Performance Management is Broken

Say it with me…performance management is broken! I’ve built processes that follow all of the classic traits, thinking if the manager hosts a thoughtful conversation, then the exercise benefits the employee and the company. While in principle I believe this is true, I’ve arrived at the harsh reality that for most employees, this isn’t the case. Managers and HR teams mean well, but performance management falls flat.

Extent of the Problem

Setting five SMART goals, updating them in six months and measuring them at year-end reviews - consisting of self and manager assessments, calibrations and compensation discussions - appear to isolate performance management to three conversations per year. The speed of business and any boss worth their salt drive real-time conversations – adjusting goals, offering coaching and delivering feedback.

Some HR teams tout abandoning the traditional performance cycle in favor of “innovative” continuous feedback. Hint – this is already happening, but you still need something to govern compensation adjustments unless you’ve undercut a meritocracy with an unmotivating cost-of-living adjustment.

This traditional process also assumes that career development conversations can flow alongside these already full and emotion-laden conversations. Organizations also complicate the process by having it trigger succession plans. This either slows the year-end process or is rushed through in the same pencil-whipping “gotta get it done” mentality. This failure hurts the organization in yet another way.         

The reality is an annual cycle is needed; a business driven by goals must also have people who operate through goals. A competitive organization doesn’t hold feedback and adjust course twice a year, so neither can a performance program. Where do we go from here?

A Proposal

If goals and annual reviews are needed and regular coaching conversations are occurring, how could performance management evolve to better serve organizations? What’s the crux of the problem? The five-point scale and its lousy bell curve. This means ~70% of employees receive the same rating. Does this tell them anything? No. Does it tell the organization anything? No. All that paperwork for…very little. 

Should we create a new measurement scale? What would a new measurement scale need? The ability to distinguish different levels of performance and motivate employees to perform. Ideally, for underperformers, the scale would also articulate what they can do to improve, since the current scale makes one and two ratings taboo and “restructuring” layoffs more palatable.   

Some try a four-point scale rather than five, but then three again becomes the majority rating and formerly four and five rated-star performers are grouped together. Instead of fewer ratings, would we benefit from more…like the 9-Box? 

Many look at this model as too complicated or strictly use it for development or succession planning. Could it be adjusted to overcome the complexity and align performance and talent management?

Perhaps the largest challenge with the 9-Box is that one axis is “potential;” companies should not determine pay on potential. (I can hear the lawyers now.) What if we switched the axes to the “what” and “how” common in performance discussions? This side steps the learning curve and reduces the five-point pressure and spreads it over nine.

I’m not convinced this is the best solution, but I do believe it is a start. Managers could provide two ratings on a three-point scale – a “what” and a “how,” with the simple definitions of “did not meet, met, exceeded,” and those ratings could be plotted on a grid. This would give employees an indication of how well they are performing in both hard and soft skills. Even if 50-60% of people end up in the center block, the remainder can be actively managed and developed. Technical and leadership training programs can be targeted per audience. All employees could be motivated to move up and/or to the right.

Compensation guidelines can also be designed to support this new model. If the center earns a cost-of-living increase, the position’s location relative to center dictates the rate above or below.     

For succession planning, employees could be sorted within their boxes based on potential. A strong performance management process should identity high potentials without penalizing steady performers who are performing at their peak or are not interested in advancement. In fact, such a system could ask employees about their intentions when they provide their self-assessment. Managers could do the same, and both could be considered in key conversations.   

To the Point

Performance management is broken. We must stop turning a blind eye and try something new!