2% of CHROs Think Their Performance Management System Works

Two percent of CHROs from Fortune 500 companies Gallup recently surveyed strongly agree that their performance management system inspires their employees to improve.

Employees tend to share this perspective -- only one in five report that their performance reviews are transparent, are fair or inspire better performance.

Traditional performance management practices have been lackluster for some time. When the pandemic hit, some prominent corporations temporarily threw out their performance reviews and metrics altogether, allowing employees a “gimme” on 2020.

What they discovered, perhaps unwittingly, was that their way of managing performance did not coincide with a disrupted, dynamic and digital business environment.

Re-Engineer Performance Management for the New Workplace

It’s no surprise that many executives are concerned about lower productivity in a post-pandemic world where they lack control over the performance of many hybrid and remote employees working out of sight.

In response, Gallup conducted a nationally representative study of 18,665 U.S. employees to assess the current state of performance management. We identified three opportunities to improve performance management systems across all industries.

1. Clarify expectations.

Only 47% of employees strongly agree they know what is expected of them at work. That’s down from 56% immediately preceding the pandemic and 61% in 2015.

The most fundamental aspect of productivity is knowing what’s expected of you. Without clear expectations, there is no agreed upon standard or roadmap for success.

Clear expectations begin with effective goal setting. However, great goal setting is not as simple as telling people to set SMART goals or create a balanced scorecard. Rather, our research shows that the most effective goal setting methods do the following:

• Collaboratively include employees in their own goal setting. This means that a manager and an employee meet to discuss responsibilities, tasks, outcomes and roadblocks. Most managers don’t do this. However, when employees are actively involved in their goal setting, they are two times as likely to have clear expectations.
• Add team and customer goals to the mix. Across all industries and job types, the most common type of performance goals for employees are individual goals (58%). And yet managers rank team and customer goals as more important than individual goals, despite employees receiving them only 36% and 19% of the time, respectively. By adding team and customer goals to performance scorecards, employees are far less likely to focus on their own priorities at the expense of their customers and teammates.

2. Inspire progress on goals.

Fifty-six percent of employees formally review their performance goals with their manager once a year or less.

The folly of traditional annual performance reviews is that people receive goals at the beginning of the year that they do not formally discuss with their manager until the end of the year -- if those goals are even still relevant. That approach didn’t make sense before and is likely counterproductive in today’s dynamic workplace. And yet it remains the most common employee experience.

It’s time to flip the script and make performance management a way of working rather than an episodic process focused on logging performance ratings that occur too long after the fact and assume a false sense of precision in a manager’s subjective judgement.

Instead, progress on goals accelerates when organizations:

• Revisit goals during quarterly progress conversations. Employees and their manager need to revisit goals frequently to ensure those goals are still meaningful and realistic. Progress check-ins are just as important to clear expectations as goal setting. When employees have quarterly progress checks, they are 90% more likely to be engaged and 2.1 times as likely to feel the process is fair and transparent.
   
• Integrate team check-ins with quarterly goal progress conversations. Clear goals are a great start, but the real magic happens when teams are aligned on their shared goals and assume collective accountability for achieving them. In fact, team and customer goals make little sense in a one-on-one performance discussion when both objectives require strong collaboration. Instead, kick off quarterly progress reviews with team conversations about how they can achieve their shared goals together.

3. Improve performance evaluations.

A mere 22% of employees strongly agree that their performance review process is fair and transparent.

Oddly enough, performance evaluations don’t always match up with performance goals. Too often, employees are asked to do one thing and assessed on something else. This only magnifies unclear expectations.

As one person we interviewed explained, “Our rating system feels distant from the work being performed.”

The truth is that measuring performance is difficult. There is not a set of metrics that works well across all roles. Performance reviews often rely on too-general metrics or the subjective judgment of a single manager.

Yet performance reviews are a powerful tool for empowering employees to perform and develop. Performance reviews that inspire improvement and personal growth do the following:

• Assess performance with multiple inputs. Employees report that their performance evaluations are most often based on their manager’s observations (67%) and performance ratings (54%) -- both subjective methods for evaluating work. Despite being among the most important aspects of performance, team goals, customer metrics and other objective measures are far less likely to be part of evaluations. It is best to use a multi-source approach to measuring performance that includes a mix of objective and observational measures. The holistic nature of this approach reduces bias inherent to manager ratings while inviting detailed feedback on aspects of performance that are difficult to measure.
• Include development goals. What gets measured and paid, gets done. Managers too often deprioritize development goals at the expense of performance goals. If you expect your team to continually improve and grow, consider making critical development goals as important as their performance goals.
• Omit pay and promotion conversations. While performance should always inform pay and promotion, discussing them during performance reviews detracts from the feedback and lessons learned. A separate pay and promotion conversation allows managers to spend more time explaining how these decisions are made and what it takes to get to the next level.

Fixing productivity concerns requires fixing performance management.

Gallup research shows that if organizations ensure their workers have clear performance expectations -- even simply by encouraging more frequent and consistent manager-employee goal progress conversations -- they are highly likely to see immediate benefits to productivity. Addressing the thornier process of creating the perfect set of metrics or subjectively assessing behaviors takes more time, but there are best practices to emulate.

Ultimately, the benefits of unifying an organization’s goals and priorities go far beyond improving productivity. Clear expectations are the foundation of transparency, fairness, empowerment and meaningful work.