Modernize Performance Management

Traditional performance management doesn’t work – shift to an approach that’s tailored to your organization’s context.

Executive Summary

McLean & Company Insight

Ditching the annual performance review for agile practices won’t necessarily solve performance management problems. Customize the building blocks of performance management to best fit organizational needs to impact individual and organizational performance, productivity, and engagement.

Situation

• The traditional approach to performance management (PM), characterized by annual performance reviews and infrequent feedback, is ineffective in today’s increasingly fast-paced environment.
• Traditional PM negatively impacts the entire organization through lower productivity, performance, and engagement.

Complication

• Many organizations believe that ditching ratings and the annual review in favor of an agile approach to managing performance that focuses on continuous goal setting and feedback is the solution.
• However, new research shows that agile is not the cure-all to performance management that many hoped it would be. Getting rid of ratings doesn’t get rid of the need to evaluate performance, and an agile approach is not necessarily easier for managers and doesn’t suit every context.

Solution

• Modernize performance management by selecting and customizing the following building blocks to meet your organization’s needs: process, goal setting, competencies, feedback and coaching, crowdsourced feedback, and ratings.
• Train managers to provide employees with high-quality feedback and coaching to improve all other aspects of performance management.

It’s time to move away from traditional performance management (PM)

Traditional PM

• Annual performance review
• Goals reviewed once per year
• Review is backward looking
• Ratings used to determine compensation

We’ve known for more than 50 years that this approach doesn’t work – yet we keep using it!

A landmark study in 1965 found traditional performance reviews at General Electric to be largely ineffective (Smith et al.).

Traditional PM is ineffective because:

It’s a poor performance driver.

• Feedback is too infrequent and focused on the past to meaningfully guide performance.
• Annual reviews can decrease employee performance and engagement (Caprino, Duggan).

Annual reviews don’t suit today’s work context.

• Just as organizations wouldn’t measure revenue only once a year, it does not make sense to assess employee performance on an annual basis.
• Annual reviews are often biased toward the few months prior to the review and fail to accurately capture employees’ performance over the full year.

Feedback can be biased and subjective.

• For example, women are 1.4 times more likely to receive critical subjective feedback than men, as opposed to positive or critical objective feedback (Cecchi-Dimeglio, 2017).
• This can lead to disputes over ratings, disengagement, and turnover.

Insights from neuroscience help to clarify why traditional PM often misses the mark

David Rock’s SCARF model captures the common factors that can activate a reward or threat response in common workplace situations and helps to illuminate the challenges traditional performance management faces.

• STATUS – Our social standing in relation to others Feedback focused on past failures elicits a threat response in the brain, decreasing employees’ sense of reputation and connection with their team.
• CERTAINTY – Being able to predict what will happen next Infrequent feedback increases an employee’s uncertainty about whether their job performance meets their manager’s expectations.
• AUTONOMY – Sense of control over one’s environment Traditional performance reviews decrease employee autonomy: the timing, content, and outcome of reviews are at the manager’s discretion, which decreases an employee’s sense of agency. The focus on past performance reinforces the feeling of helplessness.
• RELATEDNESS – Being a part of a social group – friend or foe Traditional PM sets up employees to experience both managers and colleagues as foes: managers are there to evaluate and rank them, and colleagues are rivals in rankings. This can make it more difficult to collaborate effectively.
• FAIRNESS – Perceived equity in treatment Forced rankings lead to lack of fairness: even when employees are similarly skilled or qualified, managers must rank them against each other. The injustice around rankings (whether perceived or real) decreases trust and empathy toward colleagues.

See McLean & Company’s Neuroscience and HR blueprint for more information about building neuro-friendly HR practices.

Ineffective PM negatively impacts the whole organization

Managers

Productive time wasted:

• It takes a lot of time and effort to gather enough information to conduct effective reviews. If the annual review does not end up positively impacting performance, this is time wasted.

Delay in managing poor performance:

• Issues with these employees may not be apparent until it’s time to prepare for the annual review.
• Managers are not identifying low performers early enough to provide them with the support they need to improve performance.

Employees

Low engagement:

• Lack of time spent with manager to set and clarify expectations and lack of timely and quality feedback negatively impacts engagement scores.
• Feedback is a key engagement driver: employees whose managers provide high-quality feedback are nearly 3.4x more likely to be engaged (McLean & Company Engagement Database, 2020; N=79,273).

Lower than capable productivity:

• Untimely, ineffective feedback does not provide enough information to drive productivity.

Human Resources

Productive time wasted:

• Chasing down managers and employees to complete reviews takes time away from other value-added HR initiatives.

Failure to meet HR dashboard metrics:

• Low employee engagement and productivity leads to lower retention, less effective employee development plans, and ultimately, makes succession planning more difficult.

Organization-wide

Ineffective performance management is a lost opportunity to impact organizational performance and employee retention through engagement:

• Only 2% of organizations globally believe that their approach to performance management delivers exceptional value (Mercer, 2019; N=1,154).
• Organizations with highly engaged employees are 21% more profitable than their competitors (Smarp, 2020).
• Engaged employees are 4.7x more likely to agree with the statement “I expect to be at the organization a year from now” compared to their disengaged or indifferent counterparts (McLean & Company Engagement Database, 2020; N=77,033).

Dissatisfaction with traditional PM has led many to view agile PM as the solution

Agile PM

• Expectations are fluid and clear.
• Goals are reviewed monthly; no annual review.
• Review is backward and forward looking.
• Feedback and coaching are given at least monthly and often from multiple sources.
• There are no performance ratings.

A number of Fortune 500 companies have been in the news for ditching the annual review and ratings in favor of agile practices such as more frequent check-ins and feedback (Rock & Jones).

The list includes top companies such as:

• Accenture
• General Electric
• Medtronic
• Adobe
• Microsoft
• Gap

23% of organizations have frequent performance and goal-setting conversations and regular performance reviews (McLean & Company Trends Report, 2020; N=472).

These practices are associated with a stronger ability to generate and implement new ideas (7.5 average effectiveness rating out of 10) and workforce productivity (7.4 average effectiveness rating out of 10). (McLean & Company Trends Report, 2020; N=454)

“Our current workforce wants more than once-per-year feedback. In a rapidly growing company, if you’re not communicating regularly, people fall behind. So it makes sense to talk more frequently.” (Ashley Lundquist, VP of People, Leadpages)

However, research suggests that full agile PM is not the cure-all many thought it would be

1. Getting rid of ratings doesn’t get rid of evaluation. Employee performance always needs to be evaluated in some way. Unless a reliable alternate method of evaluation is put in place, there is a risk that evaluations may be more subjective and inconsistent, not less (Goler et al.).
2. Agile is not necessarily easier for managers. While time spent on annual reviews is eliminated, agile PM requires managers to be more available to employees on a regular basis and to be more involved in their development. Research shows that over time, many managers shy away from providing ongoing feedback regardless of the software or apps at their disposal (Falcone).
3. Agile doesn’t fit every context. Industries such as manufacturing or construction may not require frequent goal setting and check-ins, and both managers and employees in these contexts may prefer the annual review. Different employee groups within the same organization may also require different performance management practices, such as administrative staff or unionized employees.

Only 15% of organizations have eliminated ratings (Mercer, 2019), suggesting that a pure agile PM approach isn’t the answer for most organizations.

See the Performance Management Catalog for Wide Spans of Control for more information on PM in those contexts.

Modern PM offers a middle ground between traditional and agile

McLean & Company Insight

Modern PM should not be seen as a failure to become agile but rather as a successful alternative to traditional PM. Agile PM is not the ultimate goal for all organizations, as it may not suit all contexts.

Use the PM building blocks to create the right framework for your organization

Customizing each of the building blocks will ensure the performance management framework suits your organization’s context.

Some of the elements of traditional PM may be retained, such as ratings and an annual review, but they are enhanced and supported by incorporating agile elements to boost employee performance.

The end result may be a modern or agile performance management framework or something in between. What’s most important is that it’s the right fit for your organization.

Follow McLean & Company’s four-step process to modernize performance management

Step 1

Prepare to change the PM framework

After completing this step you will have:

• Assessed the current state of your organization’s PM framework.
• Determined high-level goals and metrics.
• Reviewed the PM building blocks.
• Gained buy-in from stakeholders.

Evaluate the effectiveness of the current approach to PM

Use the Performance Management Effectiveness Scorecard to gain:

• A better understanding of the pain points from the current PM framework and the biggest strength areas.
• A single snapshot of all the metrics relevant to the PM framework.
• Results that can be used to gain stakeholder buy-in.
• A medium to track the effectiveness of the modified PM framework.

This tool is customizable and can be used for different departments with different PM frameworks. Complete the rating section of the tool to evaluate how effective the current PM framework is and where the pain points and strengths lie.

McLean & Company Insight

Even if you know the current PM framework is not working, resist the urge to make changes before getting clarity on the pain points. This will ensure that any changes you make address the real issues and fit the organization’s needs.

Define goals and metrics for the PM framework

Refer to McLean & Company’s HR Metrics Library for a full list of metrics.

Review the PM building blocks to determine focus areas before gaining buy-in

• 
  Establishing expectations and desired outputs.
• 
  The knowledge, skills, and attributes required in the pursuit of goals.
• 
  Performance conversations between managers and employees.
• 
  Performance feedback from anyone other than an employee’s reporting manager.
• 
  Evaluation system used to categorize employee performance.
• 
  The series of actions, steps, and timelines that define the performance cycle. The performance cycle is the period of time during which:
  • Performance expectations are confirmed.
  • Progress towards goals, expectations, and competencies is reviewed and assessed.
  • There is a final review of overall performance.

McLean & Company Insight

If moving away from traditional PM was quick and simple, everyone would have done it already. Put in the time investment to identify organizational areas to leverage to make the PM transition a smooth process.

Obtain stakeholder buy-in to proceed with designing a new PM framework

Use the results from the Performance Management Effectiveness Scorecard to gain stakeholder buy-in by showing what the current state is and how the organization needs to change. Use the metrics to show how you will track progress.

First, meet with organizational stakeholders to:

• Review the plan for the PM framework. Seek buy-in to confirm:
  • Areas needing change, based on results from the PM Effectiveness Scorecard.
  • Which building blocks best fit organizational needs and priorities.
  • Steps to redesign the PM framework (customizing building blocks, aligning related HR programs).
• Solicit stakeholder feedback and answer any questions.
• Confirm that HR will get back to stakeholders with proposed changes after completing the next step.

Then, check in with managers and employees:

• When moving forward with the new PM framework, get feedback from managers and employees:
  • Clarify any feedback on shortcomings of the previous framework and gather their ideas for improvements going forward.
  • Outline the PM building blocks and ensure they understand and are on board with incorporating these where appropriate.
• Managers will be leaders of change, so their buy-in is necessary for success. Include some managers’ input throughout the process of designing a new PM framework.

Step 2

Design the PM framework

After completing this step you will have:

• Customized the PM process to fit your organization.
• Defined expectations and determined a goal-setting model.
• Selected competencies with accompanying proficiency levels.
• Defined how feedback and coaching will be incorporated.
• Determined if and how crowdsourced feedback will be incorporated.
• Decided on whether ratings will be included.

Recognize that some PM building blocks are mandatory and some are optional

This step is divided into each of the PM building blocks, with the relevant building block displayed in the top right corner of each slide.

As you work through tailoring each building block, document decisions in the Modern Performance Management Worksheet.

Mandatory

These building blocks are the cornerstone of the new PM framework.

They are necessary to ensure that employee performance is being managed properly.

Optional

These building blocks are optional elements in a PM framework:

• Ratings
• Crowdsourced feedback (CSF)

They can help shape the PM framework, but are not necessary for every PM framework.

For information on how to customize the PM building blocks for teams, see McLean & Company’s Adapt Performance Management for Teams blueprint.

Keep the PM process in mind as you work through this step

The PM process is defined by the content and timing of meetings within the performance cycle (outlined below). As such, key PM process decision points are woven throughout the other building blocks and are highlighted by this icon. McLean & Company recommends a process that combines multiple check-ins with an annual review.

Performance expectation meeting: Occurs at the beginning of the performance cycle to discuss and confirm goals, expectations, and competency proficiency levels.	Formal check-ins: Recurring meetings to evaluate employees against goals, expectations, and competencies. Informal meetings: Frequent meetings to provide more timely feedback and coaching. At a minimum, employees and managers must meet once a quarter to ensure employees are getting enough feedback and coaching to drive performance	Annual review: Occurs at the end of the performance cycle to review performance and provide a final rating (if ratings are being used). Employees and managers must meet at the end of the performance cycle, typically one year, to review performance for the year. Employees must conduct a self-assessment for annual reviews.

Customize the PM process to fit your organization

Use the information gathered in Step 1 to determine how often managers will meet with employees to discuss performance and whether annual reviews will be used. Document these decisions in the Modern Performance Management Worksheet and Performance Review Template.

Choose the frequency of meetings to fit:

• Manager capacity: High number of direct reports will make it difficult to meet more than quarterly.
  • Also, if managers have never done more than an annual review, it may be better to start with quarterly check-ins to give them time to learn how to have effective performance conversations.
• Business cadence: Align feedback frequency with work processes; evaluate the cadence of project cycles and when performance conversations would be most impactful.
• Industry/context: Routine work where goals don’t change often will likely require fewer check-ins, and some employee segments within the same organization may also require fewer check-ins depending on the nature of their work.
• Organizational culture: An organization where people are already comfortable with giving and receiving feedback will have an easier time adopting a more frequent check-in process. Where feedback is not the norm, twice per year may be enough of a challenge at the beginning.

Formal check-ins:

Formal check-ins are an opportunity to provide feedback and coaching against performance expectations and modify goals to reflect shifting priorities, as appropriate.

Informal meetings:

Informal check-ins provide the opportunity for more timely feedback and coaching without any formal evaluation or documentation (e.g. scrums, 1:1s).

Determine who is responsible for booking each type of meeting – the manager, employee, or dual responsibility.

McLean & Company Insight

There is no one-size-fits-all approach to PM; the process may vary not only across industries, but even within different departments or employee segments in the same organization. Allow freedom for these groups to adapt the PM process to best fit their particular context.

Determine whether annual reviews will be used

Keep the annual review if:

• Compensation and other HR programs are closely tied to the annual review and the organization isn’t ready or willing to make changes to these programs (Caprino).
• It fits the organization’s strategic plan. Some organizations find that the annual review is an excellent tool to capture ongoing feedback, keeps front-line leaders accountable, and provides important benchmarking for employee performance (Falcone, Cookson).
  • It can also keep employees focused on their goals through self-evaluations.
• Collective agreement(s) require annual reviews.

Define performance success by clearly outlining role expectations

Performance expectation meeting: At the beginning of every performance cycle, and within the first week in a new role, managers must meet with employees to discuss specific role expectations.

Every employee needs to know what’s expected of them. Ensure managers are clearly communicating role expectations and are prepared to discuss:

• What the employee is expected to do, their key responsibilities.
• How they are expected to do it.
• Role expectations typically include the day-to-day activities in a role. There are three options of how role expectations can be used in performance reviews:
  1. Document role expectations in the performance review as day-to-day activities aren’t captured in goals.
  2. Use role expectations instead of goals due to the nature of the role (e.g. Data Entry Clerk).
  3. Use goals only as role expectations are captured in goals.
• Accountabilities/responsibilities listed in the job description are a great source for role expectations.
• Ensure understanding – have managers and employees record these expectations so that they are easily accessible and can be reviewed when needed.
• Confirm rather than assume: Managers may think that employees understand what’s expected of them when in fact they do not. Ask employees to repeat role expectations – taking the time to clarify early on will improve performance later.

“Traditional performance management assumes that the manager has all of the answers, which puts a lot of pressure on the manager.
Instead, we recommend putting much more emphasis on employees understanding what’s expected of them.” (Jan Hills, Partner, Head, Heart + Brain Consultancy)

Customize the Performance Review Template to capture how role expectations will be used in the PM framework.

Develop a uniform goal-setting model for everyone to use during check-ins

Goals are the desired output for an individual in the performance cycle. Set a standard model to ensure that everyone has a process to set meaningful goals.

McLean & Company Insight

Don’t get too hung up on finding the “perfect” goal-setting model. SMART, CLEAR, cascading, etc. are all useful models, but far more important than the chosen model is how it is used. To be meaningful, goals need to be clearly defined, understood and agreed upon by both managers and employees, connected to organizational results, and reviewed regularly.

See the Goal Management Job Aid for more information on how to develop meaningful goals.

Guide managers and employees through setting meaningful goals

Use McLean’s Goal Management Model or your organization’s own model.

• Employees come to the performance expectation meeting prepared with a draft of the goals they want to achieve and develop them further with their managers.
• Goals focus on current work, projects, process improvements, innovation, and development opportunities.
• Have employees and managers record these goals to encourage achievement.

Customize the Performance Review Template to reflect goal setting at your organization.

Performance/Role-Related Goal Questions:

• What do you think went well on your last project/assignment?
• What do you think you could have done differently?
• Is there a particular initiative or project that you would like to work on?
• Based on our organizational goals, what do you think you could contribute?
• How does this goal drive organizational, departmental, and/or team results?
• What improvements do you think we can make in our team or department?

Development/Career-Related Questions:

• What are your career aspirations? What skills do you want to develop?
• What strengths can you leverage or build on?
• What is one behavior that you would like to change or develop?
• What is holding you back – if anything?
• What position do you see yourself moving to next?
• What are your development objectives?

Train managers on how to navigate goal discussions and provide them with resources on questions to ask. See Step 4 for more information.

Define the role that competencies will play in the PM framework

Use competencies to clarify expectations for employees’ performance. A competency is a group of knowledge, skills, and attributes demonstrated through observable behaviors and specifies how employees successfully perform their work.

• Core competencies apply to every role in the organization. Select competencies that are tied to the achievement of organizational strategy and values.
• Leadership competencies apply to all leaders in the organization, from managers to executives.
• Functional competencies generally apply to only one job family or functional area in the organization. These can help to determine role expectations.

Customize the Performance Review Template to reflect how competencies will be used.

At a minimum, use core competencies.

Either use pre-existing core competencies or develop your own as follows:

• Review the organization’s mission, vision, and values. Core competencies often include organizational values and sometimes even consist entirely of them (e.g. customer focus).
• Identify competitive differentiators that the organization wants to reinforce (e.g. creativity and innovation).

Don’t overcomplicate the PM framework by having too many competencies – aim for three to five competencies total. If there are numerous competencies, select the ones that are most important for employees to focus on. This may differ by function, level, and year due to shifting priorities.

See McLean & Company’s Comprehensive Competency Library for core, leadership, and functional competency descriptions and proficiency levels.

McLean & Company Insight

Goals define what to do, while competencies tell employees how to do it. By directly shaping how work gets done, competencies play an important role in reinforcing organizational culture and values and performance.

Determine the appropriate competency proficiency level for each role

McLean & Company’s proficiency levels define the degree to which an employee is required to demonstrate the competency through observable behavior.

Adapt proficiency levels to suit different organizational needs.

Use job grades or tiers as an effective way to assign proficiency levels:

• Typically, all entry-level positions would be set at Level 1. Specify baseline behavior for the role, not for a particular incumbent.
• A general rule of thumb is that proficiency levels for managers and senior-level positions would be set at Level 3 or 4.
• Work with managers to ensure accuracy as you assign proficiency levels.
• Ensure the number of proficiency levels are manageable – 4 or 5 levels maximum.

If there are no defined job grades:

• Review job descriptions to determine the level of job complexity.
• Talk to managers to gain a better understanding of the role and expectations.
• Ensure roles that are the same across the organization are at the same proficiency level.

Target competency proficiency levels:

• Level 1:
  Baseline behaviors.
• Level 2:
  Practical application of the behaviors.
• Level 3:
  Role models, coaches, and influences demonstration of the behaviors.
• Level 4:
  Envisions and innovates the next generation of the behaviors.

Determine the appropriate weighting of goals and competencies in the performance review, aligned with your organization’s priorities.

McLean & Company Insight

If there is variation in proficiency level for a particular job grade or tier, opt for the lowest proficiency level. After all, this is the proficiency every employee in the job grade or tier will be expected to display.

Make quality feedback and coaching a central part of the PM framework

Feedback and coaching is the most important PM building block. Document how to build feedback and coaching capability and accountability in the Modern Performance Management Worksheet.

Feedback and coaching is a challenge for most managers

• A study found that ongoing feedback is the most commonly used cutting-edge PM practice and the foundation of all others (Ledford et al.)
• Yet for many managers, feedback and coaching is the part of PM they struggle with the most. They may not know what to talk about in check-ins or how to respond to employee concerns. Training will help to relieve this discomfort.
• Make providing feedback and coaching a part of every people manager’s performance expectations.

Build feedback and coaching capability by providing training and regularly following up to discuss any challenges and provide further support.

Advise managers to meet quarterly, or whatever frequency has been decided, for formal check-ins to provide feedback and coaching.

Allow managers discretion to determine the frequency of informal meetings. Informal meetings are short in duration, and managers can ask a few simple questions such as, “how is your project going?” and “how can I support you?”.

As capability improves, build more frequent meetings into the PM cycle.

Caution: These informal meetings are not work update meetings. Advise managers to keep informal meetings separate from work update meetings.

Use McLean & Company’s Feedback and Coaching Guide to help managers navigate feedback and coaching discussions. For more information on coaching, see McLean & Company’s blueprint Train Managers to Coach for High Performance.

Educate managers on effective feedback and coaching and how it can drive performance

See McLean & Company’s Foster Effective Feedback Skills for more information.

Proceed with caution when it comes to crowdsourced feedback (CSF)

Benefits

• Enables employees to give valuable constructive feedback to peers, since they often see behavior that managers do not.
• Allows employees to forward feedback to their manager to include in performance discussions. Particularly applicable if the manager is remote or not present for significant milestones.
• Facilitates managers giving feedback to employees who are not direct reports.
• Decreases bias present in single source (e.g. manager only) feedback by providing a broader view of employee performance.
• Allows the organization to build a culture of positive reinforcement and recognition (Grenchus).
• Provides an opportunity for frequent and timely feedback throughout the performance cycle.

Risks

• Feedback may be too positive to meaningfully guide performance. Employees may fear offending peers or not know how to give constructive criticism.
• Conversely, feedback may be overly negative and discourage rather than drive performance.
  • E.g. An individual who gives a presentation for the first time and receives immediate negative feedback may be discouraged from trying again.
• If employees are not getting regular feedback from their managers and yet are encouraged to give feedback to peers, they may interpret this as managers abdicating their people manager accountabilities.

Recommendations

• Managers must have adequate feedback and coaching skills before adopting CSF.
  • Regular check-ins will give managers the chance to learn how to give effective feedback and employees the chance to learn how to receive it in an effective way.
• A culture of trust and openness is key to ensuring that CSF does not veer into criticism or increase fear among employees.
• Hold off on using this type of feedback if there is a high degree of tension and distrust among employees and managers.
• If CSF is adopted, provide training, clear guidelines, and examples for all employees (Coy).

McLean & Company Insight

Start by using CSF for recognition, since it tends to be skewed toward the positive. This will allow the organization to get accustomed to giving feedback and will make it easier to use it to inform PM if desired in the future.

Be deliberate about the implementation of crowdsourced feedback

Determine the extent to which CSF can be implemented

Ask: Does the organization…

• Have an established atmosphere of psychological safety?
• Have an environment of ongoing effective feedback and coaching from leaders?
• Have high levels of trust and communication?
• Currently use 360-degree surveys for development or CSF for recognition?

If the environment supports extensive CSF, then continue to develop the details around the process on the next slide.

If the environment isn’t conducive to extensive CSF, implement a scaled-back approach and continue to work on the feedback environment to move toward greater CSF over time.

Crowdsourced feedback cannot be the sole source of feedback. Ensure that leaders use CSF to supplement their own feedback rather than to replace it.

McLean & Company Insight

CSF is not a solution for distrust or poor communication. Implementing it fully before there is a strong culture of trust and openness can exacerbate these issues rather than resolve them.

Define the process for collecting and distributing crowdsourced feedback

CSF guidelines

Provide employees and managers with guidelines for specific feedback to mitigate the risk of collecting large quantities of ineffective feedback.

For scaled-back CSF, provide specific questions to ensure feedback is as helpful as possible.

Mandate both positive and constructive feedback on:

• Team goals
• Competencies

This ensures the feedback will not be overly positive or shallow.

Identify collection method

Real-time CSF:

• Avoid real-time CSF for a scaled-back approach.
• Collecting real-time feedback allows for action to be taken in a timely manner but can also result in an overwhelming amount of feedback.
• Appropriate technology is required to collect real-time CSF.

Align CSF with goal milestones:

• This option aligns with a scaled-back approach.
• Ensure the timing of CSF aligns with goal milestones so feedback can be specific and constructive.

Determine distribution method

Direct to employee:

• Suitable if team members have strong feedback reception skills.
• Individuals must share the feedback with the team leader (if applicable) and reporting manager to ensure feedback is integrated into the overall PM framework.

Direct to manager:

• Suitable for a scaled-back CSF approach to ensure only suitable and constructive feedback is shared with the individual.

The role of technology

CSF is typically enabled by technology due to the high volume and frequency of feedback. Leverage existing HR technology capabilities or explore vendors if that is within scope.

Decide whether ratings will be used to evaluate performance

With ratings, don’t force rank or bell curve. Neuroscience shows they stifle healthy competition and innovation.

Provide guidelines or additional training for managers. Do not assume managers know how to make HR-related decisions without ratings – take the time to train them on the new framework.

McLean & Company Insight

Don’t be surprised if not everyone wants to move away from ratings. Managers may resist because they fear decisions that used to rely on ratings will be more difficult, and some employees may see ratings as more objective (Lighthouse). Be prepared to address and discuss these concerns.

Customize the Performance Review Template to align with whether ratings will be used.

Establish a performance rating scale

McLean & Company Insight

Encourage managers to use the full range of the scale. There is often hesitancy to be honest about rating employees toward the bottom or even the middle of the scale, which can result in inflated ratings.

Provide training on how to have difficult conversations, so managers don’t avoid placing employees in the lower categories when warranted.

Support mindfulness about biases to promote fair performance reviews

If using ratings, make sure to conduct calibration sessions with managers to level set performance within a business unit and to mitigate the impact of biases. See the Calibration Job Aid for guidance on how to hold effective calibration sessions.

Biases undermine the integrity of performance reviews

• Halo/Horns Effect
  Occurs when an employee performs particularly well (or poorly) in one area and is then rated correspondingly high or low in all other areas.
• Leniency Effect
  Occurs when a rater wants to avoid being negative or fears repercussions, so they evaluate employees higher than is realistic.
• Personal Bias
  The more characteristics a rater shares with an employee, such as age, gender, and work values, the more favorably the rater will tend to assess that employee’s performance.
• Purpose Effect
  Occurs when the rater believes a specific rating or ratings will lead to a desired outcome, positive or negative, for the employee.
• Recency Effect
  Occurs when a rater weighs an employee’s recent performance too heavily, as opposed to assessing the employee’s average performance over the entire performance cycle.

See the Biases and Heuristics Catalog for more information.

Provide performance management refresher training at the beginning of the performance cycle that includes bias awareness.

McLean & Company Insight

Getting rid of ratings won’t necessarily make PM fairer; evaluating performance inherently involves judgement on the part of managers, and this can introduce biases. Ensure that standards for evaluation are fair and applied consistently.

Step 3

Align related HR programs

After completing this step you will have:

• Aligned total rewards with the new PM framework.
• Built learning and development initiatives into the PM building blocks.
• Aligned talent management programs to the PM framework.
• Identified how the framework will reinforce organizational culture.

Align total rewards with the new PM framework

If the PM framework doesn’t include ratings, evaluate how base pay increases and bonuses will be determined.

• For example, bonuses can be based on team performance for the successful completion of a particular project.

Even if the PM framework includes ratings, they don’t have to be the main determinant of base pay increases and bonuses.

• For example, you may want to use market adjustments instead or reserve a pool of money for rewarding top talent.

There are many different options other than the traditional use of ratings to drive base pay and allocate bonuses.

• Be honest and specific with what you’re trying to drive and how programs are carried out in practice.
• Have the courage to challenge the status quo and think outside the norm.
• Don’t focus on trends. Look at what you want to pay for and why.

Determine which objective for base pay increases and bonuses is the right fit for your organization and the PM framework:

• Pay for Contribution
  (Attraction, Retention, and Recognition) Identify the factors that define contribution, e.g. goal achievement, market/pay band position. There may be separate factors for base pay increases and bonuses.
• Pay for Potential
  (Attraction and Retention of Key Talent + Future Contributions) Align an employee’s pay with predicted future performance. This approach focuses base pay increases and bonuses as an attraction & retention mechanism for key talent.
• Pay for Performance
  (Recognition for Past Performance) Redefine what pay for performance means for your organization; clearly define the performance you want to recognize, and determine how you will differentiate performance.

For more information, see McLean & Company’s Evolve Pay for Performance and Equip Managers to Conduct Effective Pay Conversations materials.

Leverage L&D initiatives to build capability in the modern PM behaviors

Use McLean & Company’s extensive L&D resources to build talent:

• Step-by-step L&D blueprints on topics such as Create a L&D Strategy and Build a Mentoring Program.
• Customizable training decks designed to develop managers, including facilitator’s notes.
• Training programs such as Management Fundamentals.
• Workshops and advisory services to help kick-start talent management and L&D projects and guide you through them.

Example

Use a blended approach (e.g.70-20-10) to developing managers to have effective performance conversations.

• Provide in-class training on foundations of effective PM (10%).
• Provide a mentoring program for managers to develop their ability to have effective performance conversations (20%).
• Evaluate employee feedback to ensure they meet with employees regularly throughout the year to ensure they are regularly practicing what they’ve learned (70%).

Use McLean’s Learning Methods Catalog for more on learning methods.

Adapt talent management programs and onboarding to the new PM framework

70% of organizations say the link between performance management and other talent decisions, such as promotions and succession planning, needs to be improved (Mercer, 2019).

McLean & Company Insight

Performance management in isolation is not going to move the dial for the organization’s overall performance. Ensure the PM framework is woven into talent management across the organization to ensure your hard work pays off.

Develop best-practice promotion guidelines

Use McLean & Company’s Create an Inclusive Promotion Process and Policy job aid and Promotion Policy to develop best-practice guidelines for managers.

• Outline promotion triggers: Define what a promotion is and isn’t and what triggers a promotion.
• Set promotion parameters: Set the parameters for what results in a promotion to increase transparency, inclusion, and manage employee expectations.
• Salary administration guidelines: Outline salary administration guidelines for promotions that are aligned with the compensation philosophy.

Identify areas where there is potential for barriers to inclusion in your organization’s promotion policy and include initiatives to combat barriers.

Identify how the PM framework can help reinforce organizational culture

Help managers set employee goals that build the desired culture. E.g. if you want to encourage a result- oriented culture, setting goals clarifies and creates a shared understanding of outcomes that define performance success.	Build core values into competencies. E.g. if you want to create a culture that embraces diversity, a core competency for leaders could be the ability to facilitate respectful discussions among diverse employees.	Train managers to coach and give feedback to employees about how they exhibit core values. E.g. a senior manager may coach a junior manager on how to build trust with direct reports.	When used for recognition, CSF can be a powerful way to reinforce the desired culture. E.g. recognize employees who go above and beyond for their team using an internal platform visible to all employees.	Be sure that ratings do not work against organizational values and culture. E.g. if collaboration is a focus value but ratings determine individual merit increases, this may encourage unhealthy competition rather than collaboration.	Adapt the PM process to build the desired culture. E.g. if being supportive is a focus value, increasing the frequency of formal check-ins and informal meetings will make it easier for managers to support employees in their path to success.

Step 4

Communicate and train to manage change

After completing this step you will have:

• Determined a rollout plan.
• Created an action and communication plan.
• Prepared to address pushback.
• Outlined accountabilities for HR, managers, and employees.
• Trained managers and employees on the new PM framework.
• Remeasured to confirm goals have been met.

Decide how to roll out the new PM framework

Big Bang Rollout

Implement the program in a single instance and discontinue previous PM framework.

Advantages:

• Shorter implementation time.
• Everyone in the organization is on the same framework at the same time.

Disadvantages:

• High risk: disruptive to business.
• Requires pristine change management tactics.

Phased Rollout

Implement the framework by starting with a cohort of managers and direct reports, then slowly expand to other managers.

Advantages:

• Increased sense of support and buy-in from managers.
• Greater amount of time to ensure necessary coaching and feedback training for managers in smaller cohorts.

Disadvantages:

• Lengthy process; however, quicker than a pilot rollout.
• If the rollout takes several years, the environment may change and the rationale and desired outcomes for the change may no longer be relevant.

Pilot Rollout (McLean & Company’s Recommended Method)

Implement the framework to a select group (e.g. department, business unit) to measure impact and improve the PM framework before rolling it out to the entire organization.

Advantages:

• Demonstrated success of the pilot group can assist in getting buy-in.
• Ability to create change champions from the pilot group who have experienced the new framework and see the benefits.
• Managers who have participated are better equipped to act as mentors, coaches, or facilitators.
• Can pilot with HR before rolling out to the organization.

Disadvantages:

• Lengthy process – it takes time to ensure that the change has been fully worked through.
• If the rollout takes several years, the environment may change and the rationale and desired outcomes for the change may no longer be relevant.

Create an action and communication plan for the new PM framework

Many initiatives don’t achieve their full potential because focus is placed on process changes rather than people and communications. Plan out your communication strategy with a timeline prior to communicating the changes.

Communication

• Use multiple touchpoints to ensure all aspects of the change are communicated clearly. Communicate big changes up-front and reiterate the more granular pieces when most relevant.
• Follow these steps in the communication process to ensure that your message has a high impact on employees and managers.
  1. Communicate to key stakeholders first. They are a critical part of the PM framework, and you will need their support as change agents. Incorporate their feedback before communicating to all employees
  2. Have stakeholders or representatives from the business communicate the new framework to all employees.
  3. Communicate the specifics of the change with managers to explain the reasoning behind the changes.
  4. Communicate the changes with employees.

Document in the HR Action and Communication Plan.

Timing

• Introduce the framework two to three months before implementation. Ensure it’s communicated prior to the start of the performance cycle to give employees time to adjust to the new framework and ask questions.
• Avoid sharing the change with employees during the height of the PA process. Fresh news of an upcoming change may be a deterrent to employees and managers to complete their performance appraisals.
• Use the advance time after the announcement to ensure all supporting tools and systems are finalized.

See McLean & Company’s Navigate Change blueprint for more information on implementing and sustaining change.

Prepare to address common objections to changes in the PM framework

Confirm accountabilities for HR, managers, and employees

HR

• Support and communicate the new PM framework.
• Provide information and resources on the new PM framework.
• Coach managers on how to apply ratings (if used).
• Check in frequently with employees and managers on the new framework.
• Audit the process after the first quarter and at least once each year following implementation to solicit feedback (using a pulse survey or informal check-ins).
• Plan and facilitate calibration meetings.
• Track progress to ensure the new PM framework is addressing pain points.
• Update framework and supporting tools as needed.

Managers

• Meet with employees according to selected cadence.
• Set expectations and goals with their employees.
• Provide more feedback and coaching.
• Calibrate expectations with employees and performance appraisals with other managers.
• Apply ratings fairly (if used).
• Identify, develop, and appropriately manage poor performance in a timely manner.
• Identify and appropriately recognize exceptional performance.

Employees

• Own the process by requesting and/or booking formal check-ins and informal meetings with their manager. Refer to the assigned responsibility for booking these meetings determined in Step 2.
• Work closely with their manager to understand expectations of the role.
• Identify goals that support organizational goals.
• Discuss accomplishments, progress against goals, and challenges.
• Integrate feedback and coaching tips to improve their performance.
• Complete self-assessments.

Communicate the new PM framework and train managers

Communicate

Customize McLean & Company’s Modern Performance Management Presentation Template to introduce the new PM framework to managers and employees. This presentation template covers:

• The customized building blocks of the new PM framework
• The PM process
• The performance review template
• The goal-setting model and the competencies that are included in the PM framework
• Feedback and coaching, including CSF (if used)
• The rating scale (if used)
• Common biases

Train

Use McLean & Company’s Equip Managers to Have Effective Performance Appraisal Discussions for manager training. This training covers:

• Navigating the performance review process
• Setting clear, specific goals
• Communicating expected competencies
• Providing clear feedback
• Evaluating the performance of employees

Gather and monitor data to verify the positive impact of changes to the PM framework

Refer to the goals and metrics set up at the beginning of this project. Collect data and gather employee feedback on areas such as:

Engagement

• Increased satisfaction with the performance management framework.
• Increased overall engagement score.
  • Employees whose managers provide high quality feedback are nearly 3.4x more likely to be engaged (McLean & Company Engagement Database, 2020; N=79,273).

Productivity

• Higher overall revenue.
  • Increased sales calls per rep.
  • Increased number of tickets completed by help desk.
  • Consistent product quality by line workers.

Frequent Feedback

• Increased number of conversations overall between management and employees.
• Improved engagement scores related to increased satisfaction with feedback from managers.
• Reduced regrettable turnover and turnover costs.

HR needs to check in periodically to ensure that:

• Meetings are taking place and are generating useful results.
• Reviews by managers and self-assessments by employees are being completed.
• There is consistency among managers’ ratings, and ratings reflect true performance.
• Documentation of the above is being completed.

McLean & Company Insight

Don’t assume the PM process is working as you planned. Take the time to check in with both managers and employees to find out whether they’re actually meeting regularly, how performance conversations are going, and if they need any additional support.

Key insights

Modern PM should not be seen as a failure to become agile but rather as a successful alternative to traditional PM. Agile PM is not the ultimate goal for all organizations, as it may not suit all contexts.

There is no one-size-fits-all approach to PM; the process may vary not only across industries, but even within different departments or employee segments in the same organization. Allow freedom for these groups to adapt the PM process to best fit their particular context.

Goals define what to do, while competencies tell employees how to do it. By directly shaping how work gets done, competencies play an important role in reinforcing organizational culture and values and performance.

Feedback and coaching is the most important mandatory building block of the PM framework. Yet, managers are not going to improve on their own. Build feedback and coaching capability through training and resources and follow up to discuss challenges.

Getting rid of ratings won’t necessarily make PM more fair; evaluating performance inherently involves judgement on the part of managers, and this can introduce biases. Ensure that standards for evaluation are fair and applied consistently.

Performance management in isolation is not going to move the dial for the organization’s overall performance. Ensure the PM framework is woven into talent management across the organization to ensure your hard work pays off.

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Leverage Feedback to Drive Performance

Identify impactful initiatives using our diagnostic programs to collect feedback from employees, stakeholders, and the HR team.

Optimize the HR Department for Success

HR Stakeholder Management Survey
Align HR initiatives with business strategy and stakeholder needs.

HR Management & Governance
Improve HR’s core functions and drive project success.

Improve Employee Experience and HR Processes

New Hire Survey
Ensure recruiting and onboarding programs are effective by surveying new employees.

Employee Engagement
Move beyond measuring job satisfaction with a comprehensive view of engagement.

McLean Employee Experience Monitor
Evolve to leader-driven engagement with a real-time dashboard and results.

Employee Exit Survey
Understand why people leave the organization to proactively retain top talent.

360 Degree Feedback
Empower employees with a holistic view of their performance to prioritize development.

View our diagnostic programs for more information.

About

McLean & Company is a research and advisory firm providing practical solutions to human resources challenges via executable research, tools, and advice that have a clear and measurable impact on your business.

Our research team uses a rigorous research process to identify and hone best practices; create practical tools, templates, and policies; and supply clients with the insight and guidance of our subject matter experts. McLean & Company applies this proven research approach to both human resources and company management teams, creating complete solutions that supply the tools you need to get each project done right.

McLean & Company analysts bring real-world experience to the table and apply their knowledge to solving the challenges faced by our clients on a daily basis. This process is informed by the participation of a client base that includes over 30,000 members and by an evolving client-driven research agenda.

McLean & Company is a division of Info-Tech Research Group Inc.

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Works Cited

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Caprino, Kathy. “Separating Performance Management from Compensation: New Trend for Thriving Organizations.” Dec.13, 2016. Forbes.

Cecchi-Dimeglio, Paola. “How Gender Bias Corrupts Performance Reviews, and What to Do About It.” April 12, 2017.

CIPD. “Rapid evidence assessment of the research literature on the effect of goal setting on workplace performance.” December 2016.

Cookson, Phil. “It’s time to see performance management as a benefit, not a burden.” Mar.17, 2017. CIPD.

Coy, Charles. “Peer Feedback: 6 Tips for Successful Crowdsourcing.” June 25, 2014. Rework.

Duggan, Kris. “Why the Annual Performance Review is Going Extinct.” Oct.20, 2015. Fast Company.

Heathfield, Susan M. “Tips to Create Successful Performance Appraisal Goals.” August 2016. The Balance.

Human Resource Executive. “Seeking Agility in Performance Management.” 2016.

Falcone, Paul. “Viewpoint: How to Redesign Your Performance Appraisal Template.” Jun.7, 2017. Society for Human Resource Management.

Gallup. “The Engaged Workplace.” 2017. Web. March 2017.

Goler, Lori, Janelle Gale, and Adam Grant. “Let’s Not Kill Performance Evaluations Yet.” November, 2016. Harvard Business Review.

Grenchus, Gabrielle. “Keep employees engaged with clear priorities and crowdsourced recognition.” June 8, 2015. IBM thinkLeaders.

Grote, Dick. “3 Popular Goal-Setting Techniques Managers Should Avoid.” Jan.2, 2017. Harvard Business Review.

Ledford, Gerald E. Jr., George Benson, and Edward E. Lawler III. “Cutting-Edge Performance Management.” August 2016. World At Work Research.

Lighthouse Research & Advisory. “Insights from the CHRO Panel at Workhuman 2017.” June 2017. Lighthouse Research & Advisory.

Mercer. “Performance Management in the Future of Work.” 2019. Mercer.

Rock, David. “SCARF: A Brain-Based Model for Collaborating With and Influencing Others.” NeuroLeadership Journal. 2008. Web. January 2016.

Smith, Benson and Tony Rutigliano. “Scrap Your Performance Appraisal System.” Gallup, 2002. Article.

Rock, David and Beth Jones. “Why More and More Companies are Ditching Performance Ratings.” Sept.08, 2015. Harvard Business Review.

Smarp. “8 Employee Engagement Statistics You Need to Know in 2020.” Jan 2020. Smarp.

Trudel, Natalie. “Improve Your Coaching Skills by Understanding the Psychology of Feedback.” July 12, 2017. TLNT.

Vacassin, Daniel. “There are no 'good' performance management systems – there are just good line managers.” Oct.4, 2016. LinkedIn.