How to Improve Performance Management and Drive a Culture of Growth in Your Organization
How would you feel about giving your CEO direct feedback every year? Especially if they commit to taking your feedback seriously!
If you think this sounds daunting, you're not alone. But it's precisely what companies like Netflix do—they exchange multi-directional feedback across all levels of their organizational structure each year, from junior interns to the CEO.
Why? Because this approach to performance management drives better outcomes for their people and their organizations.
In this article, we'll explain why it makes sense to challenge the norms of performance management.
Rather than focusing on annual, formal, compensation-linked appraisals, harness your people's potential by adopting a more open, collegiate, and motivating approach.
We'll show you how.
📈 The importance of performance management
Good performance management aligns your employees, resources, and systems to meet your organization's strategic objectives.
It also identifies, measures, manages, and develops the performance of your people, suggests Sattar Bawany, a leading academic and CEO of the Centre for Executive Education.
GE's transformation under its former CEO, Jack Welch, is a classic example of good performance management.
Employees at GE were driven to work to the best of their abilities and towards a common goal, resulting in one of the most successful transformations in corporate history.
Performance management helps people and organizations in three essential areas:
1. Employee engagement
Your approach to performance management impacts employee engagement.
A recent study found that most employees are unsatisfied with performance management at their organizations. They feel it's:
- too generic,
- infrequent, and
All of these work against your employee's levels of engagement at work.
Employee engagement is fundamental for your organization's success. Engaged employees are more productive and focused and perform better, highlights Gallup.
So you cannot afford to leave engagement to chance.
2. Retaining talent
A well-designed performance management system promotes the growth and development of your people:
- It motivates them.
- It makes them more committed to your organization.
- It promotes better employee retention.
Suggests Change Recruitment, a leading Scottish recruiter.
And employee retention is vital for your organization. It improves the morale and productivity of your people and boosts workplace culture and customer satisfaction, as research has shown.
3. Developing leaders from within
Recruiting leadership talent is difficult and expensive, so it makes sense to focus on developing leadership within your organization.
Performance management plays an essential role in this process by:
- Drawing on emerging leaders with a proven cultural fit.
- Assisting with succession planning.
- Motivating top talent and supporting their focus on your organization's goals and objectives.
And as some of the world's most successful companies have shown us, performance management that emphasizes regular learning will enhance your people's leadership potential.
➡️ Train your leaders in the flow of work with interactive, weekly micro-lessons. Check out our ready-to-use Zavvy templates.
🤯 What makes traditional performance management systems outdated and ineffective?
Traditional performance management centers around annual performance reviews and is a top-down, linear, and static process. It sets objectives and key performance indicators (KPIs) and monitors progress against those.
The outcomes of this process determine employees' compensation and any requirements for performance improvement.
While traditional performance management has been in place for many years, many organizations now consider it outdated and ineffective.
Recent research by Mercer highlights that 90% of HR departments believe their performance management systems produce inaccurate information and 95% of managers are dissatisfied with them.
The same research suggests that traditional performance management suffers from the following:
- A lack of transparency.
- Insufficient or infrequent feedback.
- Unclear expectations or a lack of defined goals.
- A lack of focus on career development.
- A lack of consistency from year-to-year.
Mounting evidence points to the fact that traditional performance management is one of the least effective and understood HR practices.
In discussions with leading organizations, researchers at Cornell University's Center for Advanced HR Studies found that:
- Managers often 'game' the performance management process—they are less inclined to give lower ratings if those ratings negatively impact compensation or bonus potential.
- Employees are less likely to adopt feedback if they feel it negatively affects their compensation.
- Managers' focus on effective feedback and coaching suffers due to the link between performance management and compensation.
- Large multinational organizations' size, scope, and complexity make it difficult to calibrate consistent ratings across different markets and cultures.
- Performance rating scales suffer from biases as managers and employees feel uncomfortable using the lower parts of the rankings.
The shortcomings of traditional performance management have led many experts to agree that it's no longer working.
"Managers and staff alike too often view performance management as time-consuming, excessively subjective, demotivating, and ultimately unhelpful. [...] it does little to improve the performance of employees.
It may even undermine their performance as they struggle with ratings, worry about compensation, and try to make sense of performance feedback." Bryan Hancook and Asmus Komm, principals at McKinsey.
🔍 6 Essential elements of effective performance management
If traditional performance management isn't working, what should performance management look like?
According to Jack Zenger, CEO of Zenger-Folkman, a leadership development consultancy, six essential characteristics make performance management effective.
1. Clear, accurate, and fair
Give your people well-defined and clear roles to reduce ambiguity, stress, and confusion in their daily work.
Also, remember that the context of their roles matters. Some roles are easier than others or may be influenced by circumstances beyond an employee's control.
If your people don't believe that their performance management system is accurate and fair, it's difficult to get their buy-in.
Tip: Take account of context to support the accuracy and fairness in your performance management program.
Build efficient systems that are easier to use and save time, money, and effort.
Systems that take too much time or are overburdened with bureaucracy are counterproductive. They are, arguably, defeating the very purpose of performance management, i.e., performance!
3. Elevating performance
Focus on boosting performance rather than checking off against minimum criteria at each review.
Align company and individual employee goals and build effective employee feedback and recognition programs to help do this.
4. Separating performance appraisals from compensation
Address compensation decisions separately to performance management outcomes.
In practice, cost of living changes drive most salary increases, argues Zenger, with a few low- and top-performing exceptions. Therefore, the linkage between performance outcomes and compensation is becoming less relevant.
5. Use multiple data sources
Use multiple inputs in performance assessments to form a more objective and comprehensive view of how your people are doing.
Performance management systems that rely solely on managers' perceptions are prone to bias. Instead, use multiple inputs to promote the system's accuracy and fairness in your people's eyes.
6. Development and coaching
Emphasize coaching and development in your performance management program as catalysts for successful career journeys.
Being a good coach doesn't come naturally to everyone. However, your people managers will benefit from:
- Knowing what steps to take and clarifying the outcomes from coaching conversations.
- Observing experienced coaches in action.
- Practicing and rehearsing to gain competence and confidence in coaching.
💡 7 Steps to improving your performance management process
With these characteristics in mind, let's look at seven practical steps that you can take to improve performance management at your organization.
1. Define clear roles
Give your people role clarity. Set out their main tasks and explain how their roles fit your organization. This reduces their stress and confusion.
Spell out each role's specific deliverables, processes, goals, and KPIs. Help your people be clear about their objectives and know how to work with others in your organization and external stakeholders to achieve them.
Around 40% of workers, a surprisingly high amount, do not have role clarity, highlights Gallup. But role clarity is essential, as it's a leading cause of employee burnout.
Gallup's research suggests that burned-out employees are:
- 63% more likely to take sick leave,
- 2.6 times as likely to be looking for a different job, and
- have 13% lower confidence in their performance.
Make role clarity an integral part of your performance management program to reduce your people's burnout risk.
2. Build in efficiency
Streamline your performance management process to keep it efficient. Use tools and technology such as:
- A skills matrix to identify learning needs across your organization and map out how different roles interact with each other.
- Intuitive information systems to access, track, modify, and cascade goals across your organization.
- Standardized templates to reduce the time to set up goals and KPIs for different departments or new employees.
3. Align individual and company goals
Align your employees' performance management framework with the vision and intent of your organization. Link your people's goals and KPIs with your company objectives.
This will give your people a clearer sense of purpose in their roles. It will also highlight how their success is relevant to the overall success of your organization.
4. Use employee feedback and recognition
Focus on the performance of your people by using effective employee feedback and recognition.
Feedback is a powerful way to boost performance. As industry statistics on feedback show us, with proper feedback, employees:
- Perform better,
- Are less likely to leave their roles, and
- Have fewer performance and workflow issues.
But many organizations do not give their people enough feedback. Over one-third of full-time employees would prefer more feedback, surveys have found.
Enhance your organization's feedback culture by integrating effective employee feedback systems into your performance management program.
And keep in mind that there are many types of feedback that can help your people.
Positive feedback, for instance, reinforces good behaviors and supports your people in their professional development.
Constructive feedback highlights areas for improvement and can be difficult to give if perceived as negative.
But over 90% of employees want constructive feedback to help them improve their performance, according to an HBR survey.
The timeliness of feedback also makes a difference, as more regular feedback will bolster employee engagement.
Whatever type of feedback you give, incorporating meaningful recognition ideas into your feedback framework will make the most of your performance management process.
Recognition is important for your people:
- It motivates them.
- It makes them feel valued.
- It boosts their engagement.
- It enhances their sense of well-being and belonging at work.
And there are many creative ways to give recognition, including:
- Sabbatical leaves for long-tenured employees, allowing them to de-stress, re-energize, and broaden their personal and vocational horizons.
- Flexible work options to demonstrate trust in your people's work ethic and promote their autonomy.
- Recognizing achievements outside of work to show you value your people's personal development alongside their career growth
- Upgrading technology used daily, at the workplace, or remotely to boost your people's productivity and facilitate employee enablement.
- Asking your most savvy employees to share their skills with colleagues, demonstrating that you value their ability to boost the performance of others.
➡️ Discover our 42 employee recognition ideas to boost engagement in your organization.
5. Focus on employee growth
Remove the link between performance management and compensation by tailoring your performance management process to your people's career growth.
Career growth is about skills, knowledge, and experience and how these help your people progress their careers upwards, sideways, or through diagonal moves.
Nearly two-thirds of US workers left their jobs due to a lack of career growth opportunities.
Therefore, offering your people clear paths for the advancement of their current roles and overall careers is vital for the success of your performance management program.
And as companies like Adobe, Dropbox, and Palo Alto Networks have shown us, career growth can be encouraged in a variety of ways, including:
- Company-funded higher education;
- Facilitating pro-bono work and skills-based volunteering;
- Events dedicated to learning and networking, with time off and support for participation;
- Harnessing innovative ideas from employees and helping them deploy practical solutions.
6. Offer multiple perspectives
Solicit feedback from multiple sources in your performance management process to form a complete picture of your people's performance. This improves your performance management program's objectivity and makes it less susceptible to your managers' individual, subjective views.
A powerful way to incorporate multiple perspectives is to use 360 degree feedback that encourages feedback from all levels of your organizational structure.
Include CEOs, managers, supervisors, co-workers, and peers to capture feedback in different directions, i.e., upwards, downwards, or sideways.
360 degree feedback builds a comprehensive approach to feedback in your performance management program. And it's very effective—large and innovative organizations, such as Netflix, have adopted 360 degree feedback in favor of annual reviews.
Reflecting on the introduction of 360 degree feedback, Patty McCord, the former Chief Talent Officer of Netflix, recounts:
"There's no reason the HR team can't be innovative too."
By talking simply and honestly about performance regularly, you get good results, suggests McCord.
Tip: To make the most of 360 degree feedback, encourage peer review and self-evaluation as part of your people's performance management.
Peer reviews capture the strengths, weaknesses, opportunities, and improvements of your people, as viewed by co-workers who evaluate each other.
Peer reviews can be challenging, however, as employees may be sensitive to feedback from their peers, mainly when it focuses on weaknesses.
To help deal with this, train your employees to be clear, objective, and mindful of colleagues' feelings when giving peer reviews.
Self-evaluation gives your people a voice in their performance appraisals, helping them take ownership of their career growth.
Plus, it can be a powerful motivator, as over 80% of employees feel their employers are not listening sufficiently to their feedback.
By emphasizing self-evaluation in 360 degree feedback, your people will feel more engaged in the whole performance management process. You'll also give your managers better insights about their direct reports.
Your organization's learning and development efforts will benefit, too. Self-evaluations are a great way to monitor, track, and plan for the individual learning needs of your people.
7. Provide learning, development, and coaching
Learning and development (L&D) is at the heart of performance management. It shares common goals, such as cultivating talent in your organization. It complements performance management by driving better outcomes for your people, mainly as they manage change in their workplace environments.
L&D also brings substantial business benefits.
Recent evidence from Australia, for instance, found that a 1% increase in L&D expenditure (per employee) is associated with a 0.2% increase in business revenue.
Integrating the most appropriate types of learning and employee development opportunities, however, isn't always easy to do.
But emerging approaches, such as learning in the flow of work, offer practical, hands-on learning solutions that are time efficient, engaging, and squarely focused on outcomes.
Coaching is another powerful way to enhance the performance management process. It's a collaborative approach that builds trust between the coach and their trainees, creating a safe space for communication and growth.
Coaching can be very effective in boosting performance—employees who receive coaching have reported:
- a 90% reduction in stress;
- a 149% increase in resilience;
- a 181% improvement in focus;
- a 130% increase in job performance.
Tip: And don't forget that L&D and coaching are just as essential for leaders in your organization as it is for others.
Prepare your emerging leaders for the challenges of leadership roles through proper training.
Equip your leaders with the skills, knowledge, and behaviors to fuel their career growth and enhance their leadership potential. It will benefit them, their teams, and your entire organization.
➡️ Check out these nine leadership training topics for forward-thinking companies.
➡️ Create a culture of high performance with Zavvy
We're keenly aware of the potential of people in organizations. How much untapped potential is there in yours?
Performance management is the vehicle for harnessing your people's potential through open and constructive 360 degree feedback and a continuous development cycle.
At Zavvy, we have the tools to help you build a performance management framework that's seamless, integrated with your existing workflows, and focused on boosting potential.
Book a free 30-minute demo to see how you can bring out the most in your people through innovative and powerful performance management.