Performance management systems have been brought to the forefront recently with the Harvard Business Review cover article on changes at Deloitte (https://hbr.org/2015/04/reinventing-performance-management). The article is a good exposé on efforts that Deloitte is taking to reinvent their performance management system from the ground up. Two major statistical take-aways from the article were: over half (58%) of executives surveyed believe their performance management system drives neither employee engagement nor high performance, and that Deloitte spent nearly 2 million hours on ratings; an average of roughly 10 hours per employee for the company (keep in mind this is in a company that already specializes in professional services). In simple terms, organizations spend a lot of time doing something their leadership doesn’t even believe works.
Performance management systems have a number of uses for organizations. Ideally they should provide guidance for employee development, help justify promotions, and baseline pay increases, which from a corporate objective standpoint should produce a better workforce while meeting equitable labor requirements. They can also be used as a defense mechanism for lay-offs or wrongful termination claims. However as the stats show, and many can attest, a lot of performance management systems are far from ideal. The typical issues with most performance management systems are:
- The evaluation form and process is generally quite burdensome on evaluators in terms of time and effort. Using the 10 hour per employee metric, the burden on a typical manager is going to easily be 50-100 hours per evaluation cycle which is like asking a manager to spend 1 or 2 weeks doing nothing but performance evaluations. Most managers are quite busy with day to day work, and that work will typically take priority over filling out evaluations; meaning evaluations get done when the evaluator has downtime, not during peak performance times.
- Most any evaluation system or form is going to be quite subjective, and results are heavily biased based on the evaluator and the organizational process. While organizations attempt to accurately document performance, the inherent biases in place are going to mean winners and losers and the resultant upset employees.
- Where written comments are utilized, the evaluation quality is going to be heavily dependent on the evaluators writing capability. When consensus meetings are used to rank the evaluations between evaluators, the ranking is going to depend on the debate and negotiation skills of the participants. Both of these scenarios will shift entire groups of individuals either up or down in rating based solely on their evaluators capabilities and not on their own merit. Since evaluations frequently drive pay raises and promotions, this can cause some serious angst for employees who get a lower review because of a poor evaluator; an undesirable scenario.
There are options for organizations looking to deal with these problems. Some organizations have done away almost completely with the performance review process. While this has a number of pros, there are risks, particularly with not having much documentation to defend a legal case or labor investigation. In a bigger company, going without a performance management system is pretty much a non-option.
Another option is to go the Deloitte route of simpler, more real-time evaluating, which is quite revolutionary and hopefully the wave of where things are going. This change requires full organizational buy-in and a mindset change in how an organization and its managers do business. It will also require extensive beta testing and modeling to ensure fairness and desired outcomes in the system. From the HBR article, it appears that Deloitte is still working out how they want to aggregate the data and performance metrics to idealize the system. For smaller, forward thinking organizations this is definitely the way to go if you can make it work and have leadership buy-in.
The last option is to make evolutionary changes to an existing performance management system to be more efficient and reduce the subjective biases inherent in most systems. Most performance management systems have plenty of room for improvement in efficiency and outcomes. Here are a few things that can be done to drive improvement:
- Simplify the forms as much as possible to reduce the writing burden on evaluators. Use detailed descriptors of what entails a rating, vice making the evaluator write glowing statements about what constitutes a grade such as “outstanding”. The evaluator should back up the rating with supporting examples, a simpler task than writing about a functional area, particularly if the person being evaluated can provide those good examples.
- Use quantitative metrics as much as possible in defining the ratings and avoid subjective terms such as “consistently”, “routinely”, “usually”, or “often”. Define out in measureable terms what ratings such as “outstanding”, “good”, and “satisfactory” actually mean (e.g. outstanding work products meet defined specifications more than 99% of the time). This will help reduce the subjective bias of different evaluators defining out subjective terms based on their personal definition.
- Utilize positive labels and word as much as possible. An annual performance evaluation isn’t the place to focus on really poor performance, as that should have been dealt with upon occurrence through a write-up, performance improvement plan, or if necessary termination of employment. Focusing on employee strengths and opportunities will make the overall process much more positive and engaging for all parties involved. At most, use a single negative grading point and offset it at least three or four other grades that are positive to make it clear this is a positive tool for workforce improvement.
- Have the person being evaluated contribute content to the evaluation. An evaluator can’t possibly know every accomplishment of an employee nor write it as well as the employee. This practice typically goes on informally, but having a formal process will better normalize the outcomes across the organization.
- If you are doing detailed forms more than annually, cut back to a single, annual report. Performance evaluation reports are time consuming and costly for an organization. If intermediate reports are to be done, use simple checklist forms with a comments block that an evaluator can fill out in 10-20 minutes.
Taking the opportunity to get a performance evaluation system right provides a real return on investment for an organization. The past years have had a number of debates about the desired outcomes from performance management systems with a number of unique solutions being developed including Deloitte’s. While performance evaluation isn’t the most important function in an organization, the numbers show it has a real cost in man-hours, workforce performance, and morale; so take the time to optimize this function just like you would operations or other business functions.