Why traditional performance management may be hurting your engagement — and what you can do about it

Today, plenty of experts and studies confirm what we already know: traditional performance management is broken.

But it’s not just slightly flawed. It’s seriously damaged. So much so, that it’s actually creating disengagement and turnover — exactly the opposite of what organisations hope to achieve.

According to a 2014 Deloitte article, only 8% of companies believe their performance management process is highly effective in driving business value, while 58% say it’s not an effective use of time.1   

Other statistics confirm high levels of employee dissatisfaction — largely related to lack of career growth or recognition. These are the very things that should be addressed as part of the performance process. According to a December 2014 Harris Interactive/Nielsen study, nearly half (47%) of American employees searching for a new job say they are looking for more growth opportunities. And one in five feel they are not currently being recognised for their achievements or organisational impact. There’s no reason to believe the same is not happening in Europe.

All of this boils down to disengaged employees, lacking commitment to the organisation and the motivation to drive it forward.

What’s wrong with the current method?

In a nutshell, a lot. People have been complaining about the annual performance review and merit pay matrix for years. And much has been written about the ineffectiveness of these tools. In fact, when it comes to the traditional performance management process, there are a few things that almost everyone can agree on:

• Everyone dislikes it (employees and managers alike).
• Nobody does it well (despite repeated training efforts).
• It doesn’t work (because in general, performance doesn’t improve).

Despite widespread agreement that there is a problem, few organisations have identified what needs fixing – until now.  Here are some of the key issues:

Annual goal setting doesn’t account for the real pace of business.

Many companies set goals at the start of each year and review them at the end — and that’s how employee performance is rated. Yet we all know that in today’s world, market dynamics can turn on a dime. As an organisation’s strategic goals flex, so must the goals of individual employees — otherwise  the entire workforce continue rowing in the wrong direction.

Using a static process of setting goals and reviewing them only once a year doesn’t work in today’s modern world. If your company is stuck in this pattern, several things are likely happening:

• Your goal-setting method is either ignored or regarded as meaningless.
• Your individual employees are probably reprioritising their goals on their own.
• Your company may be missing valuable opportunities to adjust to market changes and revise business goals accordingly.

Goal setting and performance feedback is too infrequent.

Employees shouldn’t receive performance feedback just once a year. Not only does it handicap a team’s performance and productivity, but it can fuel employee disengagement, ultimately turning an unhappy employee into a flight risk. If your company still provides feedback annually, you may be running these risks:

• Your poor performers assume they are fine, and do not try to improve.
• Your good performers aren’t sure of their status and may become disengaged.
• Either way, you’re not getting the most out of your workforce.

Traditional reviews don’t help employees grow and develop.

We know that most companies use the widespread ranking- and ratings-based performance review process for one simple reason: to drive compensation decisions.

But the trade-offs are stiff when you realise this process is damaging employee engagement, alienating high performers and costing managers valuable time. A better reason for doing performance reviews is to help employees improve their skills and become better employees over time.

Managers and employees should be having regular conversations around career goals, developing new skillsets and future paths for success.

Out with the old. In with the new.
One thing is clear – It’s time for a new way of thinking about performance management; one that drives employee engagement and keeps your best talent from walking out the door.

The old ways simply don’t work — and the industry is long overdue for a solution that does. Fortunately, HR has a chance to be a strategic partner for the business, but unfortunately its arsenal of tools is outdated.

The solution starts with acknowledging that the old systems and legacy processes aren’t working. In order for HR to have a more meaningful impact on company performance, talent leaders need to leverage new technology and data to make smarter, more informed decisions about their workforce.

They need to rethink old processes and focus on building a convincing business case for a new, more intelligent approach to talent and performance management. Organisations should work toward a more lightweight, dynamic and transparent system that both full-fills the need for performance measurement and actually drives engagement simultaneously. Ideally, that approach should:

• Embrace new paradigms that motivate employees and align performance to company goals.
• Build in continuous performance feedback and recognition throughout the year.
• Use the power of big data to plan customised career development paths.

With the advent of big data analytics, sophisticated algorithms and machine learning capabilities, today’s software is more skilled than ever at helping organisations motivate employees with things that go far beyond money — things that meet them exactly where they’re at.  Here’s how:

Continuous performance tracking:  Rather than setting goals once a year and reviewing them sporadically, a better approach enables a continuous discussion and ensures alignment between managers and employees.  A good performance management solution can help with this, enabling an employee to view their manager’s goals (assuming the manager makes them visible), and then cascade their goals off of those. For example, if the manager has a goal of increasing revenue by 20%, the employee might create a goal to run ten marketing campaigns, and set their manager’s goal as the parent.

In this way, both goals, and the progress toward them, can be viewed simultaneously on the same screen, alongside any comments, tasks, and progress. This capability can foster a more continuous discussion between the employee and manager, enabling the employee to get feedback and coaching on achieving their objectives, versus waiting for a review (oftentimes with surprising results) at the end of the quarter or year.

Personalised social recognition: Advanced software can provide a social platform that enables crowdsourcing of employees’ performance. People can recognise excellence in their co-workers, managers and other colleagues by posting social praise, giving them a badge or leaving an impression on their profiles. This facilitates real-time peer recognition and immediate positive feedback throughout the year. And with today’s software solutions, this can even be done from mobile devices, regardless of physical location.

When it comes time for the annual review, managers can pull all that information into the review itself —broadening the scope of the review to include more than just one person’s opinion, and helping the manager remember things that took place months before.

Better growth/development plans: Instead of suggesting that everyone in a department should take a certain list of courses (regardless of members’ individual strengths and skills), advanced software can personally recommend specific courses, content, or mentors for each member of the team — even if they have the same job title — based on their unique career interests, aspirations and skillsets.

Similar to how Amazon can recommend items that an individual may be interested in based on their continuous interactivity, machine learning algorithms can make similar recommendations to facilitate on-boarding and continued development. 

What to do next? 

While the performance management process is broken in a variety of ways, not everything needs to be fixed at once.

While the above describes some ways that technology can help, simply encouraging managers to have more frequent discussions with employees on goals, and checking in with feedback and advice on a more regular basis is one way to start.

Clearly new technology has a greater part to play and so when evaluating talent management solutions, ask about capabilities that can support continuous performance tracking, peer-to-peer recognition, and personalised recommendations to drive growth.

Either way, incremental steps can have a major impact in the way of improving the current process and driving better engagement as a result.