What is intended to pass for performance management in too many organizations today is the annual compulsory performance review. To label this a “performance management system” is to give the process much more credit than it deserves. A perfunctory meeting between a manager and employee once a year to review a standard rating sheet that lists competencies and goals that are probably no longer relevant is not a performance management system.
Elaine Pulakos and Ryan O’Leary have recently published a well-documented paper in Industrial and Organizational Psychology that explains the strengths and weaknesses of common approaches to annual reviews (Elaine D. Pulakos and Ryan S. O’leary, Why Is Performance Management Broken? Industrial and Organizational Psychology, 4 (2011), 146–164.). They examine: 1) linking individual employee goals to overall organizational goals; 2) setting SMART (specific, measurable, attainable, relevant, time-bound) performance goals for each employee; 3) rating performance on a list of pre-defined competencies; and 4) collecting, analyzing, and reporting performance data from multiple sources, such as co-workers, customers, and supervisors. I would add one more: ranking individuals according to their managers' opinions of their performance (observed or not). The authors didn't include "ranking" in their study probably because they can't believe any organization would actually use such a disruptive method as its performance management system.
Each of these common approaches sounds good in theory. What could be wrong with aligning goals, having SMART objectives, being judged on the basis of needed competencies, and getting evaluative data from multiple sources (triangulation)? The problem according to Pulakos and O’Leary is in implementation of each method over time. Follow-through is highly time-consuming, is inconsistently applied, and relies too heavily on subjective and capricious ratings of managers. The alternative, according to the authors, is to improve the on-going manager-employee relationship. They write:
…concerns on the part of managers and employees prevent formal performance management systems from working well and have turned them into largely administrative drills that add little value. Contributing to this is the fact that performance management implementations tend to focus on rolling out formal administrative processes and tools (e.g., competency models, rating scales, and automated systems) rather than training managers and employees how to engage in effective performance management behavior (e.g., setting expectations, providing feedback, and helping staff solve problems). However, it is the informal process of engaging in these behaviors day-to-day that determines performance management effectiveness, not the tools and steps that comprise the formal system. (p. 148)
They recommend that organizations stop installing new performance management systems and start paying greater attention to manager-employee relationships. They cite a study by the Corporate Leadership Council that found that managers, not performance management systems, were the key to improving employee performance.
The results revealed that specific manager behaviors are some of the most important drivers of performance. These include (a) helping employees understand what they are expected to do in sufficient detail to deliver it, (b) supporting and helping employees find solutions to problems, (c) playing to employees’ strengths rather than their weaknesses by giving them assignments they can do well, (d) developing employees productively by finding a balance between acknowledging strengths and contributions and addressing development needs, and (e) engaging in regular, informal performance conversations in which managers provide feedback that is fair, accurate, and helps employees do a better job.
In essence, performance management depends on effective communication and trust between managers and employees. A "learning alliance" must form between them in order for both to contribute fully to the organization. If the purpose of performance management is for managers to check off that an annual performance review has been completed for compliance purposes, then one of the four common approaches identified by Pulakos and O’Leary will do just fine. However, if the purpose is to improve performance, then the focus must be on the quality of manager-employee relationships. (For examples of effective communication and trust-building, see Communication in High Performance Organizations: Principles and Best Practices.)
