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The talk in the HR world for many years now has been that the end of the annual performance review is nigh. Indeed, a raft of large companies, such as Microsoft, IBM, GE and Accenture, hit the headlines about four years ago, after stating such appraisals were no longer fit for purpose and that they were formally ditching them.
Such a stance would appear to have some justification, too. A US study based on the performance ratings of 23,000 staff from 40 companies found no sign that this kind of yearly evaluation had any impact on profits or losses, or bore any relation to organisational performance.
In fact, the research conducted by Herman Aguinis, professor of management at George Washington University, and Ernest O’Boyle, associate professor at the Kelley School of Business at Indiana University, indicated that in most instances an organisation’s top 1% of workers account for 10% of its total productivity.
In other words, no matter how long managers spend on undertaking annual performance reviews, the vast majority of workers, who are generally competent but unexceptional, make roughly the same contribution to the company’s bottom line.
As a result of such scepticism, combined with widespread dissatisfaction among employees, managers and HR professionals alike with activities that all too often end up being tick box exercises, the concept of continuous performance management (CPM) was born.
CPM involves managers and employees – and even teams or the wider organisation – exchanging feedback over the course of the year rather than as a one-off event. But it also includes activities such as short-term objective- and long-term goal-setting as well as regular one-to-one input taking place too.
This approach was believed to promise great things in terms of making interactions between staff and leaders more pertinent and timely, while reducing managers’ admin burden at the same time.
As Robert Ordever, managing director of OC Tanner Europe – which provides employee recognition and reward software and services – points out: “Our latest research indicates that 92% of people describe ‘employee experience’ as their everyday work life rather than milestone moments. So the employee experience is what’s happening today – and performance management should always be part of that.”
For example, if someone deserves praise or makes a mistake, it makes sense to engage with the individual concerned immediately or the moment is gone. “Quicker feedback means faster improvement, but it also helps to humanise the process and build a more ‘human’ connection between leaders and employees,” says Ordever.
Despite the promise offered by CPM, though, adoption has to date been limited, with the market only just starting to take off.
In fact, according to HR consultancy Mercer’s 2019 Global performance management report, the total number of organisations still using annual reviews has fallen by a mere 10% to 84% over the past six years – even though only 2% of respondents believe their current performance management system offers “exceptional” value.
Supporting CPM adoption
So just why is this the case – and could the advent of suitable technology help to speed CPM adoption up? According to Dunja Wolff, manager of HR consultancy NGA Human Resources’ client digital transformation team, even though CPM is not yet commonly adopted, HR departments are looking at the notion quite widely.
“There’s an acknowledgement of the fact that the traditional performance approach is not up-to-scratch any more,” she says. “But while some organisations are moving to CPM and getting rid of their annual appraisals, many aren’t there yet and others are choosing to start slowly by adding one or two feedback features on top of the annual process.”
This hybrid form of CPM is most common today, Wolff adds, because it is the least disruptive and unsettling. For instance, if moving to a pure CPM approach in which annual appraisals are no more, it is usually necessary to adjust staff compensation models, perhaps by moving them to a quarterly model, which can come up against resistance from compensation teams.
But there are other issues, too. “You’re moving from a situation where things are very controlled and the roles of employees and managers are clearly defined to one in which the lines are more blurred, particularly if you’re giving multi-directional feedback. So it can be quite unsettling for managers and they may need support,” says Wolff.
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Such support includes not only providing access to suitable mentoring and training, but also taking time to convince them of the value of a move that many will inevitably feel is simply adding to their workload. As a result, to lower resistance and make this shift from a top-down assessment approach to one that is more growth and development-oriented more likely, gaining executive sponsorship will prove vital.
Ordever agrees. “HR are pushing for this in some organisations, but leaders often resist – and HR don’t want to remove the annual performance review before there’s something adequate to replace it,” he says. “It’s linked to promotions, pay increases and dealing with disputes, so you don’t want to remove one until the other is right.”
There are currently a range of standalone and bolt-on software systems on the market to support a shift to CPM, which enable structured, more collaborative conversations as both managers and staff have access to content.
Such applications from suppliers, such as Clear Review, BetterWorks and Lattice, also make it easier to set action points and undertake data analysis to spot areas of need in order to help tailor learning and development plans.
But ultimately, to ensure success, it is less about the technology itself and more about having a suitable company culture in place – something that inevitably takes time to implement. As such, because “CPM is a journey”, Wolff believes that it can take between two to three years to introduce and embed effectively.
“CPM tends to be introduced as one part of a bigger cultural transformation or as a driver to change mind sets and bring in more flexibility,” she says. “So this isn’t usually just about an HR process or a tech project – it’s related to much larger ambitions.”
MessageBird hybrid CPM
MessageBird has layered quarterly performance reviews (QPRs) and regular pulse surveys on top of its annual appraisal process as part of a bid to create an effective feedback culture.
The communications platform provider, which was set up in 2011, adopted this approach at the start of the year, not only to boost employee engagement but also ensure staff have a clear view of their own performance and how it contributes to the bigger organisational picture.
“When you increase headcount, the danger is that there’s not enough time for managers and employees to have proper conversations anymore,” says chief operating officer Mayke Nagtegaal. “Building a startup is a bumpy road, so it makes sense to try and make the performance management process as smooth as possible and set things up for success early on.”
Another driver behind the move was to support the company in its requirement to “move fast and make decisions quickly”, she says. While “many employees were hungry for feedback”, it had become clear that, as the company grew, an annual appraisal approach alone was unable to provide either sufficient regular guidance or “clarity of expectations”.
As a result, QPRs were introduced as a vehicle for managers to provide feedback on the quarter just gone, set individual goals for the quarter ahead and determine what personal development activity might be required to help. Year-end appraisals now focus mainly on discussing renumeration and possible career progression opportunities.
“Feedback shouldn’t be a surprise. If you’re engaged with your employees at the right level and quarterly feedback is well documented, yearly reviews should become much easier,” says Nagtegaal.
The company uses its BambooHR system to facilitate, document and store data from quarterly and year-end appraisals that can be accessed by both employees and their line managers. Managers are also encouraged to hold weekly, or fortnightly, one-on-one meetings for more informal catch-ups with their staff as well as provide feedback, both positive and negative, in the moment.
But such feedback is not considered to be a one-way street. As a result, each week, an anonymous pulse survey of employee sentiment is undertaken using the Office Vibe app, which is integrated with Slack’s collaboration tools.
These surveys cover everything from how to improve QPRs to whether staff are happy with a new initiative. Peer feedback has also been introduced both at a team and company-wide level too.
“When you’re trying to scale an organisation, you need to hear the good, the bad and the ugly, especially from those who may not feel comfortable giving you candid feedback directly,” says Nagtegaal – although she also points out that such insights do need to be acted on rather than simply noted and ignored.
But doing so is already showing improvements in both employee and managers’ engagement levels, she believes. “If people feel the company cares and they can grow and learn, it’s a big driver for them to stay – and also to join in the first place,” she says. “We only started measuring staff retention at the beginning of the year, but already we can see it going up.”