Numerous Fortune 50 companies have abandoned traditional, accountability-oriented, annual performance appraisal systems. This trend has gained momentum over the past five years. Many early adapters have continued with alternative approaches while others have reinstated some elements of traditional plans.
Some History – Performance Appraisal Systems
Today’s business environment is vastly different from circumstances that existed in the 70’s and 80’s when traditional performance appraisal systems began. The individual accountability approach, as expressed in Jack Welch’s GE model of forced ranking and deletion of the bottom tier, does not fit today’s climate. In this earlier business climate, yesterday’s successes could be replicated to serve as a predictor of future success. Today, things move much more quickly. It is tomorrow’s ideas that drive success. A company can’t afford to perpetuate the status quo. Agility and rapid change are strategic strengths. Talent is more scarce today and must be continually developed to meet changing needs.
Therein lies some of the problems with the traditional performance appraisal model and why change is needed. Performance appraisals that focus on past accomplishments (accountabilities) does not sufficiently address attribute development that will be beneficial in the future such as collaboration, creativity, technological savvy, change and teamwork.
What to Fix
Performance appraisals often are driven by how well one executes a given plan over a designated timeframe. It does not evaluate the quality of the plan nor whether the plan is still appropriate as the circumstances change. The timeframe assigned to a plan is typically driven by the calendar. Thus, there is a year-end push to “finish” performance objectives, even when other matters may take higher priority. While we acknowledge the end of a fiscal year as a discrete event, business is a 24-7-365 occurrence. There is nothing sacred about year-end; important decisions are made daily.
Performance results are often a matter of circumstance. Someone being in the right place at the right time may position them in an elite circle of high performers. Given rater bias that is present in every performance appraisal system, this elite status for a one-time success or one mistake, may ripple into future evaluations.
Traditional performance appraisals are built around individual accountabilities. Yet, we acknowledge that few things in business are accomplished by an individual alone. Everything takes a team of people working toward common goals.
Alternative Approaches
Companies that have abandoned traditional, accountability-based performance appraisals have opted for ongoing feedback models. Here, feedback is continuous, driven by events, employee challenges, and the calendar. For example, at the conclusion of a project or key event, such as the opening of a new branch, or the major software instillation project, a manager meets with the team leader and team members to debrief the experience and critique what went well and where future improvement is needed. An after-action summary is written and preserved for future reference.
Managers and employees meet quarterly to discuss performance. The focus of the discussion is 20% on past performance and 80% on the future. To a degree, this structure helps remove the angst that both employees and managers have over annual performance evaluations. The discussion shifts from being critical to being helpful, making it more constructive. Also, some organizations are incorporating 360° feedback from peers and others.
Life Without Ratings
Many organizations that adopt alternative approaches are abandoning performance ratings. Some are not providing a rating at all. Some have shifted to a narrative rating rather than a numerical one. Others use multiple ratings on different elements of the performance evaluation, such as accomplishments, collaboration, communications, personal skills development, and technical skills development.
Removing ratings altogether creates some problems with other HRM systems. Awarding merit pay increases requires differentiation based on performance. Without some way of gauging individual performance, it is difficult to decide how to allocate talent development resources. Employees want to know where they stand. When performance difficulties are encountered, it is necessary to record evaluations and performance improvement plans.
What to Do
It is time to take a hard look at changing the traditional approach to performance evaluation. The new models are a better fit with today’s business environment and the new workforce. Yet, there remain some traditional aspects, e.g. ratings that are important to other management processes. So, proceed, but don’t be too quick to abandon the elements that still play a useful role.