Coaching in, evaluations out?
There was perhaps no stronger advocate of the annual performance review, rating scales and all, than General Electric (GE).
But at HRM Asia’s HR Summit 2016, the organisation shared how it had since made the historic move to remove performance reviews altogether. It has instead replaced these with a unique feedback app that staff can access via their smartphones.
The new app, called Performance Development @ GE, allows line managers to have constant conversations with team members, or provide instant and timely feedback in under 30 words each time.
Employees can also give one another feedback, or simply communicate more casually about their work.
The multinational conglomerate says it removed traditional performance appraisals for two reasons.
Firstly, it notes that millennials form the largest part of its workforce, and apps fit in neatly with their existing habits and lifestyle. But more importantly, the change was made to facilitate consistent communication between managers and staff, placing more focus on talent development, and less on evaluation.
GE famously used to conduct once-a-year performance review meetings, rate employees on a traditional grading scale, translate them into a bell curve, and then continually fire the bottom 10%.
“A lot of companies are getting rid of ratings and appraisals, and moving away from that old model,” said Vikram Cardozo, Senior HR Director, GE Southeast Asia (Malaysia).
“So now with this app, we’re making things less about the ratings and more about people’s development.”
With Fortune 500 companies like GE and also Microsoft now leading the charge, it is no wonder an increasing number of companies are exalting the virtues of eliminating appraisals and moving towards a rating-free style of performance management.
But while there are plenty of discussions, studies and literature on the advantages of being rating-free, the jury is still out on whether this model truly works in the grand scheme of things.
How did we get here?
Before going any further, it is worth clarifying how these traditional performance management models and reviews used to work.
Although both terms are often used synonymously, it should be noted that the two are actually totally separate functions.
Performance management is a continuous and fluid process of identifying, measuring, managing, and developing the performance of employees involving line managers.
A performance review, on the other hand, is a rigid, top-down system that places a score on each and every staff member by line managers and HR. These scores are based on a limited set of indicators that do not necessarily cover all of their skills and qualities comprehensively.
Instead of executing both functions separately, companies tended to fuse performance management and performance reviews together as one big (and often very stressful) conversation at the end of the year.
Combining the two tended to place more focus on “how well did this employee do?”, than on “what can this employee do to improve?”
And what this meant was there was no action plan drawn up for each individual to achieve their goals, and thus they had little motivation to perform well apart from (in GE’s case at least) avoiding being in the bottom 10%.
Employees also lost motivation when they saw an entire year of hard work could be reduced to one otherwise insignificant digit. Being numerically rated against their co-workers also created a competitive and hostile environment, which could lead some employees to become further disengaged.
Gallup’s Workforce Panel Study 2016 found all that, and more. According to the paper, there was a significant lack of goal setting, feedback, motivation, and incentives in traditional performance management strategies.
That was because evaluations primarily examined past results before dishing out rewards or punishments, the research found. A development focus, on the other hand, focuses on improving future behaviours and reaching future achievements.
Proponents of ratings-free performance management models say that by eliminating annual reviews, line managers are encouraged, if not forced to conduct more regular conversations with staff, or even weekly coaching sessions.
The millennial factor also lines up with this argument. Several studies have shown that learning and development is the number one factor affecting this generation of workers – who will soon make up the bulk of the workforce – when deciding whether to join an organisation.
Brocade Communications is one company that has embraced the development model. Three years ago, the technology company dropped its classic performance rating and labelling processes.
Instead, the company’s performance management framework is now made up of formal mid and end-of-year self-assessments, manager appraisals, and ongoing coaching, feedback and day-to-day management.
Employees’ performances are assessed widely and fairly against their core job function, the planned goals for the period, and the effective demonstration of Brocade values in accomplishing those goals.
In addition to this new system, Brocade also introduced two employee surveys aimed at uncovering the true pain points in its workforce.
Department managers and organisation leaders review the results of the annual employee engagement surveys and put action plans in place to address anything that may be restricting overall group performance. The “Customer First” survey is then leveraged by internal departments to provide candid feedback on the effectiveness of cross-organisational partnerships and company initiatives.
Emily Draycott-Jones, Director of HR, Asia-Pacific, Brocade Communications Singapore, says that without ratings, companies now conduct regular surveys and conversations to keep their fingers on the pulse of internal stakeholders.
“Now self-reflection and manager-driven feedback happens throughout the year, instead of just once at the end of the year,” she says.
This kind of feedback focuses on “what” and “how” goals were achieved, she adds. The impact of performance can also be connected to the level of rewards, and any performance issues are addressed with specific improvement plans.
“Employees emerge from their performance conversations with a sense of feeling acknowledged, recognised, and rewarded. They are aware of the development opportunities that would be most impactful to their careers and feel genuinely enthused about future challenges,” says Draycott-Jones.
Achieving deeper goals
In other industries, consistent conversations and coaching have already been taking place for many years.
Team leaders at outsource contact centre Teledirect for example, have weekly coaching sessions with their staff, where they consider what motivates them, and anything that may be holding staff back from performing well.
“It’s a standard in the contact centre industry. So what others are talking about is already a reality for us,” says Dr Sandra Pereira, Group Director, HR and Talent Management, Teledirect.
She says team managers and leaders are well-equipped to make meaningful impact in these coaching sessions.
Coaching is also coupled with monthly forecast meetings, where managers use hard data to discuss the performance with each employee. Figures such as the number of cases solved in the previous month provide a constantly updated snapshot of each staff member’s contribution to the whole.
Managers then use the data and insights to make detailed action plans for each individual staff member to help them achieve the goals set for the following month.
Pereira says that last step is the most important, because data means nothing if it is not translated into insights. The insights also mean nothing if they are not translated into actions, she says.
But goal-setting is not about setting only numerical targets. At Teledirect, the real end result desired is to help customers solve problems and “make them smile”.
Pereira says that the true end goal of performance management conversations is likewise about helping individuals find their purpose, directing them towards the right steps, achieving those ideal outcomes, and becoming self-motivated.
Justifying pay decisions
While the constant feedback model has its benefits, it’s still early days. Emerging research shows that ditching performance reviews is not without its problems.
According to HR consultancy CEB, employee performance drops by an average of 10% when ratings are absent from the review process. This is largely due to the inability of managers to effectively manage talent, it says.
The consultancy researched the “before” and “after” cases of a number of firms who had eliminated performance ratings. While there was often an initial positive reaction from staff, CEB says companies became concerned that the quality of manager feedback ultimately suffered, taking employee engagement levels along with it.
CEB also found there was a greater impact on high-performing employees than on average or low performers. High performers were typically less satisfied with the amount of time managers spent on performance management in environments without ratings.
On the other hand, lower performing employees were happy when ratings are removed and they were not confronted with a score.
Without a rating to reference, managers can also struggle to explain how pay decisions are made and link them to individual contributions. In fact, in organisations where there are no ratings, the number of employees who believe their organisation connects performance to pay decisions is 8% lower than among workforces who rely on ratings.
High performers are also less likely to feel that they are rewarded appropriately for their contributions in such an organisation, says Brian Kropp, HR practice leader, CEB.
“Performance ratings are crucial for organisations that desire a high-performing and engaged workforce,” he says.
“Without the tangible symbol of a rating, employees don’t understand the processes or the philosophies behind their organisation’s performance management, which causes them to put forth less effort at work and become disengaged.”
Removing ratings, as revolutionary or attractive as it sounds, could be just as counterproductive as its predecessor models.
Pereira thinks the best approach is one that incorporates the best elements from each system: the regular coaching sessions and conversations from the new model, along with some form of performance ratings from the traditional practice.
“Having business intelligence at your fingers, and enabling people to achieve goals through constant feedback tops everything else,” she says. “Then whether you want to do performance reviews or not, that’s completely an organisation’s choice.”
Combining conversations with reviews
According to HR consultancy CEB, companies can focus on improving their performance management in three ways:
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