How can we fix performance management?

Author Michael Armstrong assesses real-world solutions to the persistent problems of traditional methods

The problems of the traditional approach to performance management – such as line managers lacking the skills or attitude required to do it effectively, and little discrimination between performance levels – are serious.

Some commentators have argued that performance management is broken. Back in 2011, the Institute for Employment Studies (IES) concluded: “The fundamentals of performance management are setting priorities, giving feedback and agreeing action, especially development action. All the other stuff – ratings, links to reward, competencies, potential and talent assessments – are legitimate concerns but should not be allowed to compromise the quality of actually managing performance. If your managers are still struggling with giving honest feedback or with agreeing sensible priorities, leave the other clutter out for now.”

Many organisations have been looking very hard at their performance management systems recently and haven’t liked what they have seen. The E-Reward 2014 performance management survey established that there was generally less focus on bureaucracy and form-filling exercises and more on performance management becoming an ongoing process and part of the organisational culture. So it’s clear that performance management needs to be revamped.

Areas for reinvention

Here are four examples of the steps the survey respondents were taking:

  • “We removed the need for individuals to be awarded a performance rating; eg exceptional, good, poor etc. The link to a non-consolidated pay award was also removed.”
  • “Removal of ‘process camouflage’ (eg five-point rating scale, interim review, rating calibration systems) to enable focus on actionable feedback, coaching and growth.”
  • “Moved from a forced distribution system to more qualitative developmental discussions.”
  • “Focus on conversations, moving away from a forced distribution curve. Aim is to engage our people, build trust and leverage to obtain greater potential value from the conversation.”

A reinvention programme might focus initially on the key issues of the formal performance review and rating. A number of US businesses – such as Abode, Accenture, Deloitte, Gap, General Electric and Microsoft – have made major changes to their performance management practices. The impetus for these reviews was disillusion with the relevance and effectiveness of formal performance reviews and with the practice of rating, especially forced ranking. In these and other organisations, formal annual reviews have been replaced by more frequent and much more informal performance and development conversations between managers and individuals. Overall ratings or forced ranking were abolished in each of the businesses.

A radical way ahead

Revising a system along these lines is fine, but there is a fundamental question that should be answered: is there any need for a formal performance management system at all?

The IES has expressed doubts about such systems. In 2013, a manager told IES’s Dilys Robinson: “This organisation has a very structured performance management framework, as you would imagine from a big company. I try and avoid using it unless I have to; I would rather try and develop the personal relationship with someone, to understand their issue and try and improve their performance by working with them, rather than going through procedural ways of managing performance.”

Other managers interviewed for the same study said: “To keep the team generally motivated and performance levels up, I will make sure I’m speaking to people, praising them when they do a good job, finding out what their problems are, helping them with whatever needs to be done.”

“The key for me is just one-to-one time, and they know what they’re aiming for, and we talk about it regularly. So it never really gets to the situation where there’s like a really great big formal sit-down to say let’s review everything you’ve done.”

“I think it’s regular dialogue... at least once a fortnight for an extended period of time, just one to one and just about them and the work they’re doing and what’s going on... Just so I understand what they’re doing and so I can give a bit of a steer or give them a bit of coaching if they need some coaching.”

The best way to deal with the whole problem of making performance management work is to ensure that the organisation has managers who act like this – rather than compelling them to conform to the bureaucratic requirements of a typical traditional performance management system. These managers are managing performance, not operating a system. They are constantly communicating with their team members; they clarify what has to be done and take swift action to deal with under-performance; they praise when praise is due; and they coach their staff. To get this sort of manager is a matter of selection, development through coaching and mentoring, and constant encouragement. It would take a lot of time and effort – but it would be time well spent.

Michael Armstrong is a former CIPD chief examiner, a managing partner of E-Reward and an independent management consultant. His latest book, Armstrong’s Handbook of Performance Management, is now available to pre-order from Kogan Page. People Management readers can save 20 per cent on all Kogan Page books using code PM20