According to the latest Deloitte Global Human Capital Trends survey, there’s one area in which organisations are failing significantly – and their leaders know it:
Of the 3,300 business and HR leaders surveyed, incredibly just 10 percent believed that their performance management processes were a good use of time.
The great news from the survey, however, is that more organisations are changing their approach to performance management, with fantastic results.
Indeed, 75 percent of respondents recognised that performance management an “important” or “very important” issue overall – it just needs to change.
So firstly, where is it all going wrong?
Traditional performance management is on the way out
At its best, performance management should inspire and engage your staff, support them to become future leaders, create better working relationships and improve staff retention.
According to Deloitte, however, organisations have traditionally defined performance management as a “backward-looking assessment program owned by HR.”
Often, these take the form of year-end reviews that rate staff against key performance indicators, which then focus on improving employees’ areas of weakness. They’re also often the basis for changes to remuneration.
However many big corporations like Adobe and Microsoft know that this approach to performance management isn’t working – and are ditching ratings systems altogether.
According to Deloitte:
“This reflects a recognition that ratings-based performance management negatively impacts culture and engagement, which ranks as the most important issue in our survey. Research has shown that giving numeric ratings undermines engagement and self-confidence.”
Not only are ratings systems potentially detrimental to your staff’s self confidence, but linking compensation to performance reviews can also stop them improving:
“Discussions about compensation often block an employee’s ability to hear and adopt the feedback that can lead to improved performance.”
The good news is that more and more organisations are ditching traditional performance management processes with great results. Not just for staff, but for the entire organisation:
“Across the board, [new performance management systems] tend to focus less on evaluation and more on agile goal setting, regular feedback, coaching, and development. They shift the focus away from forced-distribution rankings and much more toward helping managers coach people to succeed. By changing this one HR “ingredient,” it is possible to affect many others.”
So, if you think it’s time to change the way your organisation approaches performance management, here are six things that Deloitte suggests that you consider.
Six ways your NFP can start to change performance management
If your performance management process is taking up a significant amount of your managers’ or HR team’s time, review your systems. Modern software means that paper-based and other time-consuming steps can often be done away with.
2. Build a new performance management culture
Shifting away from a solely “top-down” process to one that elicits more input and engagement from staff will create a more positive and fruitful performance management culture.
“Encourage ongoing feedback, enable effective coaching through training, and use change management and communications teams to shift the performance management culture from an emphasis on top-down evaluation to continuous development. ”
3. Align performance philosophy with organisational strategy
Developing and communicating your performance management philosophy can have a huge impact on your organisation’s culture, especially if it’s a change from the past. See this example from one of the organisations surveyed by Deloitte:
“A large insurance company, which is going through a major restructuring to build global business units in Asia, is using the redesign of its performance management process to drive change and bring its new management philosophy to its people. Already, the process of discussing, redesigning, and training people on the process is re-energizing the entire organization.”
As a NFP, it’s particularly important to also make sure that your performance philosophy is aligned with your broader organisational culture and strategy – which is often a key reason why people want to work for you in the first place.
4. Separate performance from compensation
As stated above, linking performance management with compensation can impact negatively on a staff member’s ability to hear and implement feedback. As one company surveyed by Deloitte found, it also got in the way of them focusing on more important things:
“A large life sciences company… discovered through research that its performance discussions were focused primarily on an employee’s level of pay rather than on useful feedback, coaching, and performance improvement.”
Deloitte’s advice? Shift your thinking away from linking raises and bonuses to performance, and instead base them on the value of those roles and staff in real market conditions.
5. Focus on strengths, not weaknesses
Research from the report shows that “a person’s best performance comes when they are given meaningful work that leverages their personal strengths and aspirations.”
Whilst difficult – especially if they are an entrenched process – it may be time to reconsider ratings systems, and instead get to the heart of what your staff are good at. Performance management can then help to create roles and duties that play off those strengths.
6. Empower managers
If you’re going to change your performance management strategy, giving your managers the power and knowledge they need to make it work is crucial. After all, they are the ones that will be implementing it.
Deloitte suggests that good managers in this new performance management culture are ones who are “trained as coaches and mentors rather than as evaluators and graders.”
Of course your organisation’s size and resources will determine how feasible it is to implement these starting points, however the overall message is clear –performance management is changing, and there is plenty to be gained for both organisations and employees by looking at it with fresh eyes.
For more detailed information on all these points, head over to the Deloitte website for the full report.
How does your organisation approach performance management? And what do you think of this new research and its recommendations? We’d love to hear your thoughts in the comments below!