Last month, I met with a prospective client to discuss an HR consulting proposal that included building and implementing a performance management system, among other things. During our discussion, the client mentioned that he recently read online articles about companies removing performance appraisals and asked why I included performance management in my proposal. This conversation has come up on multiple occasions and I think that the topic is worth addressing.
What is Performance Management?
The Society of Human Resource Management (SHRM) defines performance management as:
“The management of employees, departments, and organizations for the purpose of ensuring that goals and objectives are being reached efficiently and effectively. It involves defining what effective performance looks like and includes the development and use of tools and procedures necessary to measure performance.”
Performance Management vs Performance Appraisals
The main purpose of managing performance is to ensure that employees are making a positive contribution to the company’s strategy. This is achieved when employee performance is aligned with strategic objectives. Performance standards are different for each company. If a company does not define its performance standards, then it has no idea what it is doing nor where it is going. Enabling performance requires competent management, clear goals, appropriate systems, the right capabilities, and much more.
Performance appraisals, on the other hand, are the rating tools that companies use to grade the performance of each employee. Performance appraisals are one piece of the performance management puzzle.
Performance Appraisals Have a Bad Reputation
The main problem with performance appraisals is how companies use them:
- Measuring the wrong things: If you don’t measure the proper indicators and their outcomes, then your performance appraisal is useless. An employee’s performance should be clearly aligned with corporate objectives. If a large portion of your employees score high on their appraisals but the business is losing more and more money, then you are measuring the wrong things.
- One-way feedback: Many line managers approach performance meetings as monologues, where the manager speaks and the employee listens. In order to effectively manage performance, line managers should encourage a two-way dialogue to understand how they can help their employees perform better.
- No resulting action: There’s no point in measuring performance if you don’t take action based on the results. I’ve seen endless cases where appraisals are used like report cards! Employees receive a grade on several factors and end of story. In other cases, appraisals are used to determine the bonus an employee will receive at the end of the year. Excellent performers should be the focus of their employers and be top candidates for promotions, additional responsibilities, and so forth. On the other hand, employees that do not perform up to expectations should be developed, coached, or let go based on their potential and willingness to improve.
- Appraisal bias: Subjectivity in performance evaluations is a serious issue. If performance management is not properly implemented with appropriate controls, line managers might assess employees based on their personal opinions, recent actions, or other subjective criteria that have no impact on job performance. When line managers are not properly trained on how to manage performance, it results in high employee turnover and a disengaged workforce. This is counterproductive and defeats the purpose entirely.
- One-off meetings: Performance cannot be effectively and objectively evaluated by meeting with employees once a year. Effective performance management is about detecting performance problems and successes as they happen and take proactive action where needed. Conducting scheduled performance meetings throughout the year allows managers to coach their team to success and reinforce performance standards.
- Tedious process: Most managers, especially those in large companies, hate the traditional performance appraisal. The time it takes to complete long evaluation forms and conduct one-to-one meetings are tedious and frustrating. The time investment into the performance evaluation process is not worth the outcome from the results. HR technology is making this better and many innovative companies are moving to the pulse-check performance system, where line managers and colleagues get to rate employees on a handful of important factors. The entire process takes no more than 5 minutes and is conducted several times a year or on a project basis.
Why are Some Companies Removing Performance Appraisals?
The problems mentioned above are the main reasons that have prompted companies to rethink performance appraisals, but not all companies can remove performance appraisals and still be able to manage performance effectively.
In order to measure performance without conducting some form of performance appraisals, a company must have a sophisticated data analytics infrastructure that is capturing and analyzing KPIs in real time.
Furthermore, the new trend is about transitioning performance management into a coaching and development practice as opposed to a “judgement day” approach. Without the stress of a performance appraisal, employees are more likely to share their thoughts and feedback since they aren’t being graded. The manager-employee relationship will be viewed in a different light.
Should You Stop Performance Appraisals?
If you have the data infrastructure in place to keep track of your performance indicators in real time, then removing performance appraisals is doable. But you need to ensure that line managers are continuously following-up with employees and giving them the necessary feedback using a pulse-check approach.
Remember, the goal is to achieve and maintain the company’s desired performance standards. As long as you can measure and track performance effectively, it doesn’t matter if you use performance appraisals or not.
