Many organisations are keen to reduce the effort that managers and employees put into performance management, but research suggests this doesn't make systems more effective.
Gartner's research shows that prior to COVID-19 approximately eight out of 10 HR leaders were making some sort of change to their performance management process, director Arj Bagga says in a new HR Daily Premium webcast.
The main catalyst is performance management's perceived ineffectiveness: only roughly two out of 10 HR leaders say their process currently meets its primary objective.
Furthermore, only 35% of employees agree that performance management is relevant to their job, "so there's a real onus on us as HR leaders to get this right".
The major complaint about performance management is that the effort involved, by both employees and managers, is far too high.
Managers don't like having to spend time in repetitive and ongoing conversations and find the performance technology they're using isn't user-friendly or suited to their needs, Bagga says.
Employees, meanwhile, are frustrated with the amount of pressure, anxiety and tension they feel in the performance process. "It's very backwards looking, and actually creates a lot of anxiety in being judged and assessed on a constant basis."
But when organisations have taken this feedback onboard and reduced the time and effort in the performance management process, workforce performance has been negatively impacted.
Reducing documentation has zero impact on performance, but eliminating performance ratings decreases workforce performance by 7.3%, partly because it demotivates high performers, and reducing the amount of formal performance management steps decreases performance by 9.3%. "So all three of those cumulatively have a negative impact of 16.6% on workforce performance."
Instead of reducing effort, a better approach is to focus on improving the usefulness of the system, because this increases performance, engagement, and fairness, Bagga says.
"According to Gartner's data, if you specifically design performance management around time and effort, and delivery of KPIs, approximately only 27% of employees believe that the rating that they got was accurate and fair. Whereas if you design the process around being high utility and being useful for employees, a tool that they can use to deliver their annual objectives, that goes up to 77%."
A high-utility performance process also impacts employees' perception of the process being worth their time and effort.
"In a low-utility or a traditional performance process, only roughly one in five employees said it was worth their time and effort whereas in a high utility process 85% of employees told us 'Yes, I can use this tool to my benefit. I can use this tool to help me deliver my annual objectives'."
Organisations can implement three specific strategies, which when combined increase the utility of performance management by 37.5%, Bagga says. These are:
- business-driven strategies – customising performance management to the organisation;
- employee-owned strategies – empowering employees to adapt performance management practices to their needs; and
- work-centred strategies that drive collaboration.
Shifting goals and KPIs
Meanwhile when COVID-19 first struck, many organisations moved quickly to change the goals and KPIs of their employees, Bagga says.
Now, with plans of returning to the workplace being developed, these hasty decisions are being reviewed, says Bagga.
"We're actually seeing a growing trend now as Australia starts to talk about returning to work... organisations have started actually moving away from right-sizing those KPIs and goals – so keeping those annual objectives in place, but actually communicating more around scaling performance ratings at the end of the year.
"We want to be able to keep the KPIs in place and motivate employees through saying, 'we want you to still try and achieve the same objectives, but rest assured your rating will be scaled based on what we're able to achieve as an organisation. We know that the start of this year, at the very least, has been hugely disruptive to your ability to deliver those objectives'.
"A growing amount of HR leaders are looking at the practice of scaling KPIs, rather than rightsizing them as we return to work."
Meanwhile, reward budgets may have shrunk, but recognition still plays a critical role in driving discretionary effort and performance.
Gartner's research shows that in Australia, the sixth-ranked reason for employees choosing to leave an employer is recognition, whereas compensation comes in at eight.
"In this market specifically, employees value recognition, above an increase to their compensation, which actually shows that if we're able to create a really comprehensive recognition program and an innovative recognition program, it has significant benefits to not only improving employee performance, but actually retaining staff who are passive in the labour market at the moment."
In the full webcast, Bagga outlines performance strategies that make the biggest impact; and what employers specifically need to change, in light of COVID-19 (upgrade here for access if you're not a premium member).
In this short excerpt below, he explains how flexible goal setting can drive performance improvements.