Performance management: From annual ritual to ongoing dialogue

The traditional annual performance review is dead. Or at least, it is on life support. This is according to data and industry shifts that point to a desperate need for a performance management overhaul.

According to a Gallup survey, only 2% of CHROs from Fortune 500 companies strongly believe their performance management systems inspire improvement. Employees share this sentiment, with only one in five reporting that their performance reviews are transparent, fair, or motivating.

The pandemic further revealed the shortcomings of traditional performance management practices. When some organisations discarded performance reviews in 2020, it became clear that conventional methods did not align with the needs of a disrupted, digital business environment. Gallup’s study of 18,665 employees in the US identified three key opportunities for improvements:

1. Clarify Expectations: Only 47% of employees strongly agree they know what is expected of them at work. Effective goal setting, involving employee collaboration and the integration of team and customer goals, is essential for clear expectations and productivity.
2. Inspire Progress on Goals: Traditional annual reviews often fail to provide timely feedback. Organisations should adopt quarterly progress conversations and team check-ins to keep goals relevant and achievable, significantly boosting engagement and perceived fairness.
3. Improve Performance Evaluations: Performance reviews often rely heavily on subjective measures. A multi-source approach, incorporating objective metrics and development goals, provides a fairer and more comprehensive evaluation.

In response, organisations are taking action. General Motors (GM), for instance, is revamping its performance evaluation system to better reward high performers and encourage improvement among low performers. The new system, which ranks employees on a five-point scale, ties bonuses to performance rankings. This change aims to attract and retain top talent in the competitive automotive industry, particularly as GM transitions to electric vehicles. By offering significant bonuses to the top 5% of employees, GM hopes to foster a high-performance culture. 

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Jim Farley, CEO of Ford, has also emphasised the importance of revamping performance management systems, reported Reuters. He believes that tying bonuses more closely to shareholder value is crucial for business transformation, and said, “We’ve learned that the right talent is not sufficient. Over the last two years, it’s been imperative that we go to the right performance management system. It’s a fundamental change in the way we’re running the company.”

However, while organisations recognise the need for change, many are still in the early stages of implementing new strategies. A Deloitte survey of 14,000 respondents across 95 countries found that many organisations are in the early stages of improving performance measurement. In South-East Asia, only 54% of respondents feel their organisation is making meaningful progress in this area, with less than 10% believing their organisations are leading.

Mark Maclean, HR Transformation Leader at Deloitte South-East Asia, underscored the potential of data in performance measurement. “With advances in technology, there is ample opportunity for organisations to tap into the power of data to measure employee performance – but they need to do so with purpose and transparency,” he said.

What do you think is the most effective approach to performance management? Join us on our LinkedIn poll and share your thoughts with us!