7
PERFORMANCE MANAGEMENT

Performance management is one of the most important and potentially impactful talent management processes that organizations can use. Yet as it is currently designed and executed by most organizations, it is the most unpopular talent management process that organizations engage in. For decades, both appraisers and appraisees have voiced their unhappiness and have resisted and complained about performance appraisal programs that require annual performance evaluations and ratings.

It is easy to understand why traditional performance appraisals are disliked by both appraisers and appraisees. For decades they have been an annual activity that results in grades or ratings being given to each employee and an often uncomfortable meeting between a manager and a subordinate to discuss a performance rating and its consequences. Appraisals often take large amounts of preparation and execution time. They result in miscommunication and often disappointment when, as frequently occurs, the appraisal rating turns out to be lower than expected. Not surprisingly, they are almost always lower than expected because individuals tend to rate themselves more positively than do the supervisors rating them. Despite their unpopularity, most organizations continue to do performance appraisals on an annual basis.

In response to the perception and reality that appraisals waste time and are unpopular, a number of corporations (e.g., Accenture, Adobe, General Electric, and Sears) have made major changes to their appraisal systems while a few have eliminated appraisals entirely. Elimination reduces the pain and suffering, but does not meet the need of individuals and organizations to have valid measures of performance. Further, it does not give individuals the feedback and development advice they need to improve their performance.

Instead of simply eliminating all performance management activities, some organizations have correctly diagnosed the situation as one that needs attention and can be made better by executing performance management in an effective manner. The challenge is identifying what constitutes an effective process for a particular work situation and executing it.

Fortunately, there is a great deal of research evidence that indicates what performance management must look like and how it must be done in order to fit today’s workplace. It indicates that performance reviews need to be undertaken in a very different manner than they have in the past and that when they are the results can be positive. There can be less wasted time, fewer hurt feelings, improved performance, and greater organizational effectiveness. For this to happen, there are a number of features that need to be part of the performance management process.

THE PROCESS SHOULD BE LED BY EXECUTIVES

The execution of an organization’s strategy depends on people understanding what needs to be achieved (goals that fit with strategy), ongoing conversations that provide feedback, holding people accountable, helping them develop the skills to reach challenging goals, and providing meaningful and nuanced evaluations of the impact of what they do. This is what good performance management will accomplish. If top management does not support a disciplined rigorous process of performance management, organizations will not be able to deliver the results they want and need.

All too often an organization’s human resources (HR) function is given the task of designing, implementing, advocating for, and operating the performance management system of the organization. HR representatives become policemen and -women as well as the designers of and the major advocates for the process. They spend a great deal of time to ensure it gets done, that the right distribution of evaluation scores exists, and so on. The perception that develops in organizations is that the appraisal process is both an HR process and a dysfunctional, bureaucratic one. It is not seen as a strategic driver that is intended to support the business strategy, motivate performance, and enable individuals to develop the right skill sets and careers.

To be perceived as an enabler of strategic performance, the performance management process needs to be driven and utilized by an organization’s top executives; they need to advocate for it, implement it, use it with their direct reports, and experience it in their own roles. They also need to evaluate how well performance management is used by the managers who report to them, the managers that report to their subordinates, and so on—down through the organization. Unless there is a top-down commitment to doing it well and senior managers acting as role models of effective performance management behavior, there is little to no chance it will be a key driver of business strategy and taken seriously throughout the organization. Instead of performance management being an important asset, it is bound to become a bureaucratic process that is done poorly to fulfill an HR bureaucratic requirement. Indeed, in organizations that do not have senior management support for the process it is probably best not to conduct performance appraisals at all. Not doing them can save time and avoid the negative results that come from poorly executed appraisals.

What does senior management support look like when it comes to performance management? It starts with establishing and articulating the organization’s goals and objectives and creating a good process for its execution. All senior managers need to support the process and evaluate their subordinates on how well they carry out the process. It needs to be a key indicator of how effective a manager is, and managers need to be trained in how they must behave in order for it to work effectively. It should be treated as a key skill set for managers: no one should be a manager if he or she cannot master performance management.

One of the major reasons why senior managers need to support and drive performance management is that there is every indication that it is a very effective driver of performance when it results in setting strategic goals and when the accomplishment of goals is part of the evaluation process. This means that senior managers need to both contribute to the goal-setting process and hold their subordinates responsible for meeting goals. This same approach needs to cascade down through the organization so that the goals are driven by the business strategy and are not simply something “nice to do.” With this approach, generic and meaningless goals, which do not relate to behavior and cannot be evaluated fairly, do not get set.

THE PROCESS SHOULD NOT BE AN ANNUAL ONE

The performance review process in most organizations has been and continues to be an annual event. Every year, managers and subordinates sit down to review the performance of the subordinates; a score is given at the same time, or soon thereafter, and sometimes goals are set for next year. The problem with this type of calendar-driven event is that it does not fit the timing of the business processes and results of most organizations. It may have fit the old world of work but it does not fit the rate of change that exists today. In most cases, it creates too much time between goal setting and evaluation, and in a few cases it does not provide enough time.

Changes need to be made in how frequently performance discussions take place and feedback is given to individuals about their goal accomplishments. The same is true for setting new goals and having individuals respond to them. Perhaps the best way to characterize them is to say that the goal-setting and performance appraisal processes need to be on a schedule that depends on the nature of the work that someone is doing, not the calendar. This may lead to very different schedules for talent doing different types of work. That said, appraisals should as a general rule take place at least every quarter to fit the rate of change that exists today in most organizations and to support organizational agility.

In today’s organizations, jobs differ enormously in what is sometimes called the “time span of discretion,” which is how long it takes to see the impact of what employees do on their jobs. In the case of goal-driven systems, it refers to how long it takes for them to accomplish a goal that has been set for them. In practice, this can be a matter of a few minutes, but more likely it can span days, weeks, months, or maybe even years. To make performance reviews appropriate and timely, they need to be made to fit the time span of the work that individuals are doing. This can get rather complicated because individuals may have some goals that need to be appraised and feedback given after a relatively short period of time while other goals can only be appraised and judged over a longer period of time. Properly designed apps and programs that support goal setting, updating, and appraisal can help here.

At any point in time, every individual should have multiple active goals, a clear understanding of their expected completion dates, and an understanding of how goal accomplishment will be measured, scored, and rewarded. They should also know when they will need to meet with their appraiser or appraisers to discuss how they have performed relative to their goals. This type of dynamic performance management system is likely to involve many more meetings and more ongoing communication than the traditional annual meeting model, but these meetings should be shorter and much less dreaded. They should become part of the ongoing fabric of the relationship between managers and their subordinates, not an HR mandated add-on.

If effective performance discussions and goal setting become central to the very fabric of the relationship between a manager and his or her talent and an organization’s culture, it may be appropriate to eliminate formal performance management meetings entirely. There may not need to be formal review meetings on a predetermined schedule. Instead, managers will “check in” with talent to be sure of what talent development needs to take place, which performance goals are in place, and which goals have been accomplished.

What is done in an effective performance management program is in many ways simply good management. But the reality is that many managers need a support structure to behave as “good” managers. They need support systems to be sure that they set goals, give ongoing feedback, and hold development meetings with the talent that reports to them. In the best of all organizational worlds, they would not need a “system” to get them to do this, but such a world does not exist in most organizations, so performance management systems that are a core piece of an organization’s talent management process are needed.

USE TECHNOLOGY

Information technology can help make performance management a more dynamic and effective process. It can make it easy for managers and their talent to communicate on an ongoing basis, and when needed to quickly update and change goals and provide ongoing feedback about goal accomplishment. An increasing number of organizations are utilizing mobile apps to make it easy to have regular communication concerning activities and results. They provide regular check-ins and agile goal management. Yes, this can also be done on the phone or in person, but in many respects it is often easier and better to do via e-mail, a social media platform, or a mobile app. The important point is that technology can help managers track talent behavior and be sure that it is aligned with the organization’s strategy and the goals of individuals.

A major advantage of using e-mails, tweets, and other forms of Internet communication is that they can provide an ongoing log of how an individual has performed over a period of time. This can be useful when it comes time to look at development needs, performance, and the distribution of rewards. A common problem in performance evaluations is that since the performance being reviewed typically covers a long period of time (e.g., a year), it is easy to forget the performance that occurred early in the time period. This can mean an unfairly low or high rating for someone who has performed differently over the course of the performance period. Consulting an ongoing communication and work record can help prevent this from happening.

MEASURE EFFECTIVENESS

It is critical that the effectiveness of performance management appraisals be measured. This is the only way to hold managers accountable for how they execute this process and to improve it. Without measurement, managers cannot be held accountable for how effectively they are executing the performance management processes with their talent, and accountability is critical to making performance management a high priority activity that is done well. All too often how well performance management is done is not measured, and as a result it becomes a low priority when it comes to how managers spend their time and how much management development takes place to help them do appraisals well.

One way to measure the effectiveness of an organization’s performance management system is to do regular surveys of how the fairness and effectiveness of the system is judged by the organization’s talent. Evaluation data can also be developed based on “pulse” surveys and social media chat about them. It is important to get data on all the key parts: goal setting, feedback, evaluation, and reward allocation.

It is important to reward managers for how effectively they do performance management. One interesting approach is to reward them by making their work area a performance-appraisal-free zone. As already mentioned, if managers are effective, formal performance appraisals may not need to be done at all because setting goals and feedback are “just” good management.

In some respects, performance management systems are nothing more than a way to motivate managers and guide their behavior to get them to do something they should be doing anyway. That said, the reality is that many managers need a formal system to improve their effectiveness at guiding and motivating their employees. Thus, it makes sense to have formal performance appraisal methods that employ the paperwork, scales, and other technology that are part of an effective performance management system.

The option of having a performance-appraisal-free zone, of course, only makes sense if in fact the individuals in that area do not need appraisals because they are aware of what their goals are and are motivated to achieve them. Further, the goals need to be in line with the business strategy and individuals need to receive good feedback about their performance from the work itself or from their managers.

At this point there are no organizations that I am aware in which the idea of performance-appraisal-free zones has been put into place, but it is an interesting idea and one that may eventually gain traction. It certainly makes a lot more sense than organizations simply eliminating performance management for all their employees because they are not executing it effectively.

THERE SHOULD BE NO RATINGS

In traditional appraisal systems, the performance of individuals is judged and a score or set of scores given to each individual. In many systems, individuals are rated or ranked on multiple traits (e.g., dependability, effort, honesty, etc.). The score can come in many different forms. It may be a simple 1–3 rating or it may be a more greatly differentiated rating. In some organizations, it is a serial ranking. Individuals in specific work areas, or in some cases the whole organization, are ranked against each other from 1 to infinity. Not surprisingly, research has shown that ratings and rankings are subject to all kinds of rater error: some raters are too liberal, some are too rigorous, some have trouble separating performers, some have racial and gender biases, and so on.

One of the worst practices that organizations use is the forced distribution ratings approach, which requires managers to rate the individuals who work for them based on an arbitrary preset distribution of how many outstanding performers, middle performers, and so on they have working for them. Often the percentages are set to fit a statistical normal curve—that is, one where there are an equal number of good and bad performers and a large number of middle performers. The assumption here is that performance in organizations is normally distributed.

It is true that normal distributions do exist, but they only occur with random events. Presumably, behavior in organizations, and particularly performance related behavior, is not a random event in most organizations. Instead it is an event that is carefully prescribed, trained for, and rewarded. Thus, in most effective organizations good performance is a common type of behavior and poor performance is rare. Further, even if the individual levels of performance in an organization are random, it takes a large number of cases—often thousands—for any outcome to produce a normal distribution. Thus, forcing an individual manager to fit his or her ratings of a few direct reports to a predetermined normal curve is almost always going to require wrong placements and produce indefensible results. All too often this leads to appraisers defending the ratings they give by saying “they made me do it.” This can damage the entire credibility of the appraisal process and lead to a negative reaction on the part of both the appraiser and appraisee.

The only thing worse than the forced distribution process is the forced ranking approach, which requires appraisers to rank individuals in order from 1 to infinity. For years ExxonMobil ranked its population of engineers from 1 through 6,000+. This approach asks appraisers to make many discriminations that are impossible to make. It is usually very hard to make a valid distinction between somebody who is the tenth best performer and somebody who is the eleventh best. It is usually impossible to determine who ranks 1,102th and who ranks 1,103th. As a result, many of the distinctions that are made are random and indefensible.

In many appraisal systems, individuals are rated or ranked on multiple personal traits (e.g., dependability, effort, honesty, etc.). Ratings that are based on traits are particularly likely to be defective as they are subject to multiple interpretations of what they mean and to biases. Moreover, in many cases they are not behaviors that can be observed, nor are they the most important behaviors for a particular role. As a result, such ratings often lead to charges of discrimination, and the net effect is to damage the credibility of the entire talent management process of an organization.

The alternative to systems that rate and rank individuals is obvious: having performance discussions and feedback about goal accomplishment, but no scoring of individuals. In recent years ratingless performance reviews have become increasingly popular; Adobe and Cambia Health Solutions are among the organizations that use them. Not surprisingly, they are considered a preferable option by many individuals because there is no labeling of individuals based on a score that often seems arbitrary and capricious—not to mention indefensible.

Some organizations use phantom or secret ratings, which are ratings that are made by managers but are never revealed to those who are rated. This has a positive side in that it eliminates the anxiety and often negative reaction that is common when individuals find out what their rating is. Further, it provides a basis for distributing performancebased rewards (e.g. pay). But it does not necessarily improve the validity of the score that is given, and it also may obscure the relationship between pay and performance.

Overall, a convincing case can be made for having ratingless appraisals if managers are willing and able to give good descriptive performance feedback. The major question when no scores are given is: How do decisions about individuals’ pay raises, bonuses, promotions, and development needs and opportunities get made without them? They clearly still need to be made and meaningfully described to individuals. Fortunately, there are processes that can be used.

One alternative approach to managers giving ratings is to go directly to decisions about development and pay increases. There is no “intermediate” scoring. One way to make these decisions is to use calibration meetings and to combine them with good feedback to individuals about achievement, success, skill levels, and competencies. The calibration method is used by a number of companies (an early user was General Electric). It brings together groups of managers who have oversight of and insights into performance of multiple individuals and has them discuss the performance and development needs of those individuals and assign pay changes and development opportunities. The results are then communicated to the individuals through their managers.

The calibration group process is complex and can often be time consuming, but it can be effective when multiple managers have good data on the performance of the individuals being appraised and the skills needed to give good feedback. It is an effective method for eliminating the leniency and stringency biases of individual managers and motivating them to develop good performance measures. The managers are required to defend their decisions when it comes to things like pay increases, and as a result they need to have data and are less likely to give ratings that are too favorable or unfavorable and poorly developed.

Typically, calibration meetings happen annually. This puts the responsibility on individual managers to accumulate performance data over the year, bring it to the meeting, and present it effectively to other managers. Calibration meetings usually are held throughout an organization and at all levels. Everyone is appraised based on multiple observers of their performance, and a high level of awareness of the performance of individuals and their career direction is developed in the organization. It also increases the organization’s focus on talent and provides useful input for its business strategy. When using calibration meetings it is important to be sure the group making decisions uses good processes; without good processes there is a very real danger of the group making poor decisions because a few members dominate or limited information is presented.

SOCIAL MEDIA AND CROWDSOURCING

Social media can provide important information with respect to the performance of talent. This is, of course, particularly true of the behavior of talent that is not seen by the appraisers themselves. In many cases, managers do not see the behavior of remote sales individuals or even the interaction of individuals in supervisor-subordinate, peer group, and customer situations. This raises the question of whether data should be gathered from those individuals who have a significant chance to observe the critical behavior of talent even though they are not in managerial or supervisory positions with respect to the individuals. Historically it has not been that easy to access such data, and thus it is not typically done.

With social media, crowdsourcing, and the type of customer service information that is now available to organizations, it is technically and practically possible to gather data that shed light on performance. There is little doubt that such data should be gathered and fed back to the individual; this can be an important form of feedback about how individuals are performing and thus help to guide their behavior.

It is not always advisable that social media and crowdsourcing data from employees’ peers and others in and outside the organization be used by managers to evaluate the performance of the talent that works for them. The risks of using such data are many, but perhaps the most important one is that it may be biased and inaccurate for any number of reasons. For example, in the case of data coming from an individual’s peers, there may be competition at play. As a result, an individual’s peers may give a negative evaluation because they themselves are in line for the same promotions and pay raises.

An extreme example of how closely employees can be monitored with social media is provided by the firm Bridgewater Associates. At Bridgewater, employees constantly rate each other on over sixty attributes. Employees are questioned about the outcome of meetings and it is expected that every meeting where at least three employees are present will be subject to evaluation. This system feeds data into a program that has a growing set of benchmarks comparing employees to each other. Ultimately the results lead to smaller bonuses and even the firing of those employees who are poorly rated by their peers. Employees also can get feedback about how a conversation or meeting is going by using an app to retrieve it in real time.

With respect to social media, perhaps the best way to summarize its use is to say that great caution is needed. Social media can potentially provide good feedback and a valuable record of an individual’s performance, but it also can potentially be biased as a result of the position and characteristics of the individuals who are contributing the feedback; an evaluation of this must be taken into account when the data are considered. This is a prime case in which data analysis should be used to detect rating biases and other problems.

THE PROCESS SHOULD BE BASED ON DATA

It is increasingly possible to base performance appraisals on objective behavior and activity data rather than opinion. It has always been clear that the more actual performance data can be brought to the performance management system, the more effective that system is likely to be. The problem has been that for many jobs and situations there is no good data to cover many of the types of behaviors that should be appraised. As a result, the appraisals end up being made on a mix of subjective opinions, observations, hard data, activity patterns, and perceptions.

It is clear that in the future there will be an increasing amount of behavioral activity data available to help organizations judge and monitor the performance of employees. For example, wearable technology is rapidly developing that can track an individual’s location and work efforts. Given this development, it is critical that there be understanding of which data will go to the talent, which data will go to the organization, and how the information will be used.

Appraisals based on behavioral data are particularly likely to be used in warehouse, delivery, and other work where individuals are constantly moving around to do their work. They can also be used in situations where individuals are operating company equipment off-site. Data can also be gathered from individuals who are at workstations or on computers most of the day. In many cases it is easy to monitor their daily production as well as their hours and minutes of work. When ongoing performance data can be (and is) collected, it is critical that there be an understanding about what kind of performance data and what kind of standards will come into play when performance appraisals and judgments are based on them.

One business where technology and data have transformed talent management is sports. For example, in baseball data are now available on the speed and location of every pitch and hit. This allows managers and executives to go beyond batting averages and earned run averages when they make development, recruiting, and playing decisions. They can get instant data about pitch speed, arm angle, and force on the elbow and can make immediate decisions about replacing a pitcher, or they can tell whether a batter is hitting the ball well. In basketball, an incredible amount of performance data is now available that shows how individuals and the teams they are on perform in almost every situation.

In many respects the development of big data job behavior has the possibility of transforming the performance review. It can go from an opinion-based discussion between supervisors and subordinates to a data-driven discussion of how an individual is performing based on measures and goals that both the talent and manager see as relevant and are able to continually monitor. This is just the kind of situation that should lead to improved performance and a better understanding of the performance of individuals, groups, and organizations. It can also transform performance management from a dreaded annual meeting between superiors and subordinates to an ongoing feedback discussion and problem-solving activity. Difficult decisions will still have to be made about pay, promotions, terminations, and training, but new technology does create the possibility that there will be a better understanding of why and how such decisions are made.

One final point is that it is particularly important that data be collected and analyzed in real time when organizations are appraising gig workers and other short-term employees. In these cases, the workers often only have a brief relationship with the organization and thus it is important to monitor as closely as possible how individuals are performing in real time. Collecting data on an ongoing basis can give managers the opportunity to intervene and fix problems that otherwise might go unattended and uncorrected until individuals have finished their gig. In particular, if individuals are candidates for additional work after a short gig, it is vital that data be readily available about how they performed on their first gig with the organization.

THE APPRAISAL PROCESS

The growth of distance working and social media raises interesting questions with respect to the comfort and effectiveness of individuals conducting appraisals via e-mail, video, apps, and social networks. Do performance management discussions need to be face-to-face? For a long time it has been assumed that nothing can or should substitute for an in-person discussion between the appraiser and the appraisee. That was probably a good rule years ago, when individuals were not so used to communicating via e-mail and the social media, but today it seems obsolete and inefficient.

Yes, people may take more risks if they are communicating via technology such as e-mail, but they are also much more accustomed to communicating this way than they used to be and may be more clear, articulate, direct, thoughtful, and comfortable communicating via social media and technology. Perhaps the best way to determine whether a performance review should take place in a face-to-face meeting, using visual tools, or by e-mail is to look at how the individuals normally interface in their work situation. If they do often communicate via email or other forms of technology, then perhaps that is also the best way to conduct the performance review. On the other hand, if they are colocated and on a regular basis talk to each other, it probably does not make sense to go to social media or e-mail to do the performance review. Perhaps it could start that way but conclude in person.

CONCLUSION

The key relationships between performance management and the new strategic talent management are shown in Table 7.1. It shows that performance management needs to change significantly to be in alignment with realities in the new workforce, workplace, and environment.

Having an effective performance management system is a key to implementing the strategy of an organization. When a system operates effectively, it can turn a strategy into organizational behavior. But it can only do so if it is driven and supported by managers who can turn the business strategy into goals and objectives for the behavior of individuals and the key units of an organization.

Skills and performance are at the core of what a performance management system should be about. It should motivate the right types of skill development and be based on valid, meaningful, and timely assessments of performance. As has been noted in this chapter, this is increasingly possible today with the better measures that exist and the type and amount of data that can be collected in an increasing number of today’s workplaces.

Table 7.1 Performance management

Copyright © Edward E. Lawler III and Center for Effective Organizations at USC.

The diversity of today’s organizations and their talent calls strongly for a variety of different practices in the area of performance management. No performance management system or approach is likely to be the best one for all or even many organizations—or, for that matter, for all parts of any organization that exists today. Based on the nature of the organization, the work, and the talent, successful performance management systems may very well need to use different types of measures, different frequencies, and different relationships to reward systems. They also may require different behaviors on the part of managers.

The key to decisions with respect to what the right behaviors are to measure and what segments to create should primarily be driven by what is measureable and how frequently and in what way the key organizational outcomes can be measured. To some degree this will be determined by the activity that is being examined and by the hierarchical level that is the focus of performance management activities. Also important are the skills of managers and the kind of technology that can be utilized.

Performance management judgments and evaluations need to become much more data-and evidence-based. Data also need to be gathered on how effective an organization’s appraisal systems are, on what is working and what is not working, and on how well individuals are actually carrying out the appraisal process. The performance management process is too important a process to be left to chance; it needs to be based on evidence of effectiveness and supported by an ongoing measurement system that focuses on how it is being implemented and is impacting performance.

Overall, performance management is an area that requires major changes to be effective in the workplace of the future. It has not been effective in the past, and it is only going to be less effective if the same practices that have been used for decades continue to be used. A thoughtful data-based performance management system is badly needed in most organizations. Given the technology and knowledge that is currently available, it is possible that effective performance management systems can be designed and utilized by organizations. Because of the nature of the current workplace and workforce, performance management has never been more important than it is today, and it has never been so possible to do it effectively.