Implementing Modern Performance Management

Major changes to the way employees and organizations work together may feel disconcerting to some, but there’s something important to keep in mind:

Change isn't coming; it's already here.

88 percent of companies made changes to their performance management system in the past year.

That change is part of a crucial evolutionary process of developing a system that meets employee expectations, fits culture, and drives engagement.

While this constant change is necessary for everyone to move forward, it can feel threatening—especially for those employees who have been conditioned to interacting with organizational leadership in a certain way.

If changes to a performance management system are made too abruptly, or aren't managed effectively, organizations risk:

• Lower quantity and quality of feedback
• Reduced perception of pay differentiation
• Lower engagement, especially for high-performers
• Decreased performance

With that in mind, let's discuss some fundamental keys to managing this change effectively:

Human-centricity

As management fads come and go, organizations must never lose their people focus. While we learn from other organizations and other disciplines, performance management programs must be designed for the users: primarily the performer (employee) and secondarily the coach (manager).

Without that focus on the participants, we’re building a house that looks nice from a distance, but ends up impractical and repellent for the people who actually live there.

Many organizations create friction by focusing too much on the programs and not enough on the people those programs are meant to serve.

A human-centric performance management process facilitates autonomy and mastery. It empowers employees with purpose, transparency, and timely feedback.

Jumping headfirst into the latest trend because it sounds good can be just as problematic as keeping an antiquated system, because neither of those approaches focus on the people that will inevitably feel their impact most.

Frequent, candid feedback in both directions is crucial.

For example: Deloitte, PwC, and Intel responded to evidence against performance ratings by experimenting without them, but found some employees worked better with ratings than without.

Instead of succumbing to a knee-jerk reaction and reverting back to the drawing board—or worse, back to the old systems they hoped to remedy—these organizations found that a middle ground approach worked best.

Building a more human-centric performance management process starts and ends with people.

You can work to implement a more human-centric process by following a few basic rules:

• Give your team a voice in what often ends up being one of the most impactful elements of their employee experience.
• Focus on strategies that help build genuine relationships between employees, their managers, and the organization.
• Prioritize psychological safety.
• Keep it simple.
• Iterate.

Growth Focus

Growth focus is a key differentiator between traditional and modern approaches to employee evaluations and its value can't be overstated. A genuine growth focus has the potential to increase not only an employee's ability to contribute to the organization, but also their drive to do so.

Many employee performance evaluation strategies forfeit the benefits of employee growth by focusing on performance in retrospect, rather than on opportunities for growth and future performance. This subtle distinction can mean the difference between an uncomfortable meeting all parties dread, and an exciting opportunity to build competencies and make greater contributions.

Both approaches are emotionally-charged, but produce starkly contrasting outcomes.

Hearing what other people think of you (or the work you've dedicated yourself to) can be an emotional experience. But that's okay. In fact, it can be of great benefit. Rather than deny or repress the emotional side of human nature, embrace it as a tool for growth.

For instance, managers who genuinely recognize their employees as top performers are more likely to lead a team of top performers. And while criticism can feel unpleasant, growth feels amazing. Focus on growth.

Positive reinforcement doesn’t ignore ways to improve. It is a more encouraging approach that shows examples of how behavior and outputs could be improved.

Supervisors who focus on strengths are more likely to have a more engaged team.

Modern performance management programs default to how the organization can help its members grow. Real-time feedback provides employees the information and time to adapt, which directs their energy away from fear and toward development.

You can implement a growth focus in your own program with a few simple steps:

• Start by recognizing employees for what makes their work exceptional. This has a positive impact on the motivation and performance of the whole team, and encourages further dedication. Take it a step further by empowering everyone in the organization to do the same.
• You'll inevitably need to deliver feedback on areas that could use improvement. When you do, maintain a growth focus by identifying those areas as growth and learning opportunities, rather than singling them out as areas of poor performance. Provide every resource you can to help employees achieve that growth.

Separation from pay

Many traditional employee performance management programs share a problematic practice of directly connecting employee evaluations to compensation decisions.

This is an important consideration, because the practice of tying performance evaluations to compensation decisions invariably raises the stakes on what should be an open and candid conversation.

Despite this, nearly nine in ten companies around the world still make compensation decisions based on performance appraisals. 39 percent still base salary raises on performance ratings.

This practice is notably problematic when managers give into conscious or unconscious biases, and issue ratings that help justify pay or promotion decisions they may have already made prior to the employee's performance review.

An increasing number of organizations across the world recognize these issues, and are gradually separating performance discussions from merit pay.

So if you're not basing salary decisions on performance reviews, how are those decisions made?

The simple alternative is to increase base salaries by the amounts that maintain market competitiveness aligned with compensation strategy.

According to research by Mercer, 14 percent of employers have already taken steps to disconnect performance evaluations from merit pay, and an additional 12 percent reward performance more than annually.

You can help improve your own performance management program by limiting its role in compensation, by increasing the cadence at which performance is measured and feedback is given, and by recognizing and rewarding performance more frequently.

As an added benefit, more data points on an employee's performance provide the accurate and complete data necessary for making more effective, less biased people decisions.

Technology

It’s important that performance reviews are productive, not disruptive, and technology often plays a large part in that.

Technology has the potential to be a powerful tool for improving employee experience in areas like performance management, but it can just as easily become a barrier if it's implemented poorly.

Many organizations make the mistake of rolling out a new system without considering its implications.

If a performance management system is obtuse or difficult to use, that's going to have a negative impact—not just on employees who are being reviewed, but also on managers and members of senior leadership who are charged with administering or reviewing those assessments.

Integrations and convergence among HR tools make this much easier.

Deloitte describes the tools that are modernizing performance management today:

• Social and transparent goal-setting
• Easy progress tracking and goal updating
• Continuous feedback integrated with productivity tools
• Regular team "pulse" surveys
• Big data and artificial intelligence suggestions

• To managers for coaching
• To employees for job application

For example, Zalando implemented a mobile app for employees to request real-time feedback from anyone internally, at any time.

Technology does not replace dialogue—it enhances communication with more information. And more data over time supports more rational and fair decisions.

That's crucial, because whether consciously or not, people tend to like people who are similar to them, so the more similar in age, gender, ethnicity, or personality to their reviewer, the higher the performance rating they're likely to receive.

You can leverage technology to help address that bias and build a more fair and equitable system by involving more people with diverse perspectives.

Both the availability and the capability of tools designed to address these issues increases every day.

Performance feedback suites like Small Improvements make it easier to give and receive structured feedback. Tools like Bonusly make it easy to reward great work fairly and equitably, and also to look back on an objective timeline of employee contributions at a glance.

Design thinking

Your performance management system's design has the potential to impact nearly every aspect of its functionality.

Many organizations make the mistake of embracing design thinking as it relates to their products, but neglecting it in relation to the systems and processes they rely on to drive employee success.

The most innovative organizations go beyond adjusting current practices to fix each problem—they use design thinking to be proactive, strategic, creative, and holistic.

The same approach that facilitates product innovation can create a more effective performance management program.

You can apply this framework to your own program the same way an architect would apply them to a new building design. For example, here is how a business might apply Stanford’s design thinking framework:

• Empathize: Understand perceptions and their reasoning through focus groups.
• Define: Articulate a vision meaningful to the organization's constituents.
• Prototype: Consider all the implications of the new performance process.
• Test: Pilot and survey quarterly on frequency and quality of feedback.

As organizations design, experiment, and adapt, leaders must remember that change takes time. New performance management systems can take up to two years before they gain significant traction, so their change management plan should cover multiple years and ensure associated HR processes are aligned.

Remaining open to new information and enabling employees and their managers with modern practices will build those muscles, and gradually overcome the performance review dread they learned from traditional practices.

What's Next?

You're ready to implement modern employee performance management strategies for your team.

In the next chapter, we'll walk through a checklist to make sure your employee performance management system is following modern principles, and providing the best results possible.