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P E R F O R M A N C E M A N A G E M E N T DR G ENE J O H N S O N

Performance Management., You Say You Want a Revolution?

P erformance review processes and ratings have had bad press for years. Bureaucratic, arbitrary, subjective, and time- wasting are some of the adjectives used

to describe them. So, it's big news w hen multi-national businesses like Accenture, Microsoft, Deloitte, Kelly Services, Cargill, Juniper Networks, and Gap, to nam e a few, announce that they're getting rid of their ratings and/or simplifying their performance management processes.

But how sustainable is getting rid of performance ratings? A CEB survey conducted in May 2016 found that in workplaces no longer using ratings, managers spent less time in performance conversations with staff and perceived conversation quality decreased; this resulted

Im a g e 1 - T H R E E E S S E N T IA L S - Goal setting - Feedback - Reinforcement

E xecutives Lead on PM

in increased perceptions of inequity and lowered engagement. This is because without the structure and guidance provided by the review process, managers are now unable to do the very things proven to engage employees, e.g., set expectations, hold clear performance and development conversations, and provide appropriate rewards and recognition.

What’s a Performance Culture? Just as performance management systems have focused more on administrative processes rather than meaningful performance conversations, the act of eliminating ratings assumes th at a 'process mechanics fix' is the cure. Years of research looking at ratings formats and rater training reveals that tinkering with process is a waste of time. Instead, effort should be throw n into building a performance culture.

A performance culture is one where performance excellence is the norm. Image 1 depicts the elements within such a culture - and by which you can predict how well firms may fare with their new approaches to performance management. The elements constitute w hat is valued by the employer and is integrated into day-to-day life in the workplace - these should not be 'add­ ons.' M anager capability is vital; although

executives create and embed this culture, managerial

behaviours and actions operationalise the cultural elements into reality. A great m anager is a catalyst, transforming the

raw potential of their staff into optimal performance

excellence. Underlying the cultural

elements are three essential psychological principles. Psychologically, human beings

need these. We need to know what is important and what to do

(goal setting). We need to know how

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Vision & Values Driven

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Focused

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Performance Expectations

S im p le & A g ile Process

well we are doing (feedback). We need our effort and outcomes to be acknowledged (reinforcement). It's vital that these three principles form the basis of a performance management system; everything else is elective.

Survey of New Zealand Practices 2017 Reading the business press, one would get the idea that performance management systems are undergoing major overhauls around the world. I was interested in exploring to what extent workplaces were following this lead, and whether they had performance cultures to sustain such changes. I've conducted surveys with human resources practitioners, managers and business owners in the UK, Hong Kong, Australia, Slovakia, and most recently New Zealand, in collaboration with Pohlen Partners.

The New Zealand data represent 58 employers, mostly sized 500 employees and above (but including smaller as well). It is not a representative sampling of all sectors, but the uniformity of findings with those from other countries provides reassurance that we have an accurate glimpse of what is happening in New Zealand workplaces.

Overview of Performance Culture We asked respondents to describe where they viewed their current performance culture on various continua - 'V being very traditional and process-driven, '100' being dynamic and focused on in-the-moment performance conversations. See Chart 1 for an overview. On average, performance m anagem ent cultures in the New Zealand workplace are still somewhat traditional: more of an annual event (eight out of 10 employers still conduct only one or two reviews per year), driven by standard processes, and appraisal-focused (rather than developmental). There is, however, some movement towards simplification and a continuous-focus-orientation (versus remediation). This overview is borne out by responses to more specific questions.

14 HUMAN RESOURCES | SPRING 2017

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Chart 1 Performance culture perceptions of current state

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Performance Assessment Overall, there are no strong indications of movement towards abandoning ratings or other innovative trends around how assessment is conducted. Nine percent of employers had eliminated ratings in the past three years; this is comparable to seven percent in the UK, nine percent in Slovakia, and CEB's cross-country estimates of three to six percent. For every simplification effort observed, there is a counter 'complexity' trend (see Chart 2) - including the introduction of ratings in an even greater number of workplaces. For the most part, this is 'business as usual.'

Chart 2 Changes in the last 3 years - Performance Assessment

Skilled-up managers’ assessment skills

No relevant changes

Introduced 360-degree reviews

Eliminated 360-degree reviews

Substantially reduced # competencies

Substantially increased # competencies

Substantially reduced metrics

Substantially increased metrics

Eliminated performance ratings

Introduced performance ratings

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The most common activity here is training of managers in assessment skills, although this should not be underestimated (see later). It appears that about a third of employers use some form of 360-degree feedback process and this is growing. However, only two percent of employers have resorted to introducing social media input, where feedback is collected through channels such as Facebook and Linkedln.

Chart 3 Changes in the last 3 years - Feedback Process

Skilled-up manager's day-to-day feedback & coaching skills

No relevant changes

Increased long-term career discussions

More frequent INFORMAL feedback

More frequent FORMAL feedback

Employee-driven feedback

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Feedback Process The ideal is to provide real-time feedback in the moment, as it is needed. There is a trend in that direction, with a third of employers encouraging more frequent informal feedback. A sizeable proportion also require or encourage more frequent formal feedback, although this equates to a 'check-in' - which, if not implemented in the spirit of meaningful feedback, could just be another 'process mechanic' add-on that degrades to unwelcome bureaucracy.

Perhaps the most intriguing result here is the movement towards employee-driven feedback. Where this exists, employees are expected (indeed, encouraged) to proactively seek feedback. The notion is that feedback should not be communicated down in one direction from supervisor to direct report, but actively sought (with the inference, that feedback should also be directed upwards from employee to supervisor). Future research should examine where this 'policy' exists if managers disown accountability for providing feedback as a result; in a performance culture, this would not occur.

Similar to the performance assessment area, manager training is by far the most common activity - and for a good reason: our people managers are not very skilled in giving feedback. Indeed, they appear to be mediocre on a variety of tasks relevant to the three essentials - setting expectations, providing feedback, and recognising/ rewarding (see Table 1). The perceived capability hovers around 'somewhat capable.' The most skilled task, on average, is 'recognising with praise,' although most research in the area concedes that praise is underestimated and provided; studies indicate that for every piece of constructive feedback, there should be three to four praise actions.

Table 1 Perceived m anager ca pa bility

Recognising with praise 3.4

Setting performance expectations 3.1

Linking individual objectives to org mission 3

Setting flexible shorter-term goals 3

Rewarding equitably 3

Giving open feedback 2.9

Providing real-time feedback 2.9

Leveraging OTJ development opportunities 2.9

Being open to upwards feedback 2.8

Giving constructive feedback 2.7

Coaching staff 2.6

5-Point Scale 1 = Not at all capable 3 = Somewhat capable 5 = Very capable

Performance Review Structure and Content This area represents the most innovative activity and change. However, just how radical this change may be in reality is

16 HUMAN RESOURCES | SPRING 2017

Chart 4 Changes in the last 3 years - Performance Review Structure & Content

debatable. Two-thirds of our respondents have simplified their performance review forms; this is certainly supportive of a performance culture, if the simplification allows more time and space for meaningful performance discussions. In contrast only six percent of employers have eliminated or reduced required documentation, which is a stronger indicator. However, since this is countered by one in five employers increasing documentation and tracking, once again the move towards performance culture is muddled.

There are, however, other promising signs of evolving performance cultures (see Chart 4), including a focus on development, organisational values, alignment of individual objectives with the strategic business goals, and flexibility and agility within the performance management system. There's also an interesting move towards future-focus and strengths-based approaches or formats, although there is no clear empirical evidence on their superiority over traditional, past-focused feedback. I would argue that the past-focus or at least some element of it is essential to providing performance direction.

« --------- Build a performance culture, rather than risk ju s t tinkering with process mechanics

------- 99 Im plications for elim inating ratings The issue of doing away with ratings is a 'red herring' - it gets our attention, but isn't really the core issue. You could maintain ratings and still have a performance culture. Still, the question of how to cope without ratings is of great interest. Let's first deal with the 'myth' of eliminating ratings - you can get rid of official ratings, but any time decisions must be made (e.g., pay rises,

bonuses, promotions), some data index, like a ranking is needed and will be constructed, formally or informally.

Our results reveal that 14 percent of organisations resort to unofficial shadow ratings to make such decisions. Shadow ratings are not obvious or transparent to staff, but kept on record somewhere. More commonly, nearly nine out of 10 employers allow managerial discretion, typically within budget constraints, to make these decisions. Again, there may be no official rating, but the manager will have calculated or figured some index of performance ranking, maybe in their head, maybe more systematically. You could argue that this is acceptable, as managers are usually best placed to distribute resources and rewards; however, managers are only human. One study estimated that only 25 percent of a performance rating could be attributed to objective performance, with the rest influenced by subjective factors and error. The CEB findings described at the start of this article, then, come as no surprise.

No revolution, but an evolution needing direction Despite the business press hype, New Zealand organisations (and those in the UK and other places) are

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not dramatically redesigning their performance management systems. We see that fewer than one in 10 employers has eliminated ratings. There are trends towards simplification, with more performance conversations and different ways of structuring performance reviews (typically called, 'check-ins'). As such, there may be an evolution in performance management, although its direction is not imminently clear. Organisations wanting to make worthwhile improvements to their performance management would be advised to focus on building a performance culture, rather than risk just tinkering with process mechanics.

A more detailed survey report is available from [email protected]. HR

Dr Gene Johnson is Managing Director o f Working Matters, a work psychology consultancy operating throughout Asia Pacific. He previously was a lecturer in HRM and Organisational Psychology at the University o f Auckland Pohlen Partners, the sponsors o f the survey are a nationwide HR and recruitment consultancy

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