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Sept. 27 — Are employee ratings a relic of a bygone age or an essential part of performance management?
“There is not one best way” to do performance management, because organizations vary fundamentally in their cultures and resources, Steve Hunt, senior vice president of customer value at Walldorf, Germany-based international software company SAP, told Bloomberg BNA Sept. 27. However, “if you pretend you are not categorizing people, bad things happen.”
At companies that have actually tried to do away with employee ratings, “everyone feels good for a year” as the stress of ratings seemingly vanishes, “but then 18 months out they ask why they’re not getting the results they expected, and the whole thing blows up in their faces,” Hunt, an industrial organizational psychologist, said.
In his view, performance management can be divided into two main aspects: ongoing employee coaching that is not tied to any rating system, and “total workforce performance management” to identify “the best people we can’t afford to lose” as well as struggling employees who need help, both on their own behalf and so that they don’t discourage the high performers. “Every company” rates its employees based on their perceived value to the company, simply by paying people differently, Hunt said.
That’s not the view at Dublin, Ireland- and Southborough, Mass.-based social recognition provider Globoforce. Rating systems and their flaws go back as far as the third-century Chinese civil service and the 19th-century British Royal Navy, Melanie Schrems, Globoforce strategist and consultant said. In the 20th century, the U.S. federal government set the standard for performance rating with a system for federal employees introduced in the 1950s, which many also found unsatisfactory, she said.
“It appears as though our performance management process is stuck in time,” Rob Schmitter, solutions architect at Globoforce, said. “It doesn’t seem to change like other aspects of HR do.”
And yet, there is “universal dislike for the current process,” Schmitter said, which he called a “reckless waste of time and money.” For a 10,000-employee company, he said, traditional annual reviews cost an average of $3 million a year.
There’s also a psychological cost, Schmitter said, in that research shows half of employees are surprised at their performance rating, of which “90 percent are unhappy because they expected a higher rating,” and among those upset employees, engagement drops by 23 percent.
Other problems with traditional performance management, Schmitter said, are the discussions are backward looking rather than “developmental”; the process is “not aligned with the changing workforce demographic preferences,” especially among younger employees”; only limited perspectives are considered; there are “social cognition biases” such as managers unconsciously rating subordinates higher if they are similar to them, or generalizing about their subordinates’ performance based on a few possibly unrepresentative incidents; and there is a “failure to evolve with shifting business priorities.”
Some influential companies are changing this model. For example, GE, which used to have very standard annual reviews, now has “check-ins” as frequently as every two weeks, Schmitter said. The company also has developed a mobile app for exchanging feedback, is experimenting with “pilot groups without actual ratings” and is emphasizing “positive-toned coaching.”
Technology company Adobe, too, has moved to more frequent conversations about performance, focusing on “what employees have achieved against their goals” rather than comparing them with other employees, Schmitter said. Microsoft, too, has jumped on the more frequent performance feedback bandwagon, he said.
A study by Workspan magazine and the Center for Effective Organizations, Schrems said, found 97 percent of organizations were using ongoing feedback, 50 percent were using ratingless appraisal and 25 percent were using crowdsourced feedback. Combining ongoing and crowdsourced feedback was “most effective,” she said. But all three of these practices were praised by Schrems and Schmitter.
Hunt said annual reviews were never designed to make managers coach subordinates only once a year, but were a “pencil-and-paper-based” system that made ratings possible when computers weren’t yet available. Cloud-based systems have led to “an explosion of creativity” in this area, he said, adding that “what works at one company can fail miserably for another.”
Change is coming because companies “can’t tolerate crappy management anymore,” Hunt said. When it comes to rating people, the key is for the process to be transparent, he said, not to pretend it isn’t being done at all. To arguments that employees get an anxious, “fight-or-flight, reptile-brain” response to being rated, Hunt said he responds that people “get more nervous if they’re being rated and they don’t know how they’re being rated.”
Schrems and Schmitter were speaking Sept. 22 in a webinar sponsored by Workforce magazine.
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