By Boris Ewenstein, Bryan Hancock, and Asmus Komm; McKinsey & Company

What happens after companies jettison traditional year-end evaluations?

The worst-kept secret in companies has long been the fact that the yearly ritual of evaluating (and sometimes rating and ranking) the performance of employees epitomizes the absurdities of corporate life. Managers and staff alike too often view performance management as time consuming, excessively subjective, demotivating, and ultimately unhelpful. In these cases, it does little to improve the performance of employees. It may even undermine their performance as they struggle with ratings, worry about compensation, and try to make sense of performance feedback.

These aren’t new issues, but they have become increasingly blatant as jobs in many businesses have evolved over the past 15 years. More and more positions require employees with deeper expertise, more independent judgment, and better problem-solving skills. They are shouldering ever-greater responsibilities in their interactions with customers and business partners and creating value in ways that industrial-era performance-management systems struggle to identify. Soon enough, a ritual most executives say they dislike will be so outdated that it will resemble trying to conduct modern financial transactions with carrier pigeons.

Yet nearly nine out of ten companies around the world continue not only to generate performance scores for employees but also to use them as the basis for compensation decisions. The problem that prevents managers’ dissatisfaction with the process from actually changing it is uncertainty over what a revamped performance-management system ought to look like. If we jettison year-end evaluations—well, then what? Will employees just lean back? Will performance drop? And how will people be paid?

Answers are emerging. Companies, such as GE and Microsoft, that long epitomized the “stack and rank” approach have been blowing up their annual systems for rating and evaluating employees and are instead testing new ideas that give them continual feedback and coaching. Netflix no longer measures its people against annual objectives, because its objectives have become more fluid and can change quite rapidly. Google transformed the way it compensates high performers at every level. Some tech companies, such as Atlassian, have automated many evaluation activities that managers elsewhere perform manually.

The changes these and other companies are making are new, varied, and, in some instances, experimental. But patterns are beginning to emerge.

– Some companies are rethinking what constitutes employee performance by focusing specifically on individuals who are a step function away from average—at either the high or low end of performance—rather than trying to differentiate among the bulk of employees in the middle.

– Many companies are also collecting more objective performance data through systems that automate real-time analyses.

– Performance data are used less and less as a crude instrument for setting compensation. Indeed, some companies are severing the link between evaluation and compensation, at least for the majority of the workforce, while linking them ever more comprehensively at the high and low ends of performance.

– Better data back up a shift in emphasis from backward-looking evaluations to fact-based performance and development discussions, which are becoming frequent and as-needed rather than annual events.

How these emerging patterns play out will vary, of course, from company to company. The pace of change will differ, too. Some companies may use multiple approaches to performance management, holding on to hardwired targets for sales teams, say, while shifting other functions or business units to new approaches.

But change they must.

Dental Assistant – we’re hiring now!

We are currently looking for a Dental Surgery Assistant to join a successful team in a well-trusted Orthodontics Practice in Limerick city.   Dental Surgery Assistant part time position, potentially leading to a full-time role comprehensive training will be provided...

Sales Manager – we’re hiring now!

On behalf of our client, a well-established organisation, which is part of a worldwide business consultancy network, we are looking for a talented and ambitious SALES MANAGER Main responsibility Selling products and solutions into Irish Market Perfect fit excellent...

Good news for Retirees!

  Tilda - Research Results Great news for Retirees! Recent research from TILDA (The Irish Longitudinal Study on Ageing) tells us that older people in Ireland report high levels of wellbeing – with most feeling younger than their actual age and maintaining a sense of...

Career and Retirement Programmes – Now Online!

Torc in New 'Virtual' Reality In response to the global pandemic situation and in the interest of our clients' safety all Torc Career and Retirement Planning Programmes have been adapted to the new reality and are currently available online. New Forms of Delivery Torc...

Mindfulness at Work – why everyone talks about it?

Many companies across Ireland have benefited from and acknowledged effectiveness of Torc's Mindfulness at Work programmes.   What is Mindfulness? Mindfulness is a way of paying attention to what is happening in the present moment, without thinking about past or...

Employer Branding (3)

Guardian Jobs published a very interesting guide to Employer Branding – a topic which is very relevant to every company.    This is the third of a series of short articles based on the Guardian guide.   5 tips for bolstering your employer brand   Use insight from...

Latest News & Views

Torc Consulting Group
13 Herbert Place
Dublin 2
D02 YD32
Ireland
Tel: +353 1 662 3020

Case Studies

A member of the Institute of Management Consultants and Advisers

Call Now Button