Performance management: is the traditional annual review still relevant?

Written by
Dr Jill Miller

31 Mar 2016

31 Mar 2016 • by Dr Jill Miller

What will happen to traditional appraisals?

But, of course, appraisals are just one aspect of performance management. We were keen to find out more about organisations’ views on performance management, including their current approach and the practices they think are most effective in their business.

The ultimate aim of performance management is to improve performance, linking to organisational success. It therefore includes enabling people to thrive and reach their potential and also dealing with underperformance, be that through improvement, changing an employee’s role, or moving them out of their role. One of the most common approaches used involves linking performance to reward and is termed the administrative function of performance management. The other most common approach is to closely link performance conversations with learning and development. Both routes are intended to motivate employees and align their efforts with organisational objectives, but in different ways.

How good are we at managing performance?

In the latest CIPD/Workday HR Outlook survey report we asked 143 senior HR leaders and 152 non-HR leaders for their views on their organisation’s performance management approaches. Although HR leaders had a more positive view overall about their organisation’s approaches, both groups thought individual performance was managed better than team performance. For example, 66% of HR leaders thought their organisation was good at systematically assessing individual performance and 62% said they were good at improving individual performance. These figures compare to 47% of HR leaders who thought their organisation systematically assessed team performance well and 45% who thought they managed team performance well. What stands out is that these figures are just reaching 2/3 at best, suggesting there’s significant room to up our game to ensure the workforce is motivated and effort is aligned to achieving business goals. 

Dealing with underperformance is an area that’s notorious for being difficult to manage and something which many managers either struggle with or avoid. This view is echoed in our survey findings, with just 44% of HR leaders saying their organisation does it well, compared to a much lower 29% of non-HR leaders. This disconnect of views is in itself interesting – do you think you’d see this mismatch of opinion in your organisation, and if so, why?

So what performance management practice is most effective? We asked this question of both groups of leaders and by far the front runner was formal coaching and mentoring; 92% of HR leaders and 79% of non-HR leaders who said it was standard practice in their organisation rated it as effective. One-to-one meetings between reports and line managers was also rated in the top 3 most effective approaches used. These findings and our wider research highlights that it’s the quality and regularity of conversations about performance that are critical.

And to return to the opening question of this article, what about appraisals? As expected, the answer is not clear-cut. We found a disparity of views in the survey which needs further exploration. On one hand, when asked whether they feel the annual performance appraisal is still a relevant practice for their organisation, 3 in 5 leaders (62% of HR leaders and 61% of non-HR leaders) said it was. However, when we asked those who undertake annual appraisals about whether it was an effective practice or not, just 44% said it was effective, making it bottom of the list. There’s a clear disconnect between the perceived relevance of appraisals and views on the effectiveness of how they’re currently conducted. It’s interesting that 6-monthly appraisals were rated as more effective, and more regular conversations between an employee and their manager were rated even higher. It seems there’s an issue around the quality and regularity of conversations. 

The survey findings make it clear that we need to know more about the nuts and bolts of how this works. How do different performance management approaches affect management behaviour, employee learning and capability, motivation and effort, and in-role performance? 

Key questions to consider in your organisation:

1.    How are different performance management practices combined? For example, do employees receive the most feedback at an annual appraisal, or is more timely feedback given? Do employee-manager conversations emphasise evaluating past performance or is attention also paid to development needs and aspirations?

2.    Performance conversations broadly cover three domains: setting the job role and objectives; planning and discussing the resources, support and learning and development needed; and appraising and reviewing performance. What is the focus of performance conversations in your organisation and are you happy with the weighting given to each of these three areas?

3.    How effectively do you feel underperformance is addressed in your organisation? Do managers have the necessary skills and feel confident to have difficult conversations with their staff, taking a firm stand where necessary, but also taking action where work adjustments may be needed to help someone better play to their strengths at work?

4.    What are the potential blockers to further improving the effectiveness of performance management conversations in your organisation? Among other factors, these could be related to organisational culture (prevailing norms of behaviour); interpersonal skills or emotional intelligence; or the performance management structures and processes in place. 

To further examine some of the questions raised here, we are conducting further research into the effectiveness of different performance management interventions in a range of organisations. The future of performance management is not entirely unclear - we have some pretty good ideas of what can help this critical aspect of HR – but we need to know more about what actually makes a difference in practice.