Why your performance management system is broken (and how to fix it)

Part 1 of our coverage on performance management systems for business and HR leaders 


Traditional performance management systems (and the HRMS tools that come along) cost a lot of time and money, but give back very little. 

Most PMS systems, especially those built around annual forms, are outdated, laborious, ineffective and fail to produce an accurate picture of performance. In a public survey conducted by Deloitte, 58% of the executives believed their current performance management approach drives neither employee engagement nor high performance. What’s more, according to CEB, only 14% of organizations are actually happy with their performance management system as it stands and nearly 90% of HR leaders say the process doesn’t even yield accurate information.

They, and we, are in need of something nimbler, real-time, and more individualized—something squarely focused on fueling performance in the future rather than assessing it in the past. The future of work has brought about extraordinary changes in the modern workplace, be it the competitive market, innovation in technology, overwhelming information flow, or even the psychological needs of the workforce. Employees today are demanding more from their companies, they are asking for meaningful work and managers who care about them as people. They want a rich purpose, clear work expectations, accountability, opportunities to learn and especially want on-going feedback and coaching.

All of this requires extreme alignment and harmony in how organizations manage performance and develop their people. Bluntly, what we’ve been accustomed to; such as the process based PMS module your HRMS most likely uses; no longer works. It probably never did. And the need to dramatically change our ways couldn’t be more urgent. Still not convinced? Here are 8 reasons why you need to reengineer your performance management system.

1. There is a weak link between evolving organizational priorities and individual effort

According to Gallup, only 44% of employees strongly agree that they can connect their own goals to the goals of their organization. For an organisation to meet its strategic objectives, whether it follows a top-down cascade, bottom-up, or hybrid approach towards goal setting, at the end the entire workforce must feel their goals are personally meaningful and tied to the larger picture.

Additionally, our constantly evolving landscape requires organizations to be agile and revisit their strategic priorities accordingly. What you thought you needed a department or individual to achieve at the start of the year, might not hold true three months from then, much less at the end of the year. Thus, failing to revisit goals throughout the year, or not accounting for additional goals / projects added through the year in one’s performance review can lead to demotivation and disengagement. It is alarming then, that even today most performance management systems do not factor in updates to individual and team goals.

2. It is tainted by human bias and subjectivity

If you’ve followed the work of Marcus Buckingham, you might have come across this term – ‘Idiosyncratic rater effect’. Big term, but it simply means that humans are by nature biased and unreliable raters of other human beings.

When we give a numerical rating to someone on a form, over 60% of that rating reflects us and our internal biases and preferences instead of an objective measure of the individual’s performance. Therefore, appraisal form ratings generate bad data. Which is a big problem, because we are paying, promoting, training, and deploying employees based on this rating – which doesn’t really reflect much about them anyway.

Hence ratings are a terrible performance measurement tool, because they claim to measure one thing but actually measure another.

3. It does not support continuous communication and limits honest dialogue

More often than not, individuals failing to see the link between their effort and the organisation’s strategic objectives isn’t an awareness problem, but a communication problem. Most managers are unable to help employees understand the impact their work has on the business as a whole. To make matters worse, rating biases like the idiosyncratic rater effect and recency effect, and the fear of implications on one’s compensation and future opportunities taint the process and limit honest dialogue around performance improvement.

Carrying out honest dialogue requires continuous and clear communication that is not supported in any way or form by current performance management systems. It’s troubling to realise that current performance management systems do not enable or even require managers to hold frequent conversations around goals, individual performance and progress.

4. It is merely an HR driven compliance activity

Traditionally, in most organisations the performance management cycle is heavily led by HR instead of managers who are truly responsible for managing and developing employee performance. A typical cycle goes like this – HR sounds the alarm when it is time for goal setting, sounds another alarm when it is time for the mid-year and year-end review, and a chain of frustrating reminders later, spends weeks collating the information across levels/ functions/ locations to arrive at data that could be used to lead the bell curve or final rating discussions. Irrespective of whether this is done via a new-age HR tech tool or offline forms, most of the performance management process is driven as a retrospective compliance activity by HR rather than a proactive people development initiative by managers on the ground. 

5. Today’s HR tools are administrative and don’t add any value 

Most HRIS / PMS tools today do not use the full extent of technology available today to aid individual development or improve performance, they merely bring the appraisal form online (albeit with rules to route the flow of the form for completion and sign offs).

Traditional performance management systems have become a form filling exercise, and a time and energy consuming one at that. Some organisations are beginning to count the time and cost involved, and it’s a LOT. Before Deloitte revamped their performance management system, they discovered that over 2 million hours were spent on their traditional performance management system across 65,000 employees.  This is a total of more than 300 hours per person per year. Given how much we invest in our HR tools, shouldn’t they be doing more to make this process more efficient? 

6. It doesn’t enable timely feedback that can actually drive results

Annual, quarterly and perhaps even monthly feedback is only retrospective in nature and does nothing to improve performance and drive results in real time. Feedback that is centred around filling an appraisal form and arriving at a numerical rating at the end also takes away from what performance management has really been about all along – a means to provide feedback to improve performance before making any people related decisions.

As a result, the performance management process has become so far detached from how work actually happens on the ground, that year end ratings leave employees feeling judged, competitive and dissatisfied. And numbers don’t lie – according to Gallup, only 26% of employees strongly agree that the frequency and nature of feedback they receive helps them do better work.

7. Real life performance doesn’t follow a bell curve 

Perhaps the most fundamental aspect of traditional performance management is grading by the curve or forced ranking of employees. It assumes that your organization will be made up of a small portion of high and low performers, with a large chunk of your employee population being just ‘average’. This process, widely known as ‘rank and yank’ has been abolished by many leading organizations such as Microsoft, Google, Accenture, IBM, HCL, Cisco, Adobe etc. because it does more harm than good. 

A forced bell curve diminishes the value of the top performers and pushes many mid-level performers into the bottom. In the process, it inadequately limits you from recognizing your top performers and fails to motivate middle-of-the-road employees.

What’s more, research proves that the real world doesn’t really work this way. 

In 2011 Ernest O’Boyle Jr. and Herman Aguinis found that performance at work actually falls into what is called a ‘Power-Law’ or long tail distribution.  This accounts for a much wider variation in performance among the employee population, with a small number being ‘hyper high performers’, a large number being ‘good performers’ and a much smaller number being ‘low performers’.

8. It was not built for remote work

Lastly, and perhaps of most relevance today, the traditional performance management system was not built for remote work. Especially remote work in the post COVID world.

You will struggle to find a single organization that hasn’t had to change the way it defines strategic priorities, sets goals, assigns work and tracks progress since the global Covid-19 pandemic.  For most of them, remote work or a flexible work arrangement (for some or all of their workforce) is here to stay.

It can be argued that remote work requires greater visibility, agility, flexibility, communication, and recognition than its traditional ‘brick and mortar’ counterpart. If our performance management systems were failing us before, they will certainly be ineffective against these newer and more challenging demands.

For all these reasons and probably many more, traditional performance management systems are well on their way to becoming defunct and dysfunctional. How does your performance management system fare against these limitations?  If it’s inadequate, how long has it been that way, with no consequences? Should you let your system languish another few years, hoping it will improve? Or is it time to get ready for a radical improvement?

Lucky for you, we’ve got a few ideas. Stay tuned to hear our thoughts on how fixing performance management doesn’t need thousands of hours, effort, or rocket scientists. 

Do you have any other tips or advise for managers to be better at leading teams? We’d love to hear from you. Write to us at contactus@peoplemesh.com.

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