Effective performance management plays a pivotal role in HR and organizational success, directly influencing compensation, career progression, succession planning, and overall growth.
Traditionally executed as a once or twice-yearly event, annual performance reviews demand substantial planning due to their significant downstream impacts. These reviews often face challenges due to legal and administrative complexities, necessitating a delicate balance to avoid favoritism, bias, or discrimination.
Challenges with Traditional Annual Performance Reviews
However, the conventional annual performance review model is increasingly seen as ineffective. Some of the issues in this typical way of reviewing performance include the fact that they aren’t frequent enough. It struggles to take into account events and achievements that may have happened many months before.
Due to recency bias, reviews may overemphasize an employee’s most recent achievements or failures while giving less weightage to earlier events, even if they are critical and telling of employee performance.
The traditional approach relies on a single source of feedback, which may give too narrow a view. This is particularly true for remote and hybrid workplaces where the immediate manager may not always have regular face time with the employee. A single person’s feedback risks being incomplete and subjective, therefore not a reliable reflection of actual performance.
Moreover, the process-oriented nature of these reviews, often fraught with stress and demotivation for employees, highlights the need for a transformation in performance management strategies. Research published in the Psychological Bulletin found that this can actually make performance worse one-third of the time.
Shifting Towards Continuous Performance Review Systems
Only 38% of HR leaders surveyed by Gartner said that performance management has managed to keep pace with business needs. 87% are considering significant changes to their performance review process.
Monthly or continuous performance review systems are 1.4X-1.5X more effective than annual reviews when it comes to engaging and retaining employees, found Forbes.
Only 14% of employees strongly agree that performance reviews inspire them to improve, found Gallup. This is due to an inefficient review system and also because they are not sufficiently linked to employee development. EY found that frequent conversations around employee development can improve the effectiveness of performance management by 49%.
“We conduct formal mid-year and end-of-year reviews that involve structured performance discussions. At the same time, we recognize the importance of routine daily conversations and are actively fostering a culture that encourages regular communication among our team members."
— Liza Chang, VP, People and Organisation Development at Mandai Wildlife Group
HR leaders should also note that expectations about employee performance are seeing an overall decline in 2023: Gartner found that, in 2023, less than 1 in 3 HR leaders are confident that their organization’s processes are effective at helping employees achieve and sustain their best possible performance outcomes.
In fact, only 58% of HR leaders are confident their organizations can meet their 2023 employee performance targets. In comparison, 96% reported that they met or exceeded their 2022 employee performance targets.
Embracing the 3 Cs for Modern Performance Management
Facing a decline in confidence regarding performance management processes, HR leaders are now prioritizing the reimagination of the annual performance review. Embracing the 3 Cs—Connection, Conversation, and Coaching—is critical for the modern approach to effective performance management in 2024.
This strategic shift is supported by insights from our HR Outlook 2024, highlighting the necessity for more personalized, continuous, and engaging performance evaluation methods to meet the evolving demands of the workforce and organizational objectives.
Connection: The Core of Employee Engagement
Connection has two dimensions: (a) the relationship between managers and employees and (b) the link between individual goals and organizational outcomes. It isn’t enough to simply have managers who are more skilled at engaging with employees in candid dialogue and feedback.
The greatest value comes when managers can connect the dialogue to an employee’s individual needs and offer a personalized action plan. In fact, Gartner found that connector managers are 3X more likely to have top performers among their direct reporters.
Conversation: Enhancing Team Dynamics
Conversation refers to informal discussions between the manager and team members during or right after a work achievement, failure, or task completion. Regular one-on-ones have helped Adobe to reduce voluntary turnover by 30%, and also GE to increase productivity by 5X.
Coaching: From Compliance to Development
Coaching as an approach reorients performance reviews from being an HR compliance task to a genuinely employee-centric activity. However, only 12% of leaders are able to provide high-quality coaching and feedback to their teams. HR leaders say managers should spend a full 30% of their time on coaching and development, but managers say they spend less than 10% of their time on these activities.
Key Focus Areas for Enhancing Performance Management
1. Continuous performance management that rides on the instant gratification impulse:
Continuous performance management breaks down the annual appraisal into regular micro-reviews. As author Daniel Pink explains, we are living in an age of instant gratification and real-time feedback, where humans are used to immediately seeing a score when they play a video game or getting results when they run a search engine query.
HR leaders can leverage this impulse in the workplace by conducting in-the-moment, authentic feedback conversations. This can be a major organizational change and will require buy-in from executives as well as robust technology support.
.png?width=80&height=80&name=eric%20(1).png)
“We integrate a process called project-based feedback through the entire year, which seamlessly feeds into the annual review. This ongoing initiative, which includes an ‘instant feedback model,’ has shown a substantial increase in documented feedback from 2022 to 2023, with each quarter demonstrating a significant jump, even on a normalized per headcount basis as we grow. The model is proving to be highly effective."
— Eric Kauffmann, Associate Director Learning & Development at Anthesis Group
2. Pair reviews with real-time recognition:
By recognizing high-performance actions in real-time, organizations can reinforce desirable behavior and motivate other employees to follow suit. Gartner found that recognition can increase the likelihood of achieving optimal performance by 5X and reduce the risk of demotivation by up to 9%.
“As performance indicators continue to evolve in a post-pandemic era, leaders will need to adopt a facilitative and coaching style in order to connect with employees who are working both in person and on a hybrid basis. Additionally, connecting with employees must look and feel differently to retain employees –employee connections must be informed by leaders willing to engage employees by demonstrating care. Creating a Culture of Care (CoC) will be a necessary leadership competency as we navigate managing performance in a way that we’ve not experienced previously."
— Amanda Bailey, Vice President for Human Resources at Boston University
3. Empower managers to spend more time on people management and less time on admin work:
The success of the 3Cs (connection, conversation, and coaching) approach relies heavily on the role of managers. In 2024, organizations must equip managers to reroute more of their efforts toward talent and people management.
This can be achieved through automation that reduce admin workloads, people management training for managers, and data insights on what employees actually need. Currently, managers spend nearly one-fifth of their time on administrative work, which needs to change in 2024.
4. Aligning individual and organizational performance metrics:
In an effective performance management system, the entire organization will operate based on a unified truth, connecting financial or business outcomes with on-ground production.
For example, a developer’s defect rate can be connected to software release velocity or a manufacturing plant’s production board can show employees how their performance has a daily impact on the organization. This transparent connection of individual goals to organizational goals should also motivate employees that their contribution matters.
Conclusion
Setting a new standard in performance reviews
In conclusion, the journey towards redefining performance management, as underscored by the HR Outlook 2024, illuminates a path away from outdated annual reviews to a more engaging, continuous model.
The adoption of Connection, Conversation, and Coaching not only aligns with the emerging trends and expectations but also promises to revitalize the essence of performance evaluations.
By prioritizing these key components, organizations can foster a culture of ongoing development, recognition, and alignment with strategic goals, thereby ensuring that performance management becomes a driving force for innovation, employee satisfaction, and organizational success in 2024 and beyond.
“The 3C’s approach to unlocking performance is ideal for inclusive leaders that understand the power of a positive and productive team culture to get things done. To truly realize their team potential, leaders must set a strong team foundation by building strong human connections, fostering authentic conversations, and empowering their teams through effective coaching. While this is not easy work, since it requires extra time and energy, the consequences of not utilizing this approach can be catastrophic for any high-performance team. In the end, the 3C’s approach is about the future of work and the future of high-performing teams"
— Cesar A. Lostaunau, Director, Diversity, Equity, and Inclusion Strategic Growth & Partnerships at Anywhere Real Estate
💡 Read the full highlights or trends and recommendations for the year ahead in the HR 2024 Outlook below:
