Creating a Modern Performance Management System
Modern performance management is overwhelming. There are more options than ever before, and the hardest part can be knowing where to start.
Should you do OKRs like Google? Or maybe quarterly check-ins like Adobe? Or does Deloitte have it right with project-based reviews?
At PerformYard, we’ve helped hundreds of organizations create custom performance strategies that are just right for their needs.
In this guide, we combine our approach to designing a new process with our favorite resources from around the internet.
What is Modern Performance Management?
Performance management has changed, and you’ve probably seen the headlines:
- Death to the Performance Review
- Amazon to Drop Dreaded Stack-Ranking
- Why Every Good Company is Ending Annual Performance Reviews
But maybe you’ve also seen headlines like these:
- Why Facebook Still Uses Traditional Performance Reviews
- Lets Not Kill Performance Evaluations Yet
- Companies That Got Rid Of Performance Ratings Aren't Doing So Well
So what’s going on? Is there a new “right” way to do performance management? And what is it?
Modern performance management is more about your perspective, your focus, and how you execute your process than it is about specific tactics.
There are high profile tactics out there like continuous feedback, weekly 1-on-1s, OKRs, and quarterly check-ins that have become synonymous with modern performance management.
But you shouldn’t just take these things off the shelf and apply them to your organization. You’re not Adobe or Google.
Modern performance management is about starting with your organization’s needs and the needs of your modern workforce, then building a custom strategy that serves those needs.
It’s about creating a strategic business operation rather than fulfilling a year-end compliance requirement.
Characteristics of Modern Performance Management
That’s a little abstract, so here are some more concrete ways that performance management has changed.
(We also included a long list of examples from real organizations at the bottom of the page.)
Digital First
Digital tools are enabling this transformation. More feedback, more data, and more transparency are only possible because they can be achieved with a light tough through technology.
Before adding complexity to their processes, organizations are streamlining them through technology.
Development Focused
Traditional strategies focused primarily on rewarding top performers and eliminating underperformers.
While that is still a part of modern systems, the focus has shifted to include development with accountability.
More Frequent
You can’t talk about modern performance management without talking about increased frequency of feedback.
Whether it’s quarterly check-ins, weekly 1-on-1s, or continuous feedback, more and more frequent feedback is what it’s all about.
Rewards Collaboration
Traditional performance management would tend to give individual ratings, which didn't always incentivize teamwork.
Today, organizations want to know not only how well you work alone, but how you build up a team.
More Agile
We live in a more dynamic world and organizations want to reward employees with the flexibility to adapt and perform as an organization evolves. Modern strategies reward both tactical performance and adaptive performance.
More Fair
Unfortunately traditional performance management is filled with bias.
Modern performance management seeks to even the playing field and get to a better understanding of actual performance. It’s no longer just about your manager’s opinion of you for one week a year.
Smarter Data
Finally, modern performance management still embraces data. Even after an initial rejection of ratings and rankings, many organizations are looking for smarter ways to bring data back into their process in order to inform career planning, hiring, and other business decisions.
Here are some of our favorite articles on Modern Performance Management:
The History and Science of Performance Management
How Much is Bad Performance Management Costing You?
What is Modern Performance Management?
4 Common Reasons Performance Management is "Broken"
Using Software for a Modern Performance Appraisal System
One hallmark of most modern performance appraisal systems is they're built on dedicated software. It's difficult to build a modern system on spreadsheets, shared documents or survey-builders. In the image below, you'll see what a typical modern performance appraisal dashboard looks like:
This image from PerformYard shows how the modern performance appraisal system provides admins with more visibility into the company's performance management process. A modern software system is faster, because everyone can login to one platform to fill out reviews. Plus, the platform will send notifications to employees who have yet to fill out reviews.
Modern appraisal systems also rely on software to gather data. After all, performance reviews should be a useful endeavor, not just a box to check. Finally, the modern performance appraisal system depends on software for customization. Tools like PerformYard make it easy to edit multiple review forms, create and implement new ones, and send them out to employees with a few clicks.
A Purpose for Performance Management
Modern performance management has a business purpose. If you're designing a new strategy, you need to start with its purpose.
The challenge is that not every organization will have the same purpose. You really should choose just one or two to start.
But how do you choose?
Diagnosing Your Organization’s Needs
Choose a purpose for your modern performance management strategy by understanding the needs of your organization and your workforce.
For helping to decode the type of organization you have and its performance needs we love the “Organizational DNA” framework from PWC.
Then…
Take the short survey to get a sense of what type of organization you are.
Choosing a Purpose
Once you understand what your organization needs, choose the primary purpose of your new system.
Every organization may be a little different, but here are the 5 most common types of strategies we see.
Accountability
This is the most traditional approach, but it still makes sense in the context of modern performance management.
Systems that focus on accountability evaluate employees against standards. The most common examples would be a sales quota or a competency based system.
These systems can work very well when employees know what is expected of them and are highly motivated to achieve the standard. This tends to be organizations with well-defined roles, many people in those roles and measurable results. It also helps to have a large pool of qualified candidates to fill vacancies.
Development
Development focused performance management is having its day!
Popular tactics like weekly 1-on-1s, continuous feedback, and engagement surveys fall squarely in a development focused performance management strategy.
A development focus works well for knowledge workers, team based work, or employees with a lot of self-direction.
If your employees see their job as “just a paycheck”, you’ll need to change their mindset before using a development focus.
Recognition
One of the most common complaints about informal continuous feedback strategies is that employees don’t know where they stand. That’s why many companies embrace recognition.
Your most driven employees likely embrace some level of competition and have aggressive personal goals.
Recognition is best for organizations with highly motivated employees with opportunities to promote from within and room for some variable compensation.
Organizational Alignment
Alignment embraces the idea that you don’t need to manage people’s performance, you need to get out of their way. If you can clearly articulate what needs to get done, your employees will get after it and make it happen.
This approach is best for flat organizations with highly distributed decision making and information flows.
Hierarchical organizations are just naturally better at alignment and don’t need as much help. Flat organizations need a way to get everyone moving in the same direction.
Cultural Alignment
This focus brings the organization’s values off the wall and into conversations between employees.
The goal is to increase self-awareness within the context of the values, with the hope that when employees embrace the values the results will trickle down to every element of performance.
This works best for organizations that see toxic cultures as the cause of their performance issues. Public sector organizations can find themselves in this category.
Our list of the most popular performance management system examples goes into more detail of when to use particular appraisal methods.
And for further reading on the purpose of performance management check these articles:
The Purpose of Performance Management: 5 Options
Does Your Performance Management Process have Purpose? These 9 Companies Do.
Elements of a Performance Management Strategy
Once you have a vision for your modern performance management strategy, it's time to turn it into a process.
This can be daunting, but we find it’s easier if you break things down to the building blocks. There are many specific tactics you can consider (like these 5 Modern Alternatives to Annual Performance Reviews), but in the end, all of them are just variations or combinations of three things: reviews, goals, and feedback.
Reviews
Reviews, check-ins, assessments—it doesn’t matter what you call it. We've found that even the most forward-thinking processes still include some structured meeting or form that takes the long-term view and happens regularly. This could be a quarterly check-in, semi-annual performance discussions, or even annual reviews (yes, there is still room for annual reviews in modern performance management).
Why do many companies still do this?
- Fairness: It creates a set of standards for employee performance discussions and decisions that are going to happen with or without these reviews.
- Transparency: It takes the discussions and decisions about employee performance and brings them into the sanitizing light of day.
Goals
Goals can be found across the different types of performance management strategies. The difference will be what the goals are for, their terms, how often they are checked in on, and the form they take.
- Accountability Goals: Goals will often be role based, like standards of performance for that role. A sales quota is an example.
- Development Goals: Here, goals often take the form of professional development and tend to be a bit looser. They are more about agreeing on a direction than reaching a specific degree.
- Alignment Goals: Goals are at the heart of an alignment strategy. They may even make up the bulk of your process. Goals should have some way of cascading across the organization and should be dynamic enough to shift with the needs of the organization.
Feedback
Feedback is all about putting into action the ideas and intentions from reviews and goals.
Feedback can take many forms. You could instill a culture of continuous feedback that exists without strict systems, or you can formalize a process of feedback with required weekly one-on-ones.
You can also encourage regular recognition or require a few moments of recognition from each employee every month.
How you bring all this together will depend on your goals and your organization. We asked four HR leaders how they think about balancing an effective strategy with both structured and unstructured options in our article: Balancing Structured Reviews and Unstructured Feedback.
Whatever you decide, remember to keep it simple, lightweight and focused on a clear purpose.
Why it Needs to Be Easy for Employees
Once you have a purpose and have laid out a process, it can feel like you’re almost done. But the most important step still remains: you must make everything easy for your employees.
Every step should be scrutinized, every task you assign an employee should be questioned.
Modern performance management is more complex and more frequent—the only reason it works is because it is digital first.
Performance management software streamlines and automates the large administrative burden of pulling off a modern strategy. If you ask your employees to do that work, they will rightfully decline.
Software allows employees to focus only on the value creating activities, like self-reflection, conversations with managers, and planning.
To learn more about the importance of keeping things easy, read:
First, Take Back Your Time: Before adding complexity, streamline.
What is Performance Management Software
How To Choose Performance Management Software
How to Evolve Your Performance Management Process
Lastly, continue to work on your process: improve, expand, and evolve.
Just please don’t throw it all away and start again whenever a new trend comes along.
We have a lot to say about this topic, but honestly, no one explains it better than Jon Stein in his article for First Round’s blog: Betterment Tested Three Performance Management Systems So You Don't Have To.
And read this case study on our customer: Colorado Health Foundation.
For additional insight check out:
Why You Should Iterate On Your Existing Strategy
Should You Test Your Performance Management Process?
Examples of Modern Performance Management
So what are the world’s leading companies doing? Here is a long list of examples from big name brands and several smaller organizations that you may have more in common with.
Case Studies
Spoor Bunch Franz | Accounting Firm | 50 Employees
Semi-annual reviews, monthly feedback, and additionally custom cycles for departments, roles and new employees.
Five Star Technology | IT Services | 140 Employees
Quarterly check-ins with broad 360 reviews that are qualitatively coded around the company’s six core values.
J2 Interactive | IT Integrator & Developer | 150 Employees
Quarterly conversations with annual goal-setting and a year end review to summarize performance.
InvestiNet | Receivables Management | 100 Employees
Four types of goals with weekly check-ins make sure everyone’s work is aligned and that they’re living the company mantra of “never settle for the status-quo.”
The Colorado Health Foundation | Foundation | 60 Employees
A quarterly conversations process with annual goal-setting, a simple year end review, and lots of flexibility.
More Examples
How Does Amazon Do Performance Management?
3 Approaches to Performance Management: Google, Betterment and IBM
How Does GE Do Performance Management Today?
How does Facebook do Performance Management
Performance Management at Tesla: What we know.
How Regeneron Built Their Performance Management System
How Does Uber Do Performance Management?
How Does Asana Do Performance Management?
Anonymous Employee Survey: The HR Guide
How to Set Up an Employee Mentorship Program
