Making Performance Management Work
In digital times, performance has taken on broader meanings. How to improve performance at both the individual and organizational levels has topped the CEO’s agenda. Many organizations are questioning the effectiveness of semi-annual/annual performance reviews, and commonly used performance measures. Some forward-thinking companies such as Adobe, Accenture, and Google, have replaced traditional performance management practices with a real-time, all-the-time feedback system.
Despite these positive examples, most companies, across industries and, indeed, across the world, are still struggling to make their performance reviews really work. In these companies, conducting performance reviews is a routine HR practice without substantial value added to either the employer or the employee. It is no wonder many managers and employees dislike performance reviews, calling them ‘a waste of time’ or just ‘a process to check off.’
Industrial metals companies, especially small and mid-sized, lag behind other industries in performance management. The good news is that many firms are actively seeking ways to revamp their review approach, even though the progress has been slow. As a result, effective tools and metrics, while available, are yet to be widely adopted.
What can you do to speed up the process? How can you set up a performance management system that will create win-win results? Below are five general guidelines:
- Clarify the overall purpose. To start with, ask yourself: What do I expect from the performance review? Most companies use evaluation results primarily for three purposes: (1) inform compensation decisions; (2) identify high-potential employees, and (3) illuminate areas for improvement. Are these your primary or only goals? To what degree are your goals focused on past performance? What else do you expect from performance reviews?
- Set SMART goals. Well-defined performance goals keep employees focused, energized, challenged, and motivated; therefore, the process of setting performance goals should be interactive—involving discussion, collaboration, and consensus-making among different levels of management and employees. Well-defined goals are SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. Follow these principles when setting performance goals and make sure your employees clearly understand them. Also, remember: no matter how well your performance goals are defined, they are not set in stone. What is set at the beginning of the year may become unrealistic or irrelevant by the middle of the year because of the constantly changing environment. Evaluate goals frequently.
- Select appropriate measures. It is critical to determine how to measure actual results. Are you measuring generic traits (for example, individual personality, working style, and personal values), work behaviors, knowledge and skills, or results produced? Each represents a different approach requiring a different set of measures. The key is to understand pros and cons of each approach, and select one, or a combination, that will fit your performance goals and organizational needs. For example, if the goal is to increase employees’ competencies, then knowledge and skill-based measurement will be most effective. If the goal is to evaluate employees’ efforts on a specific task, then a behavior-based measurement is more appropriate. For remedial performance improvement, all four of these dimensions of evaluation can be useful.
- Focus on the future. Typically, organizations consider performance appraisal at the heart of performance management, thus spending a preponderance of time and energy on review related activities. While performance review deserves significant attention, it is a past-oriented practice. In other words, what you are evaluating is the performance your employees demonstrated in the past six or 12 months. While looking back may help you project future performance, it is a reactive approach. Therefore, instead of measuring what has not done well in the past, reorient your focus on what can be improved into the future.
- Seek employee feedback. Performance review takes place in an exchange relationship between a supervisor (evaluator) and a subordinate (the evaluated); in this sense, the quality of this relationship has a dynamic impact on the perceived effectiveness of performance review. As research shows, one of the reasons that a performance evaluation system is ineffective, even when well structured, is the resistance from the end users (the evaluated). If they react negatively to the way their work performance is measured, they are less motivated to perform better. Therefore, seeking employees’ reactions (feedback) to performance reviews (fairness and satisfaction) will help organizations pinpoint areas for improvement.
Effective performance management means conducting a thorough and fair evaluation of each employee’s performance to inform management to make better HR decisions. It also means providing constructive feedback to employees that will help improve their performance and advance their career.
In this sense, performance management is both a science and an art. It requires well-selected ‘hardware’ (performance review system and process) and ‘software’ (good understanding of your employees—their reactions to review criteria, content, and procedures). When both are in place, your company will be better positioned to create win-win performance review outcomes for both the employer and the employees.
Dr. Jia Wang is a professor in the Department of Educational Administration and Human Resource Development at Texas A&M University. Her research focuses on international and national human resource development, organization crisis management, and learning within organizations.