Changing Landscape of Performance Management
Ring the ‘BELL’ or bow to ‘POWER’ or simply forget the ‘CURVE’?
Sounds familiar? Did you also have the same conversation over a cup of coffee with your colleagues? And, why not! After all, this is the performance management dilemma that many companies are facing today.
Bell curve, ever since it emerged way back in 80s, has been touted as one of the best ways to differentiate performance and famed as an effective tool to ensure scientific & fair rewards allocation across organizations. However, Industry stalwarts now argue that this performance distribution model may be good only either for companies that are in their initial stages of talent management OR the ones which are mechanistic in nature. More and more companies that want to drive behavior/outcomes and collaboration are shifting either to a power curve or more interestingly 'no' curve model which effectively means that companies no longer intend to label their employees with traditional ‘excellent’, ‘outstanding’, ‘good’, ‘average’ and ‘poor’ ratings models.
The new norm is the move away from assigning ‘rating labels’ to having a goal oriented meaningful conversations with employees and facilitate accelerated performance. Organizations believe that it will have a positive impact on employee experience, greater manager accountability and will ensure rightfully deserved rewards for hyper, good and average performers. However the question that most if not all people managers grapple with is how to assess, differentiate and communicate the performance in absence of performance ratings. And, the humungous task on the Talent management teams is how to communicate the new pay approach and how to equip managers with capability to be able to make these critical pay decisions in absence of performance ratings.
The more I think about it, the more I get curious and intrigued to learn why every company is riding this new wave and reinventing its performance management system. Various researches and scholarly articles indicate multiple reasons like bringing back the lost emphasis on meaningful conversations, getting the focus away from talking about mere numerical ratings, driving the focus on communicating expectations in real time, reducing the administrative hassle of filling long review forms etc.
To understand further I spoke with many professionals (both people managers and individual contributors) from various organizations on this topic and to no surprise I received mixed opinions about the new approach. For some managers who are pro forced ranking systems, rating system was like a magic wand that helped them in minimizing their efforts to have that ‘hard talk’ around performance improvements; the below average or poor rating label and ensuing PIP process did the job for them. It was a straitjacket formula for them to reward performance and a tool to weed out the unfortunate low rankers.
For others who are the naysayers of forced ranking system, the issue with the rating system was that it resulted in higher focus on individual performance and did little to promote collaboration or team building. Individuals then focused more on being visible to other managers rather than striving to become technical experts or enhancing their skill sets for future roles. Some also said that in this era of agile and hypercompetitive business landscape where business cycle of a technology/product is less than a quarter or may be less, performance appraisals as an annual activity made no sense. Employees need to course correct to stay agile and collaborate with team members to bring innovation; hence eliminating forced rankings does seem to make a lot of sense in business environments of today.
Now, if you feel convinced for the need to change the paradigm, the obvious question then arises is how one should manage this change. I strongly believe some of the critical success factors when transitioning away from performance rating based pay approach are
- A simple and clear change management communication in order to give employees a clear understanding of the new expectations
- Robust manager capability development plan to educate managers on effective performance assessment techniques, real time feedback delivery, expectation & goal setting , ability to handle the high discretionary power allotted on pay decisions etc
- Strong Talent Management team to help mangers navigate through the change with necessary consultation, tools and techniques.
The recent HBR release beautifully captures how Deloitte redesigned its performance management and is a great case study to understand the emerging trend.
How do you think this transition could be managed effectively and what are some of the critical success factors in your experience.