Introduction

Performance Management for a New Age of Work

As a manager, you’re responsible for the output and productivity of your team. But what steps should you take to track performance, communicate effectively with your direct reports, and encourage individual growth?

Performance management is an interconnected set of tools used to measure and improve the effectiveness of people in the workplace. High-performing organizations use performance management to achieve three goals: to develop individuals’ skills and capabilities, to reward all employees equitably, and to drive overall organizational performance. As a manager, you can customize your performance management process to help your team and employees deliver strong results for the organization while helping them develop their professional aspirations.

Specific approaches to performance management differ based on organizations’ strategies, values, and culture, but they typically include setting employee goals and tracking progress against these objectives, providing ongoing feedback and coaching, developing employees’ skills and strengths, and, often, formal evaluations. Many elements of the process—assessing performance, giving feedback, and development, for example—are ongoing. Other activities, like goal setting and formal reviews, have historically been calendar driven and cyclical.

But traditional performance management approaches have come under fire in recent years. Many business leaders have begun to question the value of standard processes and whether they are effective in achieving the results they seek. With the growth of knowledge work, the traditional annual performance review cycle can seem like a rusty artifact ill-suited for today’s nimble organizations. But stepping away from performance management entirely—leaving employees without a process for meeting their goals and managers without a method for developing their employees—risks many errors, missteps, and missed opportunities for growth. Some organizations have begun to adjust and revise their performance management processes, but even then, many managers are left wondering how to ensure the results and growth of their direct reports as more and more pieces of the process are debated.

As formal approaches to performance management evolve, managers must understand which elements of traditional best practices they should keep in place and which are fraught, which components of new processes are working and which should be avoided. This guide will introduce the essential elements of performance management so you can adjust your own process to best suit the needs of your company and your team, while also providing you with the information you need to under stand the conversations surrounding performance management as it shifts to meet the needs of a changing, more agile organization.

The Evolution of Performance Management

The traditional process of managing performance began as a system for assessing and maximizing the productivity of industrial workers in manufacturing firms. The cycle generally began with the development of annual goals for each employee; at the end of the year, people were formally appraised based on how successfully they achieved those objectives. Performance assessment was based on straightforward, production-based metrics, so evaluating employees against goals was usually clearcut: Did they produce the targeted number of units, with few errors? Appraisals were usually linked to employee ratings, which were used to calculate changes in compensation for high-performing workers. Those rated as low performing were often let go.

But processes originally developed to evaluate the performance of individual contributors in industrial firms and jobs in production don’t necessarily align with the needs of today’s businesses that prize creativity and innovation and those that are increasingly staffed by knowledge workers and teams whose results aren’t so easy to measure. While the industrial model aimed to reduce variation (in manufacturing errors, for example), many organizations today aspire to innovate by increasing variation. An individual’s appraisal, rating, and compensation once rested on the completion of annual goals—but today, those targets often become outdated before the year is out. In response, some organizations are embracing flexibility and shorter-term goals that can be modified over the course of the year.

Metrics to gauge performance, too, have become more complex: When an employee is dealing with ideas and knowledge rather than easily countable units, assessing performance against goals requires some ingenuity. What’s more, with talent in shorter supply (and skills, particularly technical ones, becoming obsolete quickly), companies have used these metrics solely as a tool to identify individuals to advance or reward—but their actions didn’t always result in better performance.

Many organizations now recognize that they need performance management processes that are better suited for their people and their needs. They want nimble, flexible instruments that can truly increase and accurately measure performance. Some organizations are shifting away from cyclical, calendar-based approaches toward those based on more communication throughout the year. Netflix, for example, eliminated formal evaluations in favor of regular performance discussions and informal 360-degree reviews, where people identify what their colleagues should stop, start, or continue doing either by supplying signed feedback or even taking part in face-to-face team meetings. Others are holding more-frequent reviews (often semiannually or quarterly) and complementing them with increased dialogue between bosses and employees that involve ongoing check-ins and opportunities for real-time feedback.

Some influential companies and business leaders are reappraising the established performance management approach—in some cases overhauling familiar processes in innovative, even unprecedented, ways. Deloitte, for example, conducted a public survey and found that 58% of executives questioned felt that their current method of managing performance neither drove employee engagement nor promoted high performance.¹ By focusing too much on looking at past results, the process provided no practical look to the future. With that in mind, Deloitte created a new approach that removed traditional elements such as 360-degree feedback, cascading objectives, and once-a-year reviews and instead focused on “performance snapshots,” in which an employee’s immediate manager answers four future-focused questions about an employee—essentially asking what they’d do with the employee rather than what they think of the individual.²

Companies are also discovering that a more individualized plan may work better for their employees. A different approach may be needed for, say, salaried professional staff eligible for incentive pay than for hourly employees. Some organizations are also taking steps to broaden traditional processes to weigh how teammates’ contributions, in addition to system or organizational challenges, can significantly influence individual performance.

These organizations are signaling that while traditional approaches may be less effective than they once were, managers are still responsible for assessing their teams’ work and output in one form or another. Few can realistically afford to dismiss the process altogether—nor should they.

Why Performance Management (Still) Matters

Despite the arguments against it, routinizing the management of employee performance can help every organization and every manager make the most of its most important resources—its people—so everyone benefits. That’s because:

• Shareholders and investors observe better results when people are working in unison toward key goals.
• Supervisors are more successful when their reports focus on the right tasks and projects—and do them well.
• Employees appreciate focused goals, opportunities for career development, and recognition for outstanding performance.

An effective performance management process—one that takes into account how organizations are changing—can still keep employees focused on meaningful goals and offers managers a clear framework for appraising the quality of their people’s work. At the very least, a calendar-based system—whether annual or more frequent—guarantees that direct reports will have a chance to discuss their work and get feedback from their managers at predictable intervals during the course of the year. (Managers can and should offer feedback more frequently than that, but this is a start.) The performance management cycle provides a logical time frame and process for assessing the quality of employees’ work and making compensation-related decisions, whether or not companies stick with formal rating processes. And a thoughtful performance management approach will offer people opportunities to plan out learning and development efforts to boost their motivation and career satisfaction for the long term.

It’s rare that an organization (or individual, for that matter) can make real progress without setting and working toward goals. And few companies can remain competitive or retain their best people without offering opportunities to grow. So as performance management evolves, it’s important for managers to learn how to work within those changing processes to ensure the growth of their people and their contribution to their organization.

What’s Ahead

This guide will offer tools and best practices you can tailor to manage your team’s performance while meeting your organization’s needs and supporting your people in today’s agile business world. Whether you’re looking to improve on a traditional process, seeking a more flexible option, or creating an approach where none exists, you’ll learn the basics of performance management, so you can customize an approach that works for you.

In section 1, we’ll explore employee goal setting: the characteristics of effective goals, how individual and organizational goals align, and how to develop metrics to measure people’s progress toward their objectives. We’ll also discuss creating specific plans for enabling direct reports to meet those targets to ensure that you’ll be satisfied with progress. But because established goals may no longer remain static over the course of a year, we’ll also explain how to assess whether set goals are still valid—and how to make changes as necessary.

In section 2, we’ll discuss the process of observing, documenting, and improving performance throughout the year. You’ll learn how to identify performance gaps and assess why they occur, effectively coach and deliver feedback, recognize good work, and motivate people to do their best.

In section 3, we’ll address employee career development: how to ensure that your people are growing professionally. Regardless of how your organization’s formal performance management process is run, employee development efforts are becoming a focus of every manager who wants to lead an engaged, high-performing team and drive business. You’ll learn how to discover your employees’ unique needs and ambitions, identify the tactics available to your direct reports to build their skills, determine a direction for growth, and create individualized development plans to propel people forward—even those who are struggling.

In section 4, we’ll delve into the details of formal performance reviews. This section first presents current arguments for and against formal appraisals—and for those who do conduct them, offers a detailed process for success. We’ll help you navigate the practice of assessing a direct report’s progress toward previously established goals and show you how to put your appraisal in writing, including how to use ratings most effectively. We’ll cover how to conduct the review session, from detailing performance to preparing for the review period ahead.

In section 5, we’ll explore topics that managers struggle with in performance management. We’ll begin by explaining how to support and nurture your B players: those who are neither ambitious standouts nor strugglers. We’ll also discuss how to avoid burnout on your team—a problem that tends to affect the most valuable, hardest-working employees. Finally, you’ll learn how to manage the performance of remote employees you rarely (or never) see in person.

While the rules of performance management are constantly changing, the need to work effectively with your employees and to encourage their success remains constant. This book will help you better understand how the landscape is changing, so you can adjust your own behavior while managing your people’s performance and meet the needs of your organization. By following the advice in this guide, you’ll be able to master each part of the process and make it an ongoing, flexible, and effective part of your daily work.

NOTES

1. Deloitte Consulting LLP and Bersin by Deloitte, “Global Human Capital Trends 2014: Engaging the 21st-Century Workforce,” Deloitte University Press, 2014.

2. Marcus Buckingham and Ashley Goodall, “Reinventing Performance Management,” Harvard Business Review, April 2015 (product #R1504B).