Fixing performance management

To completely do away with performance ratings for employees is to throw the baby out with the bathwater

Published: 21, Dec 2016

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement, and health solutions. We advise, design, and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability, and wellness. Aon Hewitt is the global leader in human resource solutions, with over 35,000 professionals in 90 countries serving more than 20,000 clients worldwide across 100+ solutions. For more information on Aon Hewitt, please visit aon.com/india

Photo: Shutterstock
Photo: Shutterstock

Performance management continues to be a hot topic, as the media and social media discuss how some global corporations and a few Indian organisations rid themselves of performance systems and ratings. Yet, despite all the trends and hashtags, few things in talent management have been as misunderstood as performance ratings. With all the headlining in the media and social media, it would look like every company in India, and across the globe, is ready to jump off the Bell Curve. But too much talk on the subject does not make this a reality.

In India, a handful of companies have done away with the Bell Curve and few startups, that have a healthy disdain for Human Resources (HR), have chosen not to tread that path from the beginning.

Facts are facts
However, only a small number of organisations have given up ratings, or even plan to. Our McLagan 2015 Performance Management Practices Study reveals that nearly all financial services organisations use a traditional performance rating scale.

Even in the technology sector, the industry most on the ‘cutting edge’, things aren’t much different. Our Radford Global Technology Trends Report shows that the share of companies that do not use performance ratings is just 10 percent. Of those that currently use ratings, only 8 percent are considering whether or not to drop the practice. So not everyone is changing their performance management system, in fact their numbers are in a minority.

The conundrum
But this does not mean that the current system is perfect. All stakeholders agree that it can be much more effective than what it is: Managers see it as a necessary administrative evil and continue to hide from uncomfortable conversations with employees. Leaders are concerned about performance distribution and question the value of the process itself. Not all employees make the ‘high-performer’ cut; as a result many blame the ‘system’ and challenge their ratings. The HR is on the receiving end of all complaints and questions are asked on whether the exercise is worth the hassle.

It shouldn’t come as a surprise, then, that some organisations have declared performance reviews and ratings as simply not worth the effort. The rest are left with many questions.

Aon Hewitt’s View: Let’s not fall into the trap of false choices; instead let’s focus on making performance management effective
Underlying the push to get rid of ratings is a set of false choices. One of the earliest incorrect assumptions put forward was that ratings get in the way of effective manager-employee conversations. We question whether choosing to eliminate ratings will lead to more frequent conversations. If managers were relieved of hours spent on performance management, should we assume they will spend those hours coaching employees?

If one considers the Indian industry sectors with large employee population, most face the issue of people managers not being equipped to handle difficult conversations or even have an objective discussion on goals for their teams.

And why assume that assessing employees and coaching them are mutually exclusive? In fact, coaching relies on assessment. How does one provide feedback without assessing performance?

The real issue is not eliminating performance ratings. It’s making performance management effective in the context of your industry and your organisation.

Here is how it could be done better:
Clarify the purpose
What are you really trying to achieve? Drop the laundry list and prioritise based on your business direction and its talent implications—then be sure to consider the trade-offs inherent in design. You’ll have to make choices; different objectives should lead to practical differences in your process.

Align your talent philosophy and culture
The way you manage performance needs to reflect your unique culture, working environment and talent needs. What works for one organisation won’t necessarily work for another.

Simplify and streamline
Ensure performance management is a business—a driving process rather than an HR chore—by resisting the urge to add complexity.

Differentiate and make the tough choices
If you want to pay for performance, you need to differentiate. Call it ‘ratings’, ‘assessment’, ‘outlier identification’, or whatever you want; as long as you know who your top, strong, and low performers are. Be transparent and then follow through so your strategy, design, and pay actions are in sync.

Develop and make it an ongoing conversation
Prioritise the human element and the need for continuous managerial feedback and coaching with a regular cadence of interactions. A once-a-year review with your employees won’t cut it. Hold your managers accountable—it can be done.

Execute with intention. The best design will fall flat if not executed well
Remember,
• Leaders should act as role models
• Employees should understand the purpose of the exercise
• Managers have the skills and tools they need
• Your talent lifecycle practices are aligned and work in concert
• Technology is an enabler rather than a burden

- By Sandeep Chaudhary, chief executive officer, India, Aon Hewitt Consulting

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