How should you replace performance appraisals? Case studies & checklists
The performance appraisal and how best to measure employee performance remains a hot topic for businesses. And it’s for good reason as, while most companies have some kind of review process in place, many will agree that performance management often creates as many challenges as it solves.
We’re regularly being asked –
“How should we replace our performance appraisal process?”
“What’s the best way to run performance reviews?”
“What examples are there of performance management approaches that work?”
And even –
“Do we need formal performance appraisals?”
So, where to start? Well, what’s apparent is that, for the many companies who use performance reviews, there’s pretty widespread dissatisfaction with the process – as indicated by the fact that two thirds of organisations are planning changes to theirs .
We’ve looked at some of the latest thinking in this area, examples of what other companies are doing with performance reviews and some key considerations for you, should you be considering a change of approach.
To appraise or not to appraise, that is the question
If you do already have a process in place, the likelihood is that this is used primarily to determine pay increases or bonuses. Where this is the case, consider the motivational impact of the performance bonus for employees compared with getting the news that you haven’t performed as well as you thought you did. What I’m getting at is that there’s a need to assess the impact of the performance appraisal process itself and be clear on its purpose.
In a recent article, performance management was number one in a list of the top 10 worst-managed programmes in HR because it isn’t specifically linked to performance outcomes or ROI. So, perhaps the most pertinent question is, what is the outcome you’re aiming for and is your current appraisal process helping you achieve it?
When CEB asked organisations what they use performance management for, the top answers were:
- Making decisions about pay, promotions, or other personnel actions
- Identifying poor performers and holding them accountable
- Providing documentation to defend against legal challenges.
But when asking organisations what performance management should achieve for them, the answers given were much more aspirational:
- Help employees develop and grow
- Improve communication between employees and managers
- Align individual work to achieving the organisation’s goals
- Help individuals and teams perform to their highest potential.
The purpose of your performance management process
The CIPD’s research recommends that a performance management process be either administrative (i.e. for pay and process) or developmental. If you want to achieve both, then you’ll need two separate processes.
You should consider what’s going to add most value to your organisation now and in the future. Link the process’s purpose to your people needs. So for example, if employee retention and attracting talent are your main issues, then a developmentally-focused performance review process may be best.
Once you’ve identified the purpose of your appraisal process, check in with employees to see how they feel about it. Let them have their say and let you shape or refine it. This will naturally increase their buy-in to the process.
1. What is its primary purpose of your performance appraisal process?
– What is the consensus between the executive team, managers and employees?
2. How aligned is that to your ways of working?
3. How useful a process is it?
4. What do all of your employees and managers think of it?
5. Is there a more effective way of achieving the purpose?
– What would you lose if you didn’t have the process?
– What is the benefit of the process?
Be sure to tread your own path
Never has there been a more exciting time to revisit the performance process. A number of industry leaders have innovated in this field in recent years, each designing a process that meets their individual needs.
These and other examples we’ve looked at in other articles offer great inspiration as to how it’s possible to redefine performance management. However, it’s imperative that your own process is designed to fit your business, ways of working and culture.
Adobe moved away from the traditional approach of setting objectives at the start of each year to now agreeing and discussing objectives regularly as part of a wider business focus on on-going feedback. This is more in line with the agile approach that they’re taking to innovation and project management. And they don’t use formal ranking, instead the manager agrees their salary and equity based on performance.
Adobe’s ‘check-in’ process has been so inspirational for other organisations that they even have a page dedicated to it on their website.
Deloitte scrapped their performance management system but in the end retained a simplified set of (four) questions known as a performance snapshot. This is completed either at the end of a project or quarterly for on-going projects. The four questions they use relate to the ratee’s performance:
- If it were my money, would I give a bonus?
- I would always want them on my team
- The person is at risk of low performance
- The person is ready for promotion
Deloitte took a rigorous approach to deciding on their approach as their own research showed it was ratings (by the managers) that were causing the most issues with the system.
Facebook looked around at what other companies were using before electing to stick with their performance evaluations, believing that their approach was fairer, more transparent and supported personal development. The process involves manager ratings being reviewed by a team of analysts, in line with CIPD guidance, to mitigate bias. It helps people and the company to gauge how they’re doing through ratings and the ratings enable prioritisation of feedback areas.
Their approach is notable for a couple of reasons:
- It involves the setting of ‘superstretches’ – goals so ambitious that people only have a 50% chance of achieving them, with the idea being that they provide everyone with an opportunity to stand out
- There’s a real focus on the employee having greater ownership of their performance appraisal process.
Arguably the key to its success is that the manager gives the right amount of support, guidance and challenge to bring the best out in their direct reports.
The method of your performance process
Next you’ll need to map out exactly how the process will work including giving consideration to any tools or resources you’ll need, support or training for your people, exactly what you’ll be rating and when.
1. Do you need a rating system?
– For pay increases
– For talent matrices
2. Is there another way of assessing performance?
3. Do employees want a formal rating?
4. Do you have the resources to effectively train managers how to rate without bias?
– Alternatively, do you have the resources to implement a quality check of their ratings?
5. What is being rated? What are the most important factors for your organisation to measure? Objectives? Behaviours? Questions?
6. What ROI could you link to these measures to demonstrate their importance and effectiveness?
7. How often should objective setting, feedback and/or ratings take place? And by whom? Managers only? Peers? Project teams?
8. How capable are leaders at setting clear performance objectives?
9. If you are not rating, what type of development are you giving?
10. How capable are leaders at giving developmental feedback?
And finally, with a clear purpose now defined, how will you know if the new and improved performance system is successful? Consider this with the same rigour you would another type of initiative. If the purpose is simplification, does the new process take less time/stress/energy than it did before? If the purpose is development, how much more satisfied are employees with the process? Can you gauge how much they have learned?
Ultimately, there’s no simple answer to the question “what’s the best way to run performance reviews?” As I mentioned earlier, what it boils down to is arriving at a process that works best for your organisation. The easiest way to achieve this is by connecting with your stakeholder groups about what they need and want from the process. Getting this right can have a genuinely transformational impact, both for individuals and the business. So I urge you, start the purposeful performance revolution!
CIPD (2016) Could do better? Assessing what works in performance management