Performance reviews are dead, or so we have been told. The data shows a shrinking support for the traditional method: only 15% of companies have not adjusted their annual performance management process and do not plan to.
But the data from our Performance Management, Culture, and Business Results study shed a different light on the subject as well. High-performing companies, those with increases in revenue, retention, and engagement, are more likely to prioritize multiple goal-setting and review sessions annually versus low performers focusing on the once-a-year session.
While it is true that the outdated systems of forced ranking and administrative paperwork might no longer be in style, the new model of performance management is gathering steam. Like a phoenix from the ashes, this revised version of performance management does more to ensure positive outcomes for both employees and their employers. From 360-degree, continuous feedback to an increasing link between performance and results, the shift has positive implications for the businesses willing to make the change.
Are Your Process- or People-Focused?
When it comes down to it, many organizations believe their performance management process is more process-focused than people-focused. For instance, the goal setting, assessing, and review process is at the forefront instead of incorporating elements such as employee strengths, in-the-moment feedback, and recognition. Perhaps that is why just 4% of companies say their current approach is a highly effective method for managing employee performance.
Traditional performance management does not deliver value for companies and creates an adversarial relationship between employer and employee. By gathering information on how employees are performing once or twice a year, performance management seems more punitive than productive. In addition, traditional performance management is not tied to business outcomes or overall organizational success. When surveyed about what has changed with existing programs, companies touched on some areas that clearly indicate a shift in the traditional approach:
- shifted annual discussions to more informal, frequent feedback
- eliminated use of a forced ranking system
- brought recognition and strengths-based coaching to bear
These three items are a stark contrast to the performance management processes of old: they are focused on actual business and individual performance.
Consider Skills and Mobility in Performance Conversations
Another related area of talent management that more and more companies are wrapping into the discussion is around skills and internal mobility. Talent mobility is about connecting employee skills and aspirations with the needs of the business. In a recent training session with a set of HR executives, I asked them how many actually had insight into the skills their organization has on hand. Less than ten percent of the hands went up, signifying that most companies don’t have the capability to take a more mobile approach to talent.
At the same time, there are companies winning at this process. A great example is Credit Suisse. The financial institution’s nearly 50,000 global employees have access to a program called Internals First, which prioritizes internal hiring and transfers over external hires. In 2016, the firm filled 39% of all vacancies with internal hires, and nearly 10% of the workforce made internal moves during the year. The company takes an innovative approach of having recruiters call internal workers that seem to fit requirements, discussing roles and moves with them instead of making it purely rest on the shoulders of the employees.
Career development is a critical part of the larger talent conversation. The recent ADTRAN case study we published exemplifies this well. The firm has used hackathons to tie together disparate pieces of its HCM strategy: branding, retention, skills development, and more. And the employees even bring it up in their performance conversations as it’s a key part of how they see themselves growing and contributing to the organization.
Employers that want to truly engage their workers should look at ways to do so within every touch point of the employee experience and every step of the employee life cycle. Because career development and skills growth are tightly interwoven with performance management, it makes a natural fit to focus on both of them with overlapping, complementary processes.
How High-Performing Companies Manage Employee Performance [New Research]
Recently we (Lighthouse research & advisory) wrapped up an amazing new project, the 2017 Lighthouse Research Performance Management, Engagement, and Business Results study. This provided some amazing insights and has given us a great picture of how employers can fight back in the ongoing battle to keep great talent while simultaneously keeping them highly engaged.
Key Research Findings
Logically, we would expect to see variations between what high-performing companies are doing and the rest of respondents. And that’s exactly how things shook out. High performers were much less likely to be using what we call “negative” performance practices like rankings and much more likely to be using “positive” practices like coaching, peer feedback, etc. Check out the table below for the full list.
|Talent Practice||Gap Analysis: High Performer are…|
|Focus on eliminating weaknesses||25% less likely to focus on eliminating weaknesses|
|Forced/stacked ranking||31% less likely to use stacked ranking|
|Annual goal setting||4% less likely to prioritize annual goals|
|More frequent goal setting (two or more sessions annually)||44% more likely to do more frequent goal setting|
|Coaching for development||20% more likely to use coaching for development purposes|
|In the moment manager feedback||29% more likely to use in the moment feedback|
|Peer feedback||26% more likely to use a peer feedback mechanism|
|Recognition for performance||37% more likely to use recognition to drive performance|
|Focus on strengths||14% more likely to focus on employee strengths|
Source: 2017 Lighthouse Research & Advisory Performance Management, Engagement, and Business Results Study (n=258)
Additionally, high-performing companies are 58% less likely to say to say their approach to performance management is ineffective. Similarly, three-fourths of high performers believe their approach to performance actually increases worker engagement.
On the culture side, there’s an incredible divide between firms with a collaborative/create culture and those with a more controlling/competitive culture.
- 0% of employers with a competitive/controlling culture say their approach to performance management is highly effective.
- Conversely, while just 7% of collaborative/creative companies say their approach is highly effective, they say that the process actually enables greater performance, not just measures it.
The other findings paint a very interesting picture and we’re actively working to produce a more holistic report examining many of them.
The Premise of the Research
The intent of this study was simple. I wanted to be able to try and make as many connections as possible between performance management and engagement. As with our Talent Mobility Value Chain model, where talent practices connect with engagement, and engagement links to revenue and other business metrics, we felt like making that connection very evident would bring additional value and guidance for employers that were considering a different approach to managing and measuring employee performance.
While other research exists, you can find the studies below that we used as a guide for building out our hypothesis. If you’re not into academic literature and want the short version, the research points to a few key themes:
- Organizational culture can drive market performance
- Performance practices can drive engagement and market performance
- Engagement is connected with market performance
When these are examined holistically, we should be able to validate some of this research by showing connections among these areas (culture, business results, engagement, and performance management).
i4cp People-Profit Chain: A positive culture has a high correlation with market performance (defined as revenue, profit, market share, and customer satisfaction).
Kotter: Organizations with strong, adaptive cultures are more likely to have higher long-term stock performance.
i4cp People-Profit Chain: A workplace that maximizes employee productivity and performance is also highly correlated with market performance.
Kahn: Workers that understand the broader meaning of their tasks and feel comfortable with their environment are more likely to be engaged.
Sweetman & Luthans: Performance conversations based on coaching and agreement between both parties are more likely to drive employee engagement levels.
Gilbert et. al: Performance management based on forced ranking or similar systems disengages employees and harms performance.
Gallup: high engagement leads to higher customer satisfaction, profitability, productivity, and employee retention while simultaneously decreasing shrinkage, absenteeism, safety incidents, and quality defects.
Markos & Sridevi: engaged workers lead to better individual performance outcomes (Say (advocacy), Stay (retention), Strive (productivity/performance) as well as better organizational outcomes such as profitability, growth, safety, and customer satisfaction.
All in all this was an amazing study to pull together and we are very excited to continue exploring the research findings in order to help you manage your workforce better. Thanks, as always, to our amazing survey partners for sharing the study and to those that took the time to respond to the questions. We couldn’t have done it without you.