In 2015, GE jettisoned the traditional “rank and yank system,” championed by then- CEO Jack Welch and joined the bandwagon with other eminent companies like Microsoft, Accenture, and Adobe that have dumped the traditional formal annual reviews.

“Performance Appraisals had become more a ritual than moving the company upwards and forwards,” said Susan Fowler in the media. A similar thought was shared by a business writer in one of the American’s daily stating performance management to be a “rite of corporate kabuki” that restricts creativity, generates mountains of paperwork, and serves no real purpose.

In a study that Willis Towers Watson conducted in 2014, it was noticed that 4% of the participating organizations did not use performance ratings. Later in 2016, the number stayed relatively stable at 5%. As the effectiveness of performance management system has been under the radar for some years, a lot of organizations transformed the whole performance review process. Some of them got rid of the bell curve while others adopted a rating less mechanism. The in-depth studies and discussions brought a wave of change in performance management system. It led to the removal of program infrastructure (ratings, distributions) and process (formal reviews, calibration). With the intent of reducing the time wasted in annual appraisals, more meaningful conversations focused on feedback and development started being promoted.  Organizations were separated from artificial yet constrictive distribution curve, and focus was shifted from competition to fostering collaboration. 

E.g., Netflix no longer measures its people on annual objectives, because its aspirations have become more fluid and change rapidly. Google modified the way it remunerates high performers at every level. 

While we have moved on from the performance ratings, it is necessary to understand that how can this new process be made useful.  Here is what you should know about the performance management without ratings:

Making a decision:

Before you even implement a performance management system, understand what you want to achieve out of this practice.

Lazlo Bock in his book Work Rules! Insights from inside Google that will transform how you live and lead shares, “Performance management as practiced by most organizations has become a rule-based, bureaucratic process, existing as an end in itself rather than shaping performance.”

Analyze whether adopting a performance management system without ratings will help you increase the business impact or not? It is critical to consider whether a ratingless performance management process will align with your organization’s performance and culture required to deliver business results.

Define the performance outcomes:

The answer of effective performance management is not in the design alone but a holistic view to sustained behavioral and culture change. Clarity from leaders on the priority pain points/objectives to address is also critical, as one program cannot be all things to everyone. Provide detailed examples of what is acceptable, exceptional and poor performance looks like. Also, encourage employees to ask questions they may have so everyone gets on the same page about performance criteria.

Designing the System:

Designing the performance management system for achieving strategic company goals depend heavily on the performance measurement strategy and your company’s procedures for capturing, collecting, processing and disseminating data and performance information to users. Your performance management system needs to measure the right key performance indicators, or KPIs, to develop a capable reporting system that aligns with company goals. Incorporating Competencies, Skills, Values, Behaviors can help to guide strategic planning by linking employee performance to more significant long-term company goals. 

Drive Performance:

Talk to managers and supervisors to find out why poor performers endure in the organization and to reveal any parables that can be fixed about dealing with poor performers. If the manager notices the employee is not meeting that objective, use informal methods to point that out. If the poor performance persists, proceed to the next step in the process, such as written documentation. Encourage employees to talk to each other and recognize co-workers for good performance.

Lastly, determine the performance dimensions to be “rewarded” by talent segment and choose the “right” combination of reward vehicles. However, make sure you split reward conversations from development conversations. 

(With the appraisal season not too far, People Matters brings to you a series of articles to help you gear up for the season. Be prepared, '#MarchIsComing'.)