It’s time to rethink performance management so it actually delivers.
The war for talent has been waged for decades, but recently a new front has emerged: performance management. According to Aon Hewitt’s global Employee Engagement database, managing performance is now the second most important driver of employee engagement globally. But here’s the problem: Performance management is in a sad state right now in many organizations. Managers think of it as an administrative burden, it disengages employees, and HR is on the receiving end of these complaints.
In trying to get performance management right, new trends and radical ideas have popped up, from getting rid of ratings to ending the performance management process altogether. However, these trends are destined to fail, as they ignore a fundamental truth: Managing, differentiating, and rewarding for performance works. It’s just rarely executed.
While the new performance management fads won’t win the war for talent, continuing with a broken process is not a winning strategy either. Don’t keep trying the same things and hoping for a different result. To ensure performance management delivers on its promise, while recognizing what really works, Aon Hewitt suggests the following steps:
- Clarify the purpose. It is surprising that many organizations don’t have an explicit talent philosophy—this should be the foundation for managing talent. Is your philosophy to pay for performance? Attract and retain top performers? Focus on the “mighty middle”? Talent philosophies need to be defined based on your business direction and needs. Everything else flows from that.
- Innovate with intention. Stop imagining there is one silver bullet or fad that will make performance management work everywhere. Too often organizations adopt the latest trend without thinking about whether it aligns with their business. While innovation is certainly how organizations survive and thrive, don’t try new things just for the sake of it. Innovation should help make things simpler, support execution, and build manager skills. Everything else is just noise.
- Make the tough choices. Performance management design implications will stem from your talent philosophy. Follow through so the philosophy is not just words. If your talent philosophy is to pay for performance, stronger differentiation in both performance ratings and the consequences of those ratings is a necessary requirement. Make the decision and have the courage to stick with it—which isn’t very common. Nearly every organization espouses the desire to pay for performance. However, Aon Hewitt’s 2014 Salary Increase Survey reveals that 60 percent of organizations provide some amount of merit increase to every level of employee performance—including the poorest performers. Only one-quarter of employers are creating strong differentiation in how they allocate pay. In other words, the tough choices aren’t made.
- Keep it simple. We’ve all had a hand in complicating performance management. Research topics studied by academics are too narrow to apply; complex solutions designed by consultants fail to adequately consider implementation; and the processes stitched together by practitioners from the best practices of different companies and industries lack coherence. Resist the urge for complexity. Don’t cram a multitude of goals, competencies, and every talent process into performance management. Get rid of the “novel-size” appraisal form. In all decisions, keep the end-users—your employees and managers—in mind.
- Make it a conversation. Most organizations cite “holding managers accountable for performance coaching” as a top need in performance management improvement. Yet only about a third of companies actually have “people management” included in managers’ goals. Is it no wonder that these organizations are challenged in holding managers accountable? At the end of the day, the greatest impact on employees is the conversations they have with their managers. Prioritize the human element and the need for continuous feedback and coaching. Getting managers to provide continuous feedback and coaching isn’t easy—it’s why we try to regulate performance management with formal discussions; why we buy the best-looking technology—attempting to make up for our managers not actually managing their employees’ performance. But there’s no way around it—we have to get back to basics and bring the personal touch back to performance management.
Performance management that actually works and delivers on its promise can help win the war for talent. Managing, differentiating, and rewarding for performance is still the winning formula. But it has to be executed well. Companies must rethink performance management from top to bottom—stop complicating the process and start simplifying. Performance management needs clarity of purpose, the courage to follow through, the elegance and user-friendliness of simplicity, and the basics of engaged managers. It can be done.
Levi Segal is an associate partner, Performance, Reward, & Talent Practice, at Aon Hewitt. Contact him via e-mail at: levi.segal@aonhewitt.com
