Hidden Problems behind Eliminating Employee Performance Review Ratings
With apologies to Mr. Twain for paraphrasing, reports on the death of performance ratings are not only grossly exaggerated, but missing the mark entirely. I’ve been following several performance management (PM) threads recently, including a video interview of “Firing Line with Bill Kutik,” who interviewed Josh Bersin, Principal at Bersin by Deloitte, and a blog response written by Steven Hunt, an SAP colleague who helps companies use cloud technology to support strategic HCM processes including PM. I also attended a fascinating session hosted by Leslie Apony at SAP’s SAPPHIRE NOW event earlier this year, and came to a few conclusions. This is the first of a few blogs based on my conversations with Hunt and Apony exploring how to simplify the admittedly complicated process of getting the best out of employees,
Understand the cascading impact of ratings
According to Leslie Apony, Manager of Customer Value and Adoption at SAP/SuccessFactors, many organizations are eliminating performance ratings without understanding the cascading implications. “The issue isn’t just about pay-for-performance. Companies that remove ratings suddenly don’t know how to handle succession, compensation and development programs,” she said. “You have to look at ratings in the context of having an integrated performance management approach.”
Ratings impact every decision having to do with talent, from internal recruiting to downsizing and reorganization, said Apony. Without them, HR cannot provide the fact-based performance data management relies on for strategic decision-making around new-hires as well as existing employee career planning. “You need visibility because you don’t want to lose all your top-performers, and you need to give new-hires defined goals and metrics so they understand how they’ll be measured,” she said.
Decoupling performance ratings from pay-for-performance and compensation can be challenging. Apony said three organizations she’s worked with that eliminated performance ratings from performance reviews ended up inserting it back into compensation. “They’re still doing a rating but it’s become a compensation rating.”
Develop effective performance management processes
Many organizations are getting away from traditional annual performance reviews that rate employees once a year. But that doesn’t necessarily mean eliminating ratings. Steve Hunt, Vice President of Customer Value at SAP/SuccessFactors, said that effective performance management revolves around coaching and calibration, taking the ratings out of the actual goal-setting process with employees and moving them into calibration processes to identify and invest in high performers. Companies are using technology to foster discussions between managers and employees – daily, weekly, monthly or at any time it makes the most sense for individual organizations. This approach also means that managers actually manage their employees, engaging in ongoing goal-setting conversations. This is particularly effective with millennials and other professionals early in their careers who, according to Oxford Economics research, want immediate, ongoing feedback. Manager-to-manager calibration is an important part of the overall talent process as well, said Hunt.
“Historically asking managers to rate employees by themselves makes no sense,” he said. “They need comparisons in the context of other employees to gain an accurate measure of performance. Companies have to increase the number of ongoing discussions in calibration sessions between managers, and that’s where technology is critical.”
The role of technology
Traditional performance rating methods were designed before the digital age. Now that cloud-based PM technology is available, Apony said companies can and should take advantage of the transparency and collaboration it delivers. Think: spot bonuses to reward outstanding performers throughout the year, whether driven by peers or managers.
Talent management has become a science in which every process is connected, from recruiting and on-boarding through training, career development and succession planning. With the right information, managers will lead more effectively and employees will be able to lead themselves.
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