Modernize Performance Management

Traditional performance management doesn’t work – shift to an approach that’s tailored to your organization’s context.

Executive Summary

McLean & Company Insight

Ditching the annual performance review for agile practices won’t necessarily solve performance management problems. Customize the building blocks of performance management to best fit organizational needs to impact individual and organizational performance, productivity, and engagement.

Situation

• The traditional approach to performance management (PM), characterized by annual performance reviews and infrequent feedback, is ineffective in today’s increasingly fast-paced environment.
• Traditional PM negatively impacts the entire organization through lower productivity, performance, and engagement.

Complication

• Many organizations believe that ditching ratings and the annual review in favor of an agile approach to managing performance that focuses on continuous goal setting and feedback is the solution.
• However, new research shows that agile is not the cure-all to performance management that many hoped it would be. Getting rid of ratings doesn’t get rid of the need to evaluate performance, and an agile approach is not necessarily easier for managers and doesn’t suit every context.

Solution

• Modernize performance management by selecting and customizing the following building blocks to meet your organization’s needs: process, goal setting, competencies, feedback and coaching, crowdsourced feedback, and ratings.
• Train managers to provide employees with high-quality feedback and coaching to improve all other aspects of performance management.

It’s time to move away from traditional performance management (PM)

Traditional PM

• Annual performance review
• Goals reviewed once per year
• Review is backward looking
• Ratings used to determine compensation

We’ve known for more than 50 years that this approach doesn’t work – yet we keep using it!

A landmark study in 1965 found traditional performance reviews at General Electric to be largely ineffective (Smith et al.).

Traditional PM is ineffective because:

It’s a poor performance driver.

• Feedback is too infrequent and focused on the past to meaningfully guide performance.
• Annual reviews can decrease employee performance and engagement (Caprino, Duggan).

Annual reviews don’t suit today’s work context.

• Just as organizations wouldn’t measure revenue only once a year, it does not make sense to assess employee performance on an annual basis.
• Annual reviews are often biased toward the few months prior to the review and fail to accurately capture employees’ performance over the full year.

Feedback can be biased and subjective.

• For example, women are 1.4 times more likely to receive critical subjective feedback than men, as opposed to positive or critical objective feedback (Cecchi-Dimeglio, 2017).
• This can lead to disputes over ratings, disengagement, and turnover.