REIMAGINING THE PERFORMANCE APPRAISAL EXPERIENCE

There has been significant interest around removal of the annual performance rating in the last 2-3 years. Indeed, having observed the colossal amount of time, energy, resources and angst it creates for what seems to be little gain for either the employee or the organisation’s performance in many firms, I suggested doing this many years ago.

Allocation of ratings creates a veritable industry of activity and is a costly organisational distraction for two-three months per year (at least the annual budgeting and strategy processes only sucks up the leadership team’s time, not the whole organisation). It also puts HR in the unenviable role of ‘compliance officer’ as they chase managers to get the ratings completed, validated and input into the HRIS, arguing with leaders about the detailed merits of the chosen rating system (even if we’ve already been using it for the last 3 years), then ensuring they have scheduled (and rescheduled) the meetings with employees and reported the results of the appraisal meetings in the system.

And ultimately, it undermines the point of even having an appraisal process. The purpose is to have quality, focused, engaging conversations between managers and employees on a regular basis to provide two way feedback, agree on goals and development plans and enhance motivation, engagement and commitment. And on the rare occasion it is required, provides baseline evidence in the event of poor performance issues.

This is then closely followed by or concurrently managed with the remuneration review to determine salaries and bonuses. This is an equally time consuming and emotionally charged exercise. I don’t know anyone who feels good about these annual processes – not employees, not managers and not HR. There had to be a better way!

It is no surprise there has been a widespread movement to remove employee ratings in an effort to reduce the pain they create. Indeed, many HR Directors we speak to mention that they have or are thinking about removing them.

However, it is not as simple as that. Part of what motivates people is understanding how they are performing against expectations; having a sense of personal and career development; and feeling they are rewarded fairly and equitably.

Unfortunately, in the rush to remove ratings, there have been a number of unintended consequences. The Corporate Executive Board found that whilst HR thought the quality and frequency of conversations would improve and employee engagement would increase; in reality, perception of the quality and frequency of performance conversations and remuneration decisions decreased and thus engagement declined. Overall, employee performance reduced by 10%. This occurred most especially for high performing employees who became disengaged for several months after the review, even if they got paid more – in fact, poor performing employees were the only ones consistently happier not to have ratings!

The CEB found a number of underlying reasons, including not sufficiently communicating the change and how the new approach relates to performance, promotion and remuneration decisions. Leaders and managers weren’t equipped to discuss and explain these with employees without having an anchor for the discussion. Equally, managers did not put time aside to hold quality conversations because it didn’t seem to be valued by the organisation anymore.

Whilst each organisation has different needs, I have some starting suggestions for (re)designing a modern performance appraisal and remuneration experience – which does include ratings!:

1. Reframe your ratings. Consider changing both the ratings themselves and the perception of them ie. how it feels to receive such a rating and clarity on how it is determined and used. Perhaps use words not numbers, however, I would caution that Exceeds / Meets / Does not meet expectations has been commonly used and suffers legacy issues. Perhaps try other language and symbols such as basing it around frequency of observed behaviours (eg. consistently, sometimes, inconsistently, never).

2. Relentless focus on and commitment to the frequency and quality of conversations – both formal and informal sessions. For example, informal monthly one to ones to discuss current matters and any immediate feedback (positive and constructive) along with more formal quarterly or biannual performance feedback and professional development discussions. Both parties are jointly accountable for ensuring this occurs. Sometimes, the performance rhythm depends on the nature of the work. For example, for those in project or deal-based roles, it may be more appropriate to provide formal feedback based on milestones such as end of the deal. This may even mean formal feedback is given at different times across departments. One of the benefits may be that performance reviews feels less like a high profile, big ‘process’ and resource-intensive distraction for the whole organisation as it happens throughout the year.

3. Educate your organisation – use a comprehensive, multi channel communications strategy well in advance of the launch. Keep it punchy, super clear and impactful. Include it in your onboarding process.

4. Ensure your managers are 100% clear on the process and can confidently articulate this. This needs to be end-to-end: from the assessment inputs and why they are used, how to have a quality conversation, how to give and receive feedback, how the supporting technology works, the purpose and value of the discussions and how remuneration and promotions are determined.

5. Some companies are decoupling the bond between performance and pay given the large majority of employees sit in the same performance band ie. good performers, but not significantly greater or worse than the majority of employees. Some organisations, such as in the technology sector, may pay employees an equitable base salary (internally aligned and externally market competitive) along with providing employee wellbeing benefits. Instead of bonuses, they provide stock options to motivate greater performance and a team ownership mindset. For those who are either standout performers who contribute significantly more than others or are underperforming; organisations can reward them on an accordant basis.

6. KISS! Reduce complexity by focusing on key priorities, trusting your managers’ assessment and remove barriers to completion by making it an easier, more enjoyable user experience.
   Use simple, accurate, elegant technology solutions to rate people and book in their 1:1 discussions. Don’t assess people against 45 KPIs each worth 0.05% of their bonus outcomes and use thoughtfully crafted criteria that gets to the heart of what (and how) the organisation wants to achieve it’s strategy. Don’t have a convoluted multi-layer management approval process that slows down delivery and undermines manager’s with the purpose to merely ratify the proposed ratings.

Thoughtfully crafting the performance appraisal and remuneration approach can change the employee experience in terms of reducing anxiety (thus also likely to deliver a consistent engagement level) and employee competitiveness relating to small fluctuations and differentiation in pay to one of all working together aligned to a common goal with a long-term commitment. Equally, from an organisational / manager perspective, there is a significant reduction in management and administrative time in managing the performance and remuneration process and reducing the overall distraction from productivity that the ‘dreaded annual HR process’ can cause.

Instead, organisations can use that time and effort towards developing employees, enabling them to take on more meaningful and satisfying work that aligns to the strategy, team building, developing side projects to enable innovative and creative thinking or even spend the time undertaking externally focussed corporate social responsibility activities such as volunteering.

I would love to hear what you are doing in your organisations! Have you or are you currently reimagining your performance appraisal and remuneration process? What has been your experience with it thus far? Please leave a comment below or CLICK HERE to discuss further.