Does Traditional Performance Management Work?

Critics say traditional approaches to Performance Management destroy trust between management and employees.

By M. Tamra Chandler, CEO, PeopleFirm LLC

Performance Management (PM) is currently a hot topic among business leaders and human resource professionals. While it is universally recognized that the intent of Performance Management is worthy, there are many voices challenging the value being delivered by today’s traditional PM programs—with more ardent critics going so far as to say that traditional approaches to PM destroy trust between management and employees and do little to advance the development of the targeted employee groups.

What’s Changed?

Conversations have been ignited and many forward thinkers now are questioning the future role and format of Performance Management. The working world has experienced significant changes driven by globalization and shifts in the expectations of today’s workforce. New technologies have been introduced that were not available during the design of most Performance Management programs operating today. Additionally, new research (most notably on motivation and rewards) has debunked several of the common foundational assumptions of performance programs. Collectively, these changes have raised questions about the role of Performance Management, its objectives, design, administration, and effectiveness.

What Do We Know?

Current thinking leads us to three conclusions:

  1. Performance Management processes, structures, and associated activities cannot be directly correlated to business outcomes.
  2. Many HR professionals are dissatisfied with their current PM systems.
  3. Employees perceive PM systems to be more punitive than productive. Considering the significant investment of time, capital, and energy dedicated to PM, it is disappointing to discover how negatively it is perceived.

What’s Wrong with PM?

Thought leaders in the fields of business, management, human performance technology and sociology are some of the strongest critics of traditional performance management. Their concerns are summarized in the following brief assessments.

1. Traditional models impede ongoing feedback and limit honest dialogue. Because the outcome of a traditional performance review is used to influence or drive decisions regarding that employee’s advancement and compensation, ongoing discussions cannot be open and honest on the parts of the employee or the manager.

2. There is no solid evidence that the process motivates people. It frequently is noted that conventional designs are based on theories of motivation that have been largely disproved over the last 20 years, with the more productive employees playing a dramatically greater role in driving their own management and direction.

3. Performance appraisals seek the negative. The inherent nature of traditional performance management is the tendency to look for what is not working or to stress the weaknesses of the employee.

4. The process is focused on the individual, rather than the system organization. There are two assumptions the critics call out as inherently flawed in this approach:

  • Improving the performance of each individual will drive an aggregate improvement of the organization.
  • Reviewers can discern between the influence a situation has on an individual’s performance and the conduct of the individual being reviewed.

5. Fairness and standardization in ratings or the judgment of performance cannot be achieved. While studies show that most organizations use rating scales in their Performance Management programs, there is growing concern over this practice. Why? First, it is difficult to distinguish differences in performance with the exception of the remarkably good or bad performers. Second, the more diverse the job responsibilities, the more difficult it is to rate or compare performance. Third, people will attempt to manipulate and distort ratings to get a predetermined result. Lastly, despite people wanting to rate fairly, raters unknowingly bring biases into the process.

6. The activity of comparing people erodes attempts to create a collaborative culture. In addition to the concerns about accuracy of rating scales, there is a general feeling that they also can undermine the collaborative and team-oriented work environments so many organizations are working hard to build or sustain.

7. The output of the process is unreliable for making talent decisions. This criticism is summed up well by a recent excerpt from The Employee Performance Blog (February 2011): “The traditional ‘Exceeds, Meets, Needs Improvement’ rating scale (and all its variations) places the reviewer in the position of ‘judge.’ Experience seems to show that people are biased when handing out ratings and tend to be more ‘nice’ than ‘accurate.’”

8. Pay-for-performance does not deliver improved performance. The value of pay-for-performance programs is an ongoing debate. A recent study by the American Compensation Journal conceded from its review of the evidence that “financial incentives may not necessarily improve performance quality.”

What Are the Alternatives?

In reviewing the advice provided by today’s researchers and experts in the field, we find two approaches being put forward to address the recognized weaknesses of traditional Performance Management. The first camp we will call the “fix it” camp. The second group we will call the “abandon and rethink” camp. Below are the core recommendations being put forward by the leading voices from each group.

Fix It

Much has been published as to how to improve the results of conventional Performance Management. While the advice is broad, three key themes emerge as the most consistent improvement recommendation areas:

1. Goal-Setting

  • Improve the alignment of Organizational and Department Goals (cascading goals).
  • Increase accountability for results in the goal-setting process (measurable).

2. Feedback

  • Build ongoing feedback into the culture.

3. Process and Content

  • Clarify the process for all.

Another approach offered is to get “back to basics.” Begin the design process by clarifying intent and then seek the best means of delivering that intent. This approach requires the designers to agree to the principle that one solution or activity will not achieve all the intended results.

Abandon and Rethink

This approach focuses on “unbundling” the activities traditionally associated with Performance Management and treating them as separate and distinct programs.

Another alternative offered by experts is to create a new cultural model that would be described by words such as autonomy, empowerment, and agility. Again, making such a sweeping change can be challenging. However, it may be a worthwhile pursuit whose rewards far outweigh its risks.

Now What?

Now is the time to engage in meaningful dialogue with your leaders. It is time to open the door to the possibilities of fully aligning the intent of performance management with its outcomes. It is the time to ask questions, get answers, and take action. It is time to review.

M. Tamra Chandler is the CEO and a founding partner of PeopleFirm LLC, a strategy and implementation consultancy located in Seattle, WA. PeopleFirm recently was recognized as #9 Best Small Firm to Work For by Consulting Magazine and #3 of Top 100 Fastest Growing Private Companies by Puget Sound Business Journal. In her 20-year career, Chandler has developed a track record of managing complex business transformation projects that require a blend of strategic, technical, and change management skills. Prior to founding PeopleFirm, Chandler was the managing vice president of People and Global Solutions for Hitachi Consulting and one of a four-person executive team with full accountability for the strategy and performance of the global consulting practice. As an Arthur Andersen alumna, she was the partner in charge of the Pacific Northwest (PNW) Consulting practice until Andersen’s closure in 2002. Her work with Hitachi—including orchestrating the integration of the firm’s six heritage companies into a cohesive delivery organization—earned her recognition as one of the “Top 25 Consultants for 2007” by Consulting Magazine.

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