Should Be

  1. Build a Performance Culture, Not a Performance System

It is easy for HR to be so entangled in spreadsheets and bell curves that we miss the real point behind why performance management systems are really there– to drive performance. The goal of performance management systems is to drive performance, not evaluate performance. This goal cannot be achieved without the active involvement of the people the system was built for. Research shows that regular, real-time feedback is much more effective than periodic appraisals and regular employee-manager check-ins are more effective than quarterly or annual appraisals. In fact, research shows that 85% of workers who have weekly check-ins with their managers report higher levels of engagement. Instead of evaluating performance, build a culture where conversations around performance are daily engaged in.

  1. Conduct Peer and 360 Reviews 

Involving team members in the review process makes team members keener on collaborating together than competing against each other. It also provides team members with broader feedback on their performance. Peer reviews, in particular, shift employees’ focus from trying to solely achieve their own individual goals to helping others achieve their goals and the organizational goals.

  1. Set Team, Not Individual Goals

It is easy! When employees know they are being evaluated solely on their individual performance, they are more likely to focus on improving their individual performance only. On the other hand, when they know they are being evaluated on the team’s performance, they are more likely to collaborate, support, and provide guidance to each other.

  1. Set Innovation Goals

Some organizations claim to build creative, innovative cultures but end up evaluating employees on the achievement of pre-set goals alone. With this setup, employees are more likely to focus only on the goals at hand and shun any new ideas or proposals that don’t align with the goals pre-set at the beginning of the appraisal period, thereby, significantly reducing the organization’s ability to innovate. Therefore, a good workaround would be to set along with the employee-specific goals a goal for innovation– an open goal that employees can achieve by contributing innovative initiatives to the company.

  1. Set Innovation Time

The rate of speed in business is increasing exponentially. This is why some of the best companies in the world such as Google institutionalize setting aside 20% of their employees’ work time to work on any projects they like. Google AdSense, Gmail, and Google News were all the products of this set-aside time.

  1. Celebrate Failure

Helping employees dedicate time for innovation will not help if employees believe that failure will hurt their careers. Failure is one of the main tenets of innovation and entrepreneurship, so if you want to build a performance culture, you must allow your employees to fail. Not only that but you should also celebrate failures as one step away from success. You must congratulate employees not only for a job well done but for a risk well taken. Consider creating a ‘risk of the year’ award, for example.

  1. Evaluate Team Performance on both the ‘What’ and the ‘How’

Evaluating performance based only on ‘what’ goals have been achieved creates a culture of focusing on goal achievement, even if better goals should be pursued or even if the goals are no longer relevant. To escape the trap of building a performance management system that actually derails progress, include in the evaluation as well an evaluation of ‘how’ the goals have been achieved. Assess employees on their competencies such as teamwork, collaboration, and innovation.

  1. Promote Based on High-Performance Competencies

Companies often fall into the trap of promoting high-performance cultures and encouraging employees to innovate and take risks, only to make promotion decisions, later on, solely on the bland scores of performance appraisals. This talent development approach works against the high-performance culture you are trying to build and tacitly sends the message to employees that ‘playing it safe’ is the best way to go. Instead, when making promotion decisions, take into consideration the ideas that employees came up with, the unofficial initiatives they have pursued, and the perfectly legitimate failures they may have had to endure. After all, having managers who are willing to pursue organizational goals beyond what is expected of them is a great tenet of a high-performance organization.

Now that you are aware of the most common performance management traps that render performance management systems ineffective, how many of these pitfalls are you guilty of? Are the employees in your company afraid of taking risks or trying new ways of doing things? Do you think you have a high-performance culture? Contact us if you need to build a state-of-the-art performance management system coupled with some of the best practices in HR. 

Who Are We? 

CivilSoft is an enterprise software company specialized in Strategy Execution and Human Capital Management. We provide you with innovative HCMS software solutions to make managing your HR processes simple, fast, and easy. Contact us at info@civilsoft.net for more information.

How Can We Help?

If you’re an organization that is struggling with how to upgrade your HR processes and provide world-class HR services, at CivilSoft, we can bring forth our 25 years of expertise to help you source, acquire, develop, retain, and reward employees using digital solutions.

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