Performance management should be awesome. It gives the opportunity to reach every colleague, create alignment, strengthen culture, raise performance, and maximise the return on our greatest asset.
Sadly, classic PM has lost sight of this. According to Gallup: “[it costs] as much as $2.4 million to $35 million a year in lost working hours for an organization of 10,000 employees to take part in performance evaluations – with very little to show for it”. PM has largely been distilled down to a process that feeds pay and bonus, rather than managing performance. It is grounded in the belief that money is the primary motivator, neglecting all the other drivers of human performance. (CIPD).
In this blog I’m going to try to set out the case against the classic PM approach of cascaded goals, annual appraisals, roundtable assessment, performance distribution and bonus awards. Next week I’ll share a bit of a case study on how we transformed this at CYBG and then Virgin Money, and what learned over five years of practice. Green Juniper can work with you to review your current practices and shape much more effective performance practice – please reach out if you’d like to discuss.
So, let’s look at the failings of PM:
- It undermines culture.
Companies set out target culture, values and behaviours that will lead to superior performance. Those tend to include more empowerment, collaboration, reduced hierarchy, more adaptability, more transparency, and more room for initiative.
PM pulls against this kind of culture. It is hierarchical (goal cascade). It is inflexible (annual goals). It discourages collaboration (individual goals). It increases risk of failure (performance ranking). It is opaque (round-table rating). Organisations can do fantastic work to drive culture, but with classic PM it is like driving with the handbrake on.
- It doesn’t measure organisational performance.
Executive teams look at reams of data on all aspects of the performance of the company. When it comes to looking at the performance of people (their greatest asset, and likely their greatest cost), they get very little quality data. Often the only actual performance data that the executive team will see is the final performance distribution at year-end. They can see the performance round has been completed, but not whether goals have been delivered or performance improved. Even that data isn’t helpful – the curve is the same each year, effectively saying that performance is the same despite all the performance management, learning, career development, communication, goal-setting, coaching, townhall sessions and engagement surveys over the course of the year.
- It does not sustain alignment
In the absence of performance data, executives rely on inputs – getting an aligned set of goals through the organisation. Well aligned organisations generally perform better but achieving and sustaining alignment is tough (HBR).
The problem is goal setting is slow – cascade can take 8 weeks (15% of the year!). It’s unwieldy, so not revisited or reviewed. This means alignment isn’t refreshed through the year as there are external events, strategy refresh, changes to plan etc. The business spends 8 weeks getting aligned and then 44 weeks drifting apart. The consequence is that goals reviewed at year-end often don’t relate to the actual work delivered.
- It weakens teams
We organise people and work into teams as we believe that leads to better performance. High performing teams typically have common set of tasks and objectives, a clear direction, ways of working, psychological safety (rework).
In classic PM team members are given their own tasks, with no sight of their team mates. It puts team members in competition for finite reward. The rating system does not encourage colleagues to help team-mates who are struggling, or support colleagues who are prospering. At the extreme, this intra-team competition contributed to Microsoft’s “lost decade”.
- It undermines good management
Good managers are critical for building high performing teams – reinforced by Google’s project oxygen. A good manager creates alignment, develops team members individually and collectively, deals with issues, creates a positive environment.
While organisations may invest in developing managers, setting expectations and so on, the performance management process undermines all of this.
A great manager who raises the performance of their team members, who tackles under-performance and who builds a strong team ethos is making their job harder at year-end. They’ll have more high-performers and fewer weaker performers, making it hard to “hit the curve”. When they go into roundtable discussions, they’re a hassle for their team-mates and their own manager, because they make it harder to distribute ratings. In contrast a mediocre manager who isn’t raising performance and doesn’t move under-performers on is a “good corporate citizen”, helping to meet the performance expectations, and critically making their boss’s life easier.
The subliminal message from PM to managers is to always have a weak team member and don’t have too many strong ones!
- It is discriminatory
One of the biggest issues with performance management is that it is discriminatory. There is a belief that it is objective, and that roundtable exercises act as a safeguard, but that just isn’t true. The approach of appraisals and roundtable discussions plays in to so many cognitive biases such as recency, affinity, proximity – basically people who we like, who are like us, and who are close to us, are more likely to get better ratings. (Engage for Success). That would be one explanation why the gender pay gap and ethnicity pay gap are so intractable – decades of rating and decisions have slowly built up.
What next?
Traditional performance management has been around a long time, and some people have been very successful through it. However, overall the approach does not support modern organisations, doesn’t drive individual or team performance. There are much, much better ways out there.
Next week I’ll aim to share the kind of practice I’ve put in place previously, and how it has worked. If you’d like to discuss what could work for your organisation, then please reach out.