The classic performance appraisal process has always been a much-debated system. Following a request to review to “fix” the performance management system, the head of a United Nations agency commented to us, “Our employees don’t like our performance management process, our managers hate it and our executives won’t support it.” Unfortunately, this seems to be a common theme.
Although there have been many attempts to make a change, it still seems like performance management systems are not working as well as they should. Adobe was one of the companies that went public with a major change a few years ago, essentially abolishing their system with a newspaper headline: “Adobe Set to Scrap Annual Appraisals.”
In reality, Adobe did not abandon the performance management system but instead eliminated the annual performance review and replaced it with a “check-in” process. Even Accenture went public with their announcement that they have eliminated their performance management system..
Every organization must have some type of performance management system. Last year, as people were returning to work, we saw additional focus on the performance management system. Many performance management systems were suspended during the pandemic but are now coming back, leading to a Wall Street Journal headline, “The Dreaded Performance Review Makes a Comeback.”
Now we are seeing the use of performance management systems to avoid layoffs. Meta’s head of engineering told his managers, “To identify and report low performers so they could force those employees out of the company, in the latest sign of belt-tightening in the social-media giant.”
If performance management is now used as a tool to force people out of a job, that doesn’t help the perception of this important process. It would be refreshing to see a headline, “Company X is Using the Performance Management System to Double their Performance in the Next Two Years.” Performance management can be a huge business contributor. But first, let’s review how work performance is measured.
Workforce performance basics
It is helpful to understand the fundamental issues about delivering and measuring employee performance. Figure 1 describes the types and levels of performance data generated in the process.
Figure 1. Work performance chain of impact
| Level | Measurement Focus | Typical Measures |
| 0: Input↓ | Input into the work, including indicators representing resources, scope and costs. | Number of people working, hours worked, costs of employment, budget, access to tools, technology, materials. |
| 1: Reaction↓ | Reaction to the work, including perceived value of the work. | Relevance, importance, fairness, appropriateness, motivational, necessity. |
| 2: Learning↓ | Learning to do the job including the confidence to be successful. | Skills, knowledge, capacity, competencies, confidence, contacts, credentials. |
| 3: Application and Implementation↓ | The actions taken, use of tools, knowledge, materials and systems in the work environment. | Extent of use, frequency of use, actions completed, success with use, task completions, barriers to use, enablers to use. |
| 4: Impact | The consequences of actions and use of the tools, materials, and system expressed as business impact measures of output, quality, cost and time. | Productivity, retention, revenue, accidents, graduation rates, quality, errors, cycle times, costs, patient outcomes, efficiency, customer satisfaction, employee engagement. |
Level 0 is input into the work environment. These are people and time involved plus costs needed to do the job — the necessary prerequisites for a person to perform the work. The next four levels are outcomes from those individuals.
Level 1 is reaction. Employees must see that their work is important, relevant, necessary — maybe even exciting, motivational or inspiring. This is essential because an adverse reaction may cause unsatisfactory performance. The work should be designed and communicated properly to obtain the desired reaction.
Level 2 is learning to do the work, which may occur on the job, through previous experience or through education, training or rotational assignments. Either way, the employee must have the capability to do the job properly. If learning is inadequate, performance will be unsatisfactory.
Level 3 is application, where actions are taken, tasks are completed, technology is used, procedures are followed and behaviors are applied. This is what is visible — what others see when people are working. Describing the activity of doing the work is important for remote work.
The key is Level 4, impact. Team members are busy with activities, but are they having an impact? The impact of each individual’s work includes personal productivity (output), the mistakes made along the way (quality), the time it takes to do the work (time) and the costs accumulated in the process (costs). Output, quality, time and costs are the four major categories of impact. These are often measured in systems or databases.
Although these data items roll up to the measures at the top — output, quality, time and cost — it all begins at the individual level, driven by the chain of impact detailed in Figure 1. These measures, arranged in a logic chain, are critical for remote employees. They reveal the different points where things can break down. The purpose of a performance management system is to ensure that work is executed effectively and efficiently.
Performance management systems need attention
Performance management systems exist in every organization, ranging from loosely organized approaches in smaller firms to detailed, documented and bureaucratic processes in many large organizations. Of all the human resources programs designed to improve performance, performance measurement systems stand out as the most disappointing processes. In far too many organizations, the process doesn’t work. Employees perceive themselves as victims of the process, managers see themselves doing something that is not necessary and the executives are disappointed with the outcomes.
However, things are improving. Figure 2 shows how performance management systems are shifting. This figure shows the previous approach and the future approach needed.
Figure 2. The performance management shift
| Issue | Traditional | New Approach |
| Executive view | A necessary process | A business driver |
| Purpose | Documentation, managing poor performance | Performance enhancement |
| Goals | Rigid and specific | Smart and flexible |
| Review frequency | Once or twice per year | Frequently |
| Rewards | Closely guarded, rare | Routine, transparent, based on performance |
| Design focus | Top down | Bottom up |
| Documentation | Bureaucratic and extensive | Simplified and flexible |
| Business alignment | Vague, top-level measures | Specific business measures at the individual level |
| Evaluation Focus | Measure the process | Specific business measures at the individual level |
| Preparation and Support | Training for managers | Training for managers, employees and teams. Resource tools and centers. |
The executive view
It is important for executives to view the performance management system as a tool that can drive performance. In theory, it’s usually discussed in those ways. But in practice, it seems to be different.
Purpose
The purpose of the system has been diluted and misguided, morphing it into a documentation process for defending the organization in case there is a challenge. It is perceived as a process for managing inadequate performance and a tool for documenting the rationale for pay decisions. It has rarely been perceived as a process of taking average performers to above-average performers.
Instead, performance systems often require managers to spend more time with the high performers (documenting why they are high performers) and the low performers (documenting why they are low performers and the actions planned). This does not leave much time for the average performers, where most of the improvement can occur.
Goals
In traditional systems, goals were sometimes rigid, set for the year with little flexibility for change. Goals should be flexible, changing as situations change.
Goals are too often nonspecific or vague. Goals should be precise, especially for application and impact, as shown in Figure 3. This is critical for remote employees. The key is to have objectives with key results (OKRs) or SMART objectives.
Figure 3. Examples of application and impact goals
Application
- Eliminate formal follow-up meetings and replace with virtual meetings by May 1.
- Continue to monitor the audit process with the same schedule.
- Create a procedure by July 1 for clarifying physician orders in crucial situations.
- Use the new skill in every situation for which it was designed.
- Respond to customer inquiries within 15 minutes.
Impact
- Incidents should decrease by 20 percent within the next calendar year.
- Overtime should be reduced by 20 percent in the third quarter of this year.
- Sales should rise by 12 percent during the next calendar year.
- Operating expenses should decrease by 10 percent in the fourth quarter.
- Transaction errors should decrease by 25 percent in six months.
Review frequency
It’s traditional to set goals and review them only once a year, or sometimes quarterly, with little formal feedback in between. The best approach is to have formal review sessions along with more frequent brief sessions about progress with feedback.
In the Adobe check-in system, there was an ongoing process of feedback and dialogue with no formal written review or documentation. Feedback conversations were expected quarterly with the goal of ongoing feedback becoming the norm. Some prefer to have a performance discussion when someone has done an exceptionally good job, needs support, needs help or is performing below expectations. The key is to have discussions often and not save the good or bad news for a once-a-year visit.
Rewards
The rewards and pay increases that come through performance systems are often closely guarded and rarely communicated within the organization. In more clever systems, rewards and pay increases are more transparent, and the pay-for-performance focus of the system is clearly described and reflected in the way it is managed and administered. The key is to be more routine, transparent and based on performance.
The design focus
The design focus for many systems has been top-down, driven by executives who want to see it implemented. While management has the final approval, the system’s design should come from the bottom-up, with employees having input into what is needed and feasible and what is fair — understanding these issues makes a system more effective.
Documentation
Perhaps the part of the process causing the most problems for managers is documentation. Recently, a manager told us that he had to devote much of the month of December to complete 30 performance reviews, document the discussions and send them to HR by the end of the year. This is not productive. The documentation of the performance management system needs to be as simple as possible.
Alignment
Alignment to key business measures is not clear in many systems, prompting a common complaint, “How does this connect to the business of this organization?” Every employee should have key performance indicators at the impact level, whether they work in business or the public sector. Output, quality, cost and time are impacts from the work in any organization. The performance management system must be aligned to impact. Also, it is important to align the system to the culture of the organization. This often aligns the desired behaviors (application).
The evaluation focus
How do we know the performance system is working? The traditional system’s evaluation process makes sure each employee follows the process, ensuring all forms are accurately completed in a timely manner and properly stored in the system. Instead, evaluate the contribution of the performance measurement system, showing top executives there is a positive impact and ROI driven by the implementation or revision of the system.6
Preparation
Finally, the preparation for the traditional system involves training only the managers. Ideally, the preparation involves training the managers, employees and teams. Although managers still have a key role in the process and will usually make the difference between success and failure, employees need to understand their role as well. Some organizations have created a centralized employee resource center that provides help and answers questions about the process whenever needed.
Revitalizing the performance management system
Follow the checklist in Figure 4 to ensure a redesigned and revitalized system that is workable and appropriate for your organization, managers and team members, even those working remotely.
Figure 4. Actions to revitalize a performance management system
- Identify reasons for previous failures.
- Start over with a blank page.
- Explain the importance of performance management.
- Align performance to the business.
- Obtain input from employees and managers.
- Define roles of managers and employees.
- Secure executive commitment and support.
- Secure support and involvement from managers.
- Define/describe performance.
- Define measures and precision.
- Make the process flexible with ongoing expectations.
- Require mutual agreement of performance.
- Document with simplicity in mind.
- Teach managers, teams and employees.
- Make sure it’s defensible.
- Measure the business contribution of performance management.
In summary, the performance management system is not only necessary — it can be a significant business driver. But in some cases, it continues to be something that is dreaded and hated by employees and managers. We are missing a great opportunity by not making performance management the best tool to drive performance. It can, and it has. When we make comments that we are using the performance management system to remove employees to avoid layoffs, this leaves a very negative image.
We need a headline in the future, “Company X Has Tremendous Results Driven by its Performance Management System.” It can and should happen.
