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Performance Management

Global Leadership Forecast 2018

Performance Management:

Are Ratings Overrated for Growing Leaders?

Evan Sinar

Several years into the “performance management revolution,”* debate continues on how best to approach the core, yet deceptively nuanced, managerial activity of holding performance discussions with employees. Many organizations have overhauled (in some cases, multiple times) their approaches to these conversations, oscillating across a matrix of how often (frequency of performance management meetings and revisions) and how development-centric (proportion of discussion time devoted to personal development versus administrative oversight). While a trend is gradually taking shape toward performance management that is more frequent, less formal, and centered around future growth, research is limited about which approaches work best. Our research addresses these topics with a global sample pairing organizational practices with leaders who are both engaging and participating in (with their own managers) performance management discussions.

Performance Management

Top Three Performance Management Practices

We started with a foundational question: What practices produce better performance management? Those that tend to drive effectiveness:

  1. Performance management is fair and transparent at all levels (31 percent increase in effectiveness).
  2. Performance management discussions focus heavily on development planning (25 percent increase).
  3. Performance management discussions occur continually, rather than yearly (24 percent increase).

The data shows that performance management works best when fair, focused on development, and frequent. While these findings might not be surprising, it’s notable that only 34 percent of companies consistently have all three practices in place with their leaders. That is, just because it’s logical doesn’t mean it’s being done. Two-thirds of companies are falling short.

Stepping outside the core performance management program, we looked at how this system relates to the broader context of aligning and reinforcing leader performance. High-caliber performance management occurs simultaneously with several other practices: leaders exhibit and receive feedback on key skills, leaders regularly review development plans, and the organization has up-to-date knowledge of leadership talent capability (essential for analytics and workforce planning).

What’s the Impact of Dropping Ratings?

One of the most controversial, discussed (though rarely researched), and disruptive trends in performance management is the elimination of ratings. We found that 20 percent of companies have done so. This shift was particularly common in rapidly changing markets: China and India, and the professional services and technology industries. What’s the impact? Is this a sign of progressive action or of a retreat from solid practice?

When ratings are eliminated, the impact on performance management effectiveness is relatively slight—just a 7 percent boost. However, it was linked to a sizeable increase in leader quality and bench strength as well as two forms of gender diversity. Companies that drop ratings have more women leaders as high potentials and at senior levels. Removing ratings appears to reduce diversity-limiting bias.

Double-Down on Development

After finding that both development focus and discussion frequency were driving factors of performance management effectiveness, we dug deeper to gauge which matters most. For organizations advising their leaders, what should they recommend?

What leaders talk about matters far more than how often. Engagement levels for those whose performance is being managed surge when at least 75 percent of the discussion centers on development (only 16 percent of leaders get this currently). The primacy of focus over frequency is so strong that it’s better to have a 75 percent focused-development conversation once a year than a 25 percent development conversation weekly. While this certainly isn’t recommended—frequency is important for many other reasons given the pace and agility of business—it shows development’s dominance.

The benefits of a development focus for performance management are no less powerful for leaders and organizations. For leaders, it’s strongly linked to career path clarity, satisfaction with advancement, and strongly counteracts turnover intentions. For organizations, it’s linked to higher leader preparation to face business challenges of customer change, digital business, and using data to guide decisions.

* Capelli, P., & Tavis, A. (2016, October), The Performance Management Revolution, Harvard Business Review.

Where to Start
  • Establish process fairness and transparency. Clearly communicate the factors used in ratings, updating as needed when expectations change.
  • Center the discussion agenda on development. Though it’s rarely possible to focus solely on development, prioritize it highest (ideally, 75+ percent) to maximize outcomes.
  • Target a quarterly cadence. More frequent in-depth performance management discussions are linked to higher engagement; however, these advantages decrease beyond every three months.
  • Gauge satisfaction with career pathing and advancement. The more often managers meet with and revise leaders’ performance plans, the more positively they view career progression.
How to Excel + Differentiate
  • Eliminate ratings only after recognizing the effects and planning to fill the information gap. Dropping ratings is linked to higher leader quality, bench strength, and gender diversity. Companies that take this step keep emphasis on talent status and often repurpose to development the time once spent discussing ratings.
  • Match the frequency of performance discussions to the pace of business. When discussions are held more often, companies experiment more, are more agile, and have better adopted digital technologies.
  • Coach managers to drive engagement through development discussions. Solid (and often-reinforced) manager skills are vital to repeatedly plan and conduct personalized, growth-focused discussions.
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