Redefine Performance Management to Drive Impact

“Should we even be conducting performance reviews this year given the disruption employees have faced?” “How does our approach to performance management need to change with more employees working remotely?”

Although these questions have a distinctly 2020 flavor, the challenge is familiar.  HR leaders struggle with the effectiveness of performance management, which is why they repeatedly change their approach but struggle to achieve an impact.

“87% of HR leaders were considering changes to performance reviews in 2020”

A Gartner poll of HR leaders earlier in 2020 showed that 87% of HR leaders were considering changes to performance reviews. While disruption from the COVID-19 impact is doubtless a driver of potential change, Gartner research has consistently shown that well over two-thirds of organizations make performance management changes in any given year.

Download guide: Drive Employee Productivity and Engagement

Changes often focus on addressing the most common complaints — that the process is too complex and time-consuming. And such concerns will be especially evident after a year like 2020, which has left managers and employees busier than ever. The key is to focus on objectives not process.

“HR leaders should focus on how to make performance management more useful this year and in the years to come”

“To achieve more impact, HR leaders must identify and deliver the precise value that both employees and their businesses need most from performance management today,” says Jeanine Prime, Vice President, Gartner.

Given the high levels of performance that organizations will need achieve to recover from disruption, and the changes that 2020 has effected in employee expectations, HR leaders should spend less time focusing on how to simplify performance management this year and “instead focus on how to make performance management more useful this year and in the years to come,” says Prime.

Adjust performance management to generate impact

Even before the disruption of 2020, few HR leaders were satisfied with their performance management approaches. The 2019 Gartner Performance Management Benchmarking Survey showed 81% of HR leaders planned to make changes to performance management, with 82% saying performance management wasn’t effective at achieving its primary objective, and only 38% saying it kept pace with business needs.

In considering change, many weigh tactics such as eliminating ratings or reducing steps and documentations requirements, but adjusting performance management is complicated by the fact that its outputs are used as inputs for a wide variety of purposes.

“Reducing the effort involved in performance management isn’t nearly as effective as increasing its utility”

Today, organizations rely on performance management to inform compensation, promotion and succession-planning decisions as well as to drive employee performance, development and engagement. Employees also look to performance management to advance their careers and gain a line of sight to organizational priorities. 

These dueling demands make it hard for HR to diagnose what employees and the business need from performance management, and what solutions to prioritize as a result. 

HR leaders also realize that the heavy burden of the process isn’t just impacting HR; employees and managers also feel overburdened by performance management. But research shows that trying to reduce the effort involved in performance management isn’t nearly as effective as increasing its utility. 

Focus on usefulness, not effort

Increasing utility has substantial positive effects on workforce performance, engagement and employee perceptions of PM’s fairness. 

At organizations where performance management utility is high vs those where it is low:

• Employee engagement, 14% higher
• Workforce performance, 24% higher
• Proportion of employees reporting that performance management is fair and accurate, 50% higher
• Proportion of high performers in the workforce, 7% higher

To increase utility, redesign performance management to deliver value in today’s evolving and complex business environment with three key interconnected strategies

No. 1: Business-driven 

When HR controls performance management, it’s easier to maintain quality standards throughout the organization, but the HR-driven approach can struggle to keep up with market intensity and, too often, doesn’t increase the value of performance management. To address this, work with the business to tailor performance management while also establishing standards so it still provides the input for critical talent processes.

Given the high degree of variation in the impact of COVID-19 across geographies and industries, and even within organizations, what each part of the business needs from performance management will also vary significantly this year. Leaders must be sure to communicate the rationale for customizing and share the goals for performance management consistently with all employees. 

No. 2: Employee-owned

To ensure successful processes, transfer control over performance management development to employees and encourage them to match the process with their needs. Allow employees to own the testing and final determination of practice designs for performance management. Doing this creates new, employee-centric performance management designs, and addresses the diverse needs that, in turn, drive a 19% increase in utility.

Leading organizations diagnose what employees need and expect from performance management — and how those needs may shift with, for example, the move to remote work. They ensure that employees are the creators, not just consumers, of broader performance redesigns as well as what performance management looks like within their relationships with their managers.

HR’s role becomes that of a provider to employees of structured guidance and tools to individualize their performance management experiences, which will be even more important this year given the various work and personal disruptions employees have faced.

Read more: 3 Ways to Improve Performance Management Conversations

No. 3: Work-centered 

Although many companies recognize how important performance management can be to meeting their targets, especially when recovering from significant disruption, it’s critical to remember that performance management systems are still largely designed to motivate individual performance. 

“Ultimately, translating team interests into individual ones is the secret to overcoming these barriers,” says Prime. “Organizations must show employees that collaboration is a tool they can use to fulfill their individual goals.”

Communicate which actions, not just attributes, that employees must demonstrate to effectively collaborate. As 2021 begins, help employees to identify where their accountabilities intersect with others and construct a detailed plan for collaboration at the start of the performance cycle. Gartner research shows that when employees collaborate effectively, their individual performance increases by 20.6%.