Long reads

We've ditched appraisals. What's next?

25 May 2017 By Jane Simms

A need for faster feedback is just one reason the appraisal system has fallen out of favour. But what has taken its place, and is the new regime actually delivering?

If you believe everything you read, the death of the appraisal is a thoroughly modern phenomenon, hastened by the arrival in the workplace of millennials raised on a diet of instant gratification for whom an annual cycle seemed like a slow death. But the truth is more intriguing: practically nobody has ever thought appraisals are a good idea. In 1957, in fact, a management professor penned a seminal Harvard Business Review article in which he argued that employees would be better off assessing themselves than submitting to an unnatural head-to-head with their manager.

The wonder is that it took more than half a century for IBM, Microsoft, Accenture and Deloitte to finally reboot performance management amid a blaze of publicity. The annual appraisal, it seems, has finally fallen out of fashion – and not before time, says Jonny Gifford, CIPD research adviser for organisational behaviour, and author of last year’s report Could do better? Assessing what works in performance management. “You wouldn’t expect to run a marathon in a set time without having timed yourself over increasing distances in the months leading up to it,” he points out.

Rather than motivating and supporting people to do better, the appraisal was often dreaded by everyone concerned because it consumed so much time and energy, was largely retrospective, was seen as punitive and led to contention over pay awards (to which it was linked). Unsurprisingly, it had no discernible positive effect on performance.

But while each sector is different, the trend is for organisations to augment what they had before, rather than reinvent it. Many have ditched the unpopular rating systems on which pay was based, and some – outside regulated industries such as banking – have uncoupled pay entirely from performance management. What’s new is an emphasis on continuous developmental dialogue between managers and teams, greater freedom and flexibility – including more frequent goal-setting – and a clearer line of sight between individual and corporate objectives. For most companies, these changes have required a fundamental shift in culture.

“Culture is all-important,” says Gerry Ledford, senior research scientist at the Center for Effective Organizations at the University of Southern California. “If your culture supports high-quality feedback, you can manage even with lousy tools. If your culture is wrong you’ll never succeed, however sophisticated your tools, because managers will duck difficult conversations.”

But isn’t continuous, developmental dialogue exactly what managers should be doing every day? Martyn Dicker, director of people and learning at The Prince’s Trust, says the approach it recently introduced “exposes weak managers who can no longer rely on forms”. He says he is often surprised by how bad some managers are at asking a team member how they’re doing – let alone handling difficult conversations. James Gooding, director of UK operations at the Top Employers Institute, agrees that the end-of-year appraisal process has, in some cases, become a proxy for real management.

Although Gifford admits there is a “capability question” in some cases, on the whole we need to cut managers some slack. “We expect too much of them,” he says. “Traditional performance management requires them to do too many types of things all at once – to motivate, develop, hold to account and set objectives, which can take you to four psychological spaces in the course of a single meeting.” The solution, he suggests, is to “uncouple some of this stuff”, and deal with different aspects of the manager’s role at different times and in different conversations.

Modern approaches to performance management often share several characteristics. Their introduction will begin with securing buy-in from the top team, followed by role-modelling to signal a change in culture. Managers and their teams will be coached in how to have rich conversations, including giving and taking honest and constructive feedback. The focus of both ongoing dialogue and appraisals will be developmental, and paperwork is kept to a minimum. Competency frameworks support the process so that people can see how they are performing and what they need to do to progress. And employees are encouraged to take responsibility for their own development.

But if performance management is no longer bound by strict rules and timetables, how do we know it’s effective? And how can we identify and manage underperformers?

“One of the questions people asked when we discussed our plan to get rid of our traditional performance management approach was: ‘Doesn’t it create risk for the organisation?’” says Dicker. “You need to design the system for the majority and give managers guidance about how to track the performance – such as by keeping notes – on the small minority who may be causing problems.”

And if performance management is done properly, it should keep the poor performers to a minimum, says Stella Hegarty, HR director at 3M UK. “Many ‘performance issues’ come from being in the wrong job, or from being bored,” she says. “So the greatest gift you can give to your people is the time to talk to them and understand them, and work out whether you could move them around or extend their responsibilities, for example.”

Ledford believes there needs to be a link between pay and performance – and most companies seem to retain one. But Dicker thinks connecting the two compromises the integrity of performance discussions, and may even undermine people’s intrinsic motivation to do a good job. While he has yet to address reward and recognition at The Prince’s Trust, he believes rewarding outstanding performance immediately, perhaps through non-monetary means such as an extra day’s leave or a letter from the chairman, will be more effective in reaffirming behaviour and building engagement than waiting until the end of the year.

For all the focus on continuous dialogue and development and greater flexibility, however, performance management does need scaffolding. Rebecca Pullenayegum, learning and professional development manager at consultancy Charles River Associates, found that out the hard way when the company launched ‘Check In’ in March 2015.

“We put the onus on the employee to drive the process because we felt they needed to demonstrate that they wanted to develop by proactively seeking feedback,” she says. “We set broad guidelines – that feedback would be meaningful, and that people were clear on what was expected of them and what they needed to do to advance their career – and we trained people in how to give and receive feedback. Other than that, all we did was set frequency expectations. But we soon realised that people needed some challenge to make sure the dialogue was happening.”

One way they do this is through twice-yearly calibration meetings – similar to more traditional performance management conversations – where an individual’s line manager, the manager of the project they’re working on and HR get together to discuss their performance. “It is very obvious if the line manager hasn’t ‘checked in’ with their team member recently, so this is a way of holding them to account,” says Pullenayegum.

Perhaps counter-intuitively, the verbal feedback from the supervisor to the individual is more direct and honest than it used to be when they wrote it down. “They used to be kinder to people, perhaps because negative comments in black and white seemed a bit harsh, so they toned them down,” says Pullenayegum. “And there is far less quibbling by individuals about whether or not the feedback is fair or accurate.”

New companies have the luxury of a blank sheet of paper when it comes to crafting new approaches to performance management. “We wanted ‘Personal Best’ to be an experience rather than a system,” says Grace Hannah, director of people at commercial radio group Communicorp UK, which was founded in 2014. “But people do have goals – which are really stretching because we want them to step out of their comfort zone – and objectives to achieve along the way.” Employees are assessed not just on what they do, but how they do it, adds Hannah: there are measures of how they live the company’s values and deliver on its mission statement.

L&D needs are monitored too, but it’s the fourth and final element of Personal Best that’s perhaps the most unusual: ‘Life goals and dreams.’ “Someone might set themselves the goal of doing a half marathon, paying off their overdraft or building an extension on their house, and at the quarterly check-ins managers ask them how they are progressing there too, and give them the same challenges and support that they do for their other goals and objectives,” says Hannah.

The project, developed with support from consultancy The Culture Builders, would have “fallen flat” without managers’ support, says Hannah. “The power comes not from the process, but the conversations. Our managers really understand how and what to dial up and/or down for every individual, depending on what aspect of performance they are talking about.”

Introducing a new approach to performance management in a more established and traditional business is more difficult, as Kerry Dewar found out when she joined Edinburgh Napier University eight months ago as its director of HR and development.

Before Dewar’s arrival, there had been a very functional performance development review process. “We set up a new framework – ‘My Contribution’ – which comprised objectives, development and career progression,” she says. It aimed to promote richer conversations, facilitated by embedded HR business partners, that would help academics to not only do research that enhanced their own profiles, but that also linked to the university’s overall strategy.

That was all well in principle, but Dewar and her team found it a tough sell to staff and trade unions, which feared the imposition of ‘private sector’ practices. But she’s confident resistance and fear will diminish as trust builds and people get used to the new approach, particularly as pay reviews are kept separate from performance conversations.

Retaining the rating system was also a difficult choice, Dewar says, but she felt it was necessary to “identify the ‘shining stars’ and help them progress. We had lots of debates around this, and decided to keep them for now because they encourage the honest conversations that people are bad at.”

Deciding whether or not to have ratings, and which kind to use, really depends on the organisation’s culture. Ledford argues that conversations that focus on performance rather than the rating it produces are more fruitful. But Gooding argues that some people like ratings because they like to know where they stand – although he acknowledges that, in some parts of the world, “people have committed suicide because their rating is lower than their peers”.

As part of its new performance appraisal approach, software company SAP has done away with ratings, although it tries to identify ‘catalysts’ who drive change in the organisation, says UK HR director Tom Loeffert. And instead of calibration meetings it runs ‘talent roundtables’, which Loeffert describes as “conversations about people’s careers, interests and strengths, based on what we all know about them, and how to match their strengths and interests with new roles and development opportunities”. This, he says, “shifts the tone and the tenor from something where you were fighting for a particular rating for one of your team, towards something that is much more positive and supportive”.

Taking the time to understand what drives and motivates people as individuals is a new undertaking for SAP, and Loeffert says it is helping to build the employee engagement that ultimately drives performance. “We want people to believe that their manager cares about them, has a vested interest in their future and their development, and is helping them achieve their goals. We are coaching our managers to get them comfortable with engaging in that discussion.”

Ledford is yet to be convinced about how effective the new approaches will be. “It depends to a large extent on whether we’re getting the culture right,” he says. But he is heartened by the fact that performance management has moved up the HR hierarchy. “At least the right people are involved now. Until recently, it’s mostly been done at a functionary level, but a recent study we’ve done found that the leaders in this area are now CEOs and the senior echelons of HR.

“Doing performance management right is hard work – but it’s far better for the individual and the organisation than the perfunctory conversations of old.”

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