Annual reviews are dead, so what's the future of performance management?

Performance management has long been a key measuring tool for HR professionals – however, two years of working from home has shifted how employees are assessed.

The ELMO 2022 HR Industry Benchmark Report, revealed at our recent HR Leaders Summit, revealed that the main challenge HR professionals faced in relation to performance management was a lack of consistency between managers and departments. With 75% of managers rating performance management as a ‘high’ or ‘medium’ priority in 2022, only 11% rate their internal processes for managing employee performance as excellent.

“In the past you could equate hard work with hours worked,” Christina Doyle, Elmo, head of client strategy, told HRD. “But hybrid working is hard to measure. It also shifts perceptions around performance when employees aren’t onsite and how perhaps managers confuse busyness and presenteeism for productivity and high outputs.”

The 1500 HR managers surveyed across Australia and New Zealand identified numerous management-related challenges, which included common responses were lack of manager training, lack of personal development plans and lack of timely or meaningful feedback.

“Performance management is also a pain point because the traditional once-a-year format is still a reality for many – hence lack of timely or meaningful feedback being a challenge,” Doyle said. “In fact, our report revealed that the annual performance review is still the most popular in Australian and New Zealand organisations, with 28% of respondents conducting reviews annually. Another 26% conduct them bi-annually.

“The question is are managers being empowered to upskill with regards to proximity bias? The reality is that both parties – the employer and the employee – need to work together towards common goals.”

The future

Doyle believes that traditional approaches to performance management and measurement need to change.

“There are a number of contributing factors to where we are going wrong,” Doyle added. “Traditional approaches to performance measurement are ineffective and a burden for employees, managers, and HR. COVID has prompted people to re-evaluate their lives, and expectations around work have changed. Many want better work-life balance, and as such, there is a huge appetite for hybrid working.

“We know that annual and bi-annual performance appraisals are popular – we also know they are largely ineffective. What’s more, in this hybrid world of work, if an employee works remotely and is geographically distanced from their manager, they may find it difficult to address any concerns or needs they have relating to their role, outside of their scheduled performance reviews. As a result, they may only have meaningful conversations with their manager once or twice a year. This is hugely problematic.”

Goals and feedback

Another issue is setting regular goals and obtaining up-to-date feedback. Too often feedback is left to one manager, once a year.

“Managers may be assessing employees against objectives that don’t consider the impact of COVID-19 on productivity, employee morale, and resourcing, which is, frankly, unfair,” Doyle added. “Leaders need new ways to track and encourage high performance that takes into account the pressures employees are facing, and perhaps measure different perspectives of performance. It is therefore important that goals are agile, feedback is ongoing, and metrics and incentives are flexible.”

Many people believe that the pandemic has created bias in the workplace. The common phrase, ‘out of sight, out of mind’ is often parlayed. But for those who return to the office and are in immediate line of sight can receive additional work, promotions and even more favourable attitudes from supervisors.

“If inequity and bias are left unacknowledged and unaddressed, organisations may risk exposing themselves to legal risks through discrimination claims, constructive dismissal claims, or redundancy claims,” Doyle said. “The question is: are managers being upskilled and empowered to become aware of and minimalise the opportunity for proximity bias?

Aligning individual and business goals

The key to successful performance management is an alignment between the individual and the organisation, but certain processes can inhibit this.  If the individual review process is not clearly aligned to the organisation’s goals, it can derail outcomes.

“For example, a team member might believe that they are performing well, but since their work is not clearly connected to overall company objectives, their overall performance is ‘moderated’ to fit into an assessment bell curve,” Doyle said. “What’s worse, if individual performance is rewarded with a bonus, the company might just be paying out for perceived high performance that falls short of the organisational goals that need to be met to green-light that reward.

“These are some common road bumps relating to performance management today, but how will it change in 2022 and into the future?”

Five ways performance management might change

1. Focus will be on contribution not just performance
2. Goal setting will be timely and flexible
3. Feedback will be 360 degrees and continuous
4. Performance reviews will be project based
5. There will be emphasis on the whole person.

“It takes real commitment to build a culture where employees get that sense of belonging – the feeling their employer cares about their overall happiness and understands that everyone has a unique background and is coping with unique circumstances,” Doyle added. “

“This new era will depend on employees being able to honestly and openly discuss their personal goals with their managers, and employers investing in tools that allow for self-assessment so that employees can evaluate progress towards both personal and professional goals.

“This more 'human' approach will transform performance management, however, we need to remember that a complex web of interactions, processes and technology must work in harmony to address the changing size, shape, and skills of the workforce.”

Performance management in 2022 offers the employer and employee a more engaging and honest appraisal where everything is taken into consideration.