According to CEB Research, why performance management fails to improve performance, is because over the last several decades, companies have become obsessed with gauging employee productivity and value using quantitative measures that solely look at past performance, and have spent too little time investing in evaluations that actually spur future performance.
Companies weren’t measuring improvement but progress toward and objective – which when used incorrectly encourages all sorts of behavior that doesn’t help the company. Key performance indicators have become a misused and misunderstood concept that in many firms are at best not helping and, at worst, harming corporate performance. At the root of the problem is confusion over what is really “key” (most KPIs are backward looking), whether KPIs are “goals or gauges” and how to use them to improve decision-making and overall employee behavior.
The danger comes when KPIs aren’t key, are used as targets or goals (instead of measurements), or aren’t used in context.
The move away from annual reviews and ratings is well past due, say management theorists. Years of research, from both business school professors and neuroscientists, has found that the practice is ineffective at boosting performance, actively alienates employees, is based on a flawed understanding of human motivation, and is often arbitrary and biased.
See: Revisiting the Norm of Normality of Individual Performance
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Many reviews suffer from a “rater bias” that renders them unfair, inaccurate, or both. Employers tend to hire people they expect to like. They expect to like people who are similar. And they’re more likely to rate people higher if they hired them. As a result, people whose personalities and backgrounds are different from the boss tend to get lower ratings, says Jeffrey Pfeffer, not just because of gender, racial, or personality biases at the performance-review level, but because of gender, racial, and personality differences at the hiring level. It’s just like Sin Yu warned us: Too many imperial raters are still mistaking “likes and dislikes” for “merit.” The best way to correct this is to involve a diverse group of people in the evaluation process to water down individual bias, as Jeffrey Pfeffer wrote in Bloomberg Businessweek.
According to a PeopleFluent brief, while many ‘progressive’ companies are eliminating performance ratings from talent reviews, this ‘all or nothing’ approach has shown that it has flaws and can backfire. On the other hand, ratings can be seen as subjective. This brief will give you 5 steps to evolve your performance appraisal process to leverage modern performance management tools and strategies while not going completely ratingless with:
- Agile and connected aligned goals
- Appropriate check-ins and feedback frequency
- Calibration process based on evidence
Hence, it’s not hard to see why the performance management process has devolved, and why companies are now turning to new ideas.
“One thing we do know is that we will maintain our culture of meritocracy and differentiation,” GE’s head of human resources, Susan Peters, tells Max Nisen who covers management for Quartz. “So we have to make sure what ever other aspects or factors come into play, to make sure you still have that. We’re trying to figure this out and keep some of the fundamentals of the culture and also move to a place where it’s more contemporary. I don’t know what the answer on that’s going to be yet.”
“At GE, managers will still have an annual summary conversation with employees around December where they look back at the year and set goals, but it’s far less consequential and fraught than the formal review the company is replacing. It’s not meant to be all that different from the conversations expected to occur throughout the year, and entirely unlike the sort of formal review that sets decisions on things like pay or advancement.”
“It is a really important element of what we’re trying to do, which is to make a major shift of the company’s culture towards simplification, towards better, faster outcomes for customers,” Peters says.
Meanwhile, According to Max Nisen, HR executives get particularly nervous about the pay piece, about how they can pay for performance in the absence of a formal performance measurement system.
“If you get rid of the performance ratings, how are you going to get rid of a fair and equitable and measurable system to blame the distribution of pay on?” Paul Rubinstein, a partner in Aon Hewitt’s talent strategy consultancy asks. “Because why did performance ratings come into existence? So there’s some mechanism to force pay decisions. People wonder, which came first the rating or the pay decision.”
The harshest critics of performance reviews and ratings argue that numerical rankings and pay differentiation are perhaps the most damaging parts of the system, and that any regime that preserves them can’t hope to truly change. And many companies like the idea of getting rid of reviews and rankings, but struggle to follow through.
Download now to learn how you can modernize your performance management process without going completely ratingless.