Eighty-six percent of organizations have recently made significant changes to their performance management system or are planning to.
Most recently Microsoft caught the attention of executives across the globe when they announced they are moving away from force rankings. This move (combined with others) led to a barrage of articles proclaiming the death of the performance management system as we know it.
Based on our analysis of performance management systems (e.g., force ranking or not, quantitative scoring or not) at more than 300 companies, we find no appreciable difference in the actual performance of employees based on the type of performance management system used.
To be clear, this doesn’t mean that the performance management system doesn’t matter. What it means is that we are focusing on the wrong dimensions of change. Because most pundits are asking the wrong questions when they tell businesses to kill their performance management systems, they are actually creating performance management zombies—coming back from the dead in the shape of new, and horrible, performance management forms.
Most HR executives are asking a fairly straightforward question about their performance management systems: “How can I use my performance management system to drive the performance of my employees?”
CEB’s HR practice has the privilege of working with more than 2,500 companies, and we have learned from leading organizations that the real question to be asking is: “Given that the profile of high-performing employees looks different today than it did five years ago, how do I design my performance management system to identify and reward performance in my company?”
By asking this question, a company can separate truth from fiction in three critical areas of performance management:
I. Two-thirds of performance management systems misidentify high performers, regardless of force rankings. In today’s work environment that is more collaborative, interdependent, information driven and fast paced, it is not enough to simply do your individual tasks well. The best employees learn from and drive the performance of those around them; they are Enterprise Contributors, and they have a disproportionate impact on the performance of their organizations.
The companies that are wrestling with questions like “Should my performance management system have force ranking or 5-point scale not?”, are missing the more important question of “What does high performance look like today, and are we identifying those employees or not?” Fail to ask, and answer, this question, and you risk incorrectly identifying your high performers 2 out 3 times.
II. From fear state to reward state. Another real issue plaguing performance management, regardless of force ranking, is that it focuses too heavily on the past and not the future.
My friend David Rock and the NeuroLeadership Institute have done some really interesting work showing that current approaches are completely misaligned with how the brain operates. In most performance reviews you spend about 90% of the time talking about what you did or didn’t do well last year. These conversations put the brain in a fear state that limits our ability as humans to absorb information.
The best organizations design performance management systems to align information from the past to how an employee could be progressing into the future with their career. This shift puts the brain in a reward state and actually enables it to absorb more information.
While it is certainly true that changes to the scoring system make it easier or harder to create this shift, the real issue is in what mental state your performance management system puts your employees.
III. Peer and manager skills matter more than the scoring system. While the environment of Glengarry Glen Ross is not likely a work environment that many would find helpful, that doesn’t mean that we should throw it out entirely. Companies need ways to manage rewards, identify those employees who should be promoted, and be protected legally when having to manage out low performers. While many of these outcomes can be accomplished without a quantitative score, a significant investment in managerial training, peer-based input, and intensive performance calibration is still required.
If companies are making a significant shift in their performance management strategies without a corresponding significant investment in upskilling their managerial population on calibration and differentiation, they are unlikely to see any substantive improvement in the effectiveness of their performance management system.
Learn more about how leading organizations are rethinking their approach to performance management: CEB Corporate Leadership Council members can access data, best practices, and implementation tools for driving breakthrough performance through their members-only website, and prospective members can visit executiveboard.com/enterprise-contributor.