More and more organizations are changing their performance management systems. There are a number of reasons for this, including the difficulty of doing performance management effectively. More importantly, effective talent management is becoming increasingly important and effective performance management can play a vital role in it.
What is distressing to me about many of the recent articles on performance management is their lack of familiarity with what we already know about performance management: talk about reinventing the wheel and failing to be guided by what we know! Virtually every article makes a valid criticism of performance management and the most negative suggest completely abandoning it. What they usually mean by "abandoning it" is eliminating the summary ratings that provide feedback to employees and are used to determine pay increases and promotions. The idea of abandoning performance management as an activity in an organization is absurd, of course. Organizations can only operate in an interdependent and effective way if individuals share goals, directions, and accountability.
A recent article in the Harvard Business Review by Buckingham and Goodall summarizes the new performance management system that is being adopted by Deloitte. It makes a number of good points and, in fact, it draws on some of the past literature. However, what it doesn't mention is the opportunity to use information technology and the potentially powerful effect this can have on the effectiveness of the performance management process. They also fail to mention some key research findings.
Buckingham and Goodall also state that the number of hours consumed by the old Deloitte system was enormous and that one of the objectives of the new system is to reduce the labor cost involved in appraising performance. They point out that one way to do this is to reduce the number of people involved in appraising each individual's performance. Another is to limit the cascading of goals downward. Both of these may or may not be good ideas even though they can save time.
Cascading goals down can be very time consuming, but it is a critically important feature of effective performance management in organizations which need to operate in a highly interdependent way and who share a common purpose. This may not be as important at Deloitte where there are individual teams doing relatively independent audits and consulting. On the other hand, it is highly important in process production facilities and software development organizations. In short, interdependence is a key determinant of whether individuals should cascade goals down. One solution that can address the high time consumption involved in this process, is the use information technology and social media as a way to share goals, develop them, and evaluate accomplishments.
Reducing the number of people involved in appraising each individual's performance is another way to save labor cost. This is a good action if they are asking the wrong individuals for ratings. Raters rating other people's performance need to be carefully selected for both their knowledge about the individual's performance and their lack of a conflict of interest in judging that person's performance. They should not be "competing" for pay increases and/or promotions. Here, the use of information technology can save time too.
Let me mention three important features of an effective performance management system that are not mentioned in the article. The first is strong support by executives at all levels. Role modeling needs to begin at the top and it needs to be demonstrated by the appraisals being done on all members of the organization. It can't be what the middle does to people at the bottom of the organization. It also needs to be an important part of the strategic management processes of the organization.
The second feature is that there is no emphasis on setting clear performance goals in advance. Again, the research clearly shows that one of the most important determinants of the effectiveness of the performance management system is the goal setting process. When individuals set goals, particularly those that have rewards tied to them, they are motivated to perform well.
Lastly, research clearly shows that pay discussions need to take place after and separately from feedback about performance and discussions about training and development. When discussions of performance are combined with discussions of pay, individuals walk away with only a memory and understanding of the pay decision. They do not process issues about development, and do not remember nor feel committed to the development and the growth activities that were discussed.
One final point: the objective of a performance management system should not be to make everyone happy; it should be to motivate and inform everyone.