Three promising changes include radically simplified ratings, cost-effective calibration and crowd-sourced feedback.
Performance management is a favorite target of critics from the bookstore to the blogosphere. Calls for abandoning performance appraisals are shrill, but companies are not listening. A recent study by my colleagues Ed Lawler, George Benson, and Michael McDermott found that every one of over 100 large companies studied had a performance management system – the same result as 10 years earlier.
As long as managers have limited resources, they will need to determine who gets more of the available rewards and who gets less -- or none. There is simply no alternative to sound performance management for making personnel decisions on matters such as pay raises, promotions and developmental opportunities.
That said, performance management practices are evolving. We see three types of changes that are especially promising.
Radically Simplified Ratings
Complex rating schemes are still common, enabled by software that forces supervisors to rate employees on multiple factors and instantly tabulates results. One defense contractor uses a 150-point rating scheme (15 factors with 10-point rating scales). The system is a monument to false precision. Managers cannot defend the differences in ratings that take so much time and energy to generate. Moreover, complex ratings make little sense in an era of 3% average annual pay increases. The differences in ratings do not lead to meaningful differences in consequences, yet they foster ill will among employees.
In response, many firms are now radically simplifying their ratings. Validity increases as ratings become fewer and simpler. Firms may require only a single summary score, often on a three-point rating scale. Among the many labels for points on the scale, my favorites are “Walks on Water,” “Swims,” and “Sinking.” Supervisor-subordinate conversations can focus on what did employees did, how well did they did it and what can they do to improve next year – rather than on complex ratings. Moreover, meaningful rewards can be preserved for top performers. For example, one engineering company grants raises that automatically are twice as high for those in the top category as those in the middle category.
