To borrow from Mark Twain, reports of the death of performance ratings have been greatly exaggerated. But, the times…they are a-changin'.
At least that what global professional services giant Towers Watson found when it polled 169 large and midsize U.S. and Canadian employers, primarily HR executives, in October and November.
It seems despite dissatisfaction with their performance management programs and lots of negative media attention proclaiming performance reviews on life support, most North American employers (92%) have not eliminated their use of performance ratings and are not planning to either.
Rather than deep-sixing performance ratings, many employers are making significant improvements, including replacing annual performance review cycles with more frequent employee and manager interactions, applying a more future-oriented definition of performance and potential, and implementing new technology.
The actual state of the performance review
The 2015 Towers Watson Talent Management and Rewards Pulse Survey found that only 37% of employers believe their performance management programs are effective. Additionally, only 26% say their managers and employees are satisfied with the process. Half of the respondents agree that employees and managers just don’t spend enough time on performance management.
“For many organizations, performance management as we know it today is not working. These programs haven’t delivered on their promise to improve performance, and there are widespread signs of frustration among managers and employees,” said Laura Sejen, a managing director in the Talent and Rewards practice at Towers Watson. She added that even with that sentiment, employers recognize the importance of these programs and that significant changes, not tweaks, are needed.
“Most employers believe scrapping performance management programs, including the use of performance ratings, is not the solution,” she said.
Sejen’s point is buoyed by the fact that only 8% of respondents have eliminated performance ratings (although 29% are either planning to or are considering eliminating them). Half of respondents said they have either changed or eliminated the annual performance review cycle in favor of more frequent interactions between employees and managers, or are planning or considering this change. Nearly three-quarters (72%) have implemented new performance management technology, plan to, or will.
The most frequently cited reasons for improvements are feedback from managers (77%) or employees (61%), and the need to increase the frequency of employee and manager touch points (60%).
Other survey findings indicate that many companies are rethinking the purpose and business alignment of performance management altogether. Nearly a fourth of companies are taking a more future-oriented approach, changing the focus to include performance achievement and future potential.
Ravin Jesuthasan, managing director and global leader of Talent Management at Towers Watson, noted that too many organizations are still spending an inordinate amount of time making marginal improvements in the effectiveness and efficiency of their core performance management processes.
“The most progressive organizations are taking more of a forward-looking approach by including the possession of skills needed for future business success in both the performance management process and in pay decisions to increase the impact of performance management on the execution of their business models,” Jesuthasan said.
Barriers to effective performance management
The survey also identified several barriers contributing to ineffective performance management programs. Almost two-thirds (64%) of respondents don’t believe their managers and supervisors have the necessary skills, while 56% say there is a lack of effective feedback. One-half think managers don’t have the time to do performance management well.
“While most organizations are good at planning the strategy and design of their performance management programs, they are falling woefully short when it comes to executing on and delivering these programs,” Jesuthasan said, adding that Towers Watson knows from its research and consulting that a key element to effective performance management is having managers devote sufficient time and skill to the process.
Unfortunately, managers who are pressed for time tend to give performance management a backseat and view it more as a compliance exercise, he said. “In part, this is a reflection of HR’s focus on measuring compliance rather than the quality of goals set, or whether feedback and coaching are happening throughout the cycle,” Jesuthasan said.
According to the survey, 81% of employers say managers spend too little time in ongoing conversations with employees about their performance. And 62% also say that managers spend insufficient time helping employees set goals. Interestingly, 63% of employers say their managers spend four hours or less per employee on performance management each year.
“Getting performance management right shouldn’t be that difficult,” Sejen concluded. “Every organization can make its performance management program better and make it matter. But that will require companies to focus on how to best align their performance management process to the organization’s business strategy, while at the same time enhancing the key drivers of an effective program — manager effectiveness, process, communication, measurement and technology.”