This article was published in the December Issue of NZ Management Magazine.
Performance reviews are changing and although not yet prevalent here, some overseas countries are using crowd-sourced feedback from all employees.
Performance reviews are about having an open discussion around how an employee is doing and what development opportunities exist for them within the company.
It is important for employees to understand their part in the organisation’s success and managers should involve employees in setting out how they can contribute to wider success going forward.
Organisations want to see an increase in performance, engagement and productivity, so if their current processes are not delivering results, they may review how they approach performance across the company.
Some organisations now recognise the need for a different conversation, while for others it’s about frequency or streamlining the process. Let us consider what constitutes a performance review and strategies to consider if change is afoot.
In order to make processes and procedures more efficient and effective, organisations are trying to reduce the amount of time spent completing paperwork during the review process. Instead, they are making the review process about outcome-focused conversations. Companies are becoming less concerned with giving employees formal ratings and instead want to ensure that the conversation between managers and employees is meaningful.
They are also concerned with ensuring that managers are skilled enough to focus their discussions on an employee’s strengths rather than their weaknesses.
Another key change is the frequency of performance-related conversations. Traditionally an annual event, performance reviews are now taking place quarterly, at the very minimum, to move the process away from being a yearly form-filling exercise.
Although not yet prevalent in New Zealand, some overseas countries are using crowd-sourced feedback from all employees within the company and those outside of it to reveal true performance and influence beyond the opinion of one person. It also means social recognition is captured immediately rather than being a once a year formality.
So what do companies need to keep in mind when deciding how to manage performance reviews?
Where pay remains linked to performance but formal ratings are done away with, managers typically begin allocating increases on the basis of their own budget.
When they do this, they’ll almost certainly be applying an informal rating, even if the terminology they use has changed. The only way to avoid this is where across-the-board increases are applied and pay is not intrinsically linked to performance review.
However, managers will not be rewarding talent and keeping key employees will be a challenge.
If companies do want to differentiate on the basis of performance, they must ensure evidence is captured appropriately. Ratings are in place to promote fairness, transparency and talent development – getting rid of them could be an over-reaction to poor execution.
In either case, the ability and willingness of managers to hold conversations in a way that supports good, open and honest two-way conversations will affect how useful performance reviews really are.
Managers need to be confident in talking about past performance, both good and bad, as well as future expectations for improvement.
Companies wanting to ensure that their performance reviews are truly effective need to implement training in holding difficult conversations, situational leadership and managing bias.
It’s also important that every employee’s job description seamlessly flows into the company’s wider objectives and policies, to minimise the impact of subjectivity and bias.
Frequency of feedback is another important consideration – annual conversations are not enough. However, with more regular feedback comes the hurdle of ensuring that colleagues are not so put off by the long-winded process, that reviews are avoided altogether.
There needs to be a system that is time-efficient and valuable to both the employee and the manager – especially if the review does not relate to pay. Part of this is about capturing behaviour-related performance, as well as traditional financial measures, and agreeing on a useful development plan.
There are a number of considerations to take into account when reviewing the performance review process to ensure that it achieves a desired result and aligns with the organisation’s strategic goals.