Perfecting performance reviews

The methods with which companies evaluate employees are facing heavy scrutiny and calls for change, according to Ilana Hechter, a partner at Mercer Consulting in Toronto.

Organizations are looking to fine-tune strategies, and attract and retain top talent, while building capabilities required for not just today but also in the future, she said.

With this in mind, the performance review process has earned a mixed reputation in terms of value and time consumption in recent years, said Hechter, speaking at a recent Strategic Capability Network (SCN) event in Toronto.

“The business environment is under increasing pressure and, quite frankly, they’re looking to HR today to drive a very different level of service than previously,” she said. “Organizations and executives are looking to HR to drive business strategy through people.” 

Research is in

The results from Mercer’s Global Talent Trends Study — an annual survey of 1,700 HR professionals and 5,400 workers — were very similar to last year’s findings in terms of performance management. In Canada, employees want understandable performance ratings, comparisons to peers, clear team goals to promote collaboration, and additional benefits for high performers, said Hechter.

“Individuals and employees are really concerned about having meaningful conversations,” she said. “They want to have people invested and inspiring them to do different things in their career.”

The majority of performance management programs are similarly structured, with check-ins at scheduled times that see workers walk away with a ranking on a four- or five-point scale.

“What’s shocking about this is, despite the similarity in how they’re structured, there is a huge level of dissatisfaction across most organizations,” said Hechter, noting 97 per cent of managers surveyed rated their system as “totally ineffective.”

However, while many managers believe performance reviews are “meaningless” and do not yield accurate information, it may not always be the program that is ineffective, but rather the application of it, she said.

As a result, employers are attempting to be creative with the review systems, with one in 10 global companies — including Adobe, Deloitte and Netflix — turning to a no-ratings system over the past year in favour of a culture heavier on continuous feedback, said Hechter.

“The question is: If there are no ratings, how do you differentiate between individuals?”

Many companies have implemented a cross-calibration exercise looking across lines of business while requesting quantitative feedback on how individuals or group are contributing, or relying on an individual manager’s report.

But companies should think twice before dropping ratings altogether, said Hechter.

“Employees are saying, ‘We like ratings,’” she said, because they allow for differentiation from peers that is often further reflected in compensation.

Best practices

Ratings or no ratings, the core essence of performance reviews is all about motivating human capital, said Hechter. And the application of employee reviews, according to Mercer, is held back by four key challenges: goal-setting, coaching, feedback and ratings.

Managers should avoid giving employees unclear expectations and keep the list of goals down to three clear and actionable items, she said.

After that, developing leaders is critical through coaching and feedback.

“It’s the leaders below the executive, or the middle managers, that are actually carrying the business forward,” she said. “Are they inspiring people to align with their vision? Are they inspiring people to work and behave differently going forward? It’s that level of leadership that we really need to focus on.”

With so many managers promoted on technical expertise alone, it’s often wrongly expected they will be able to naturally inspire their direct reports, said Hechter.

Finally, organizations should ensure ratings are meaningful as opposed to an over-exaggerated bell curve, she said.

Effective performance management could technically be completed on the back of a napkin, as long as it’s a meaningful conversation, she said.

“It’s a little less about the ratings and the program than it is about the application.”

There are four ways to drive more meaningful performance management, according to Mercer: focusing dialogue; reallocating time; keeping score; and rewarding strong leaders.

Establishing clear, actionable goals; reducing year-end focus in favour of ongoing engagement — or at least four check-ins per year — measuring review effectiveness; and providing compensatory boosts to consistently strong leaders who generate quality behaviour is the road map to effectively handling the workforce of tomorrow, said Hechter.

Employers need to spend less time on what their program looks like, and more time on managing change in the applicability of those programs and “actually driving employee behaviour.”

But a relationship to compensation changes remains critical, she said. “That link has to be there in order for it to be meaningful. If you’re going to differentiate individuals and then not link it to how they’re rewarded, the meaning of it becomes a little more challenged.”

Case study: Wawanesa

Wawanesa Insurance recently overhauled its performance review system in partnership with Mercer. Up until recently, the company’s regional operations operated independently and uniquely in terms of both business and people practices, said Jodi Carradice, CHRO of the Winnipeg company, which has 3,200-plus employees.

“(Our workforce) wanted clarity and consistency,” she said, speaking at the SCN event. “We are focused on driving towards ‘One Wawanesa,’ and driving towards the best possible employee experience that will ultimately drive a culture of excellence.”

The overhaul was conducted to ensure the review process was meaningful and consistent — a “key organizational capability” for the company.

Ultimately, Wawanesa kept a slightly tweaked five-point ranking system, believing employees wished to know where they stood, and have growth areas identified.

“We want to ensure that we’re creating that differentiation,” said Carradice. “It needs to be simplistic and clear. Leaders and employees do not want to be bogged down with a complicated process that they don’t understand. It can’t be something that employers and leaders dread.”

Now, the success of the system changeover and culture shift will depend on change management efforts, she said. “Performance management has somewhat of a negative connotation in most organizations. We know this is critical to our ongoing success.”

The system change was organic in nature in that interviews were conducted with managers at various levels to determine preferred design, said Hechter. While the result wasn’t a major administrative change, it did incorporate preferences such as simplicity, consistency, coaching and scripting.

“The hope is that, over time, these behaviours will just start being part of the culture,” she said.