Free ReportPerformance appraisal methods are undergoing a revolution. Formal systems are on the decline and more fluid approaches are on the rise. This reinvention is widespread and growing by the day. A 2014 Deloitte University Press article described the trend this way:
Traditional performance management—the annual process of rating employees’ performance and ranking them against their colleagues—is widely considered to be broken.
These “forced curve” evaluations became popular under the influence of the GE model during Jack Welch’s tenure, but they were originally conceived around the turn of that century—the turn of the 19th to the 20th century, that is. At that time, employees were viewed strictly as “workers” whose performance could be accurately measured by output: the number of railroad ties installed, hours worked, or other numeric measures.
Today, more than 70 percent of all employees work in service or knowledge-related jobs. Their performance is driven by their skills, attitude, customer empathy—and by their ability to innovate and drive change by working through teams. These skills must be built over time, and successful performance management must be focused on constantly developing these capabilities rather than ranking them at a moment in time.
In addition, today’s business climate and business priorities seldom follow the annual evaluation cycle. Goals shift, strategies evolve, and employees often switch between multiple projects under various team leaders. Given this dynamic, it is hardly surprising that our research shows that organizations where employees review their personal goals quarterly—or even more often—were nearly four times more likely to score at the top of Bersin by Deloitte’s Total Performance Index.1
Many of today’s employers understand that it is time to reassess their performance appraisal systems. Fully 70 percent of our survey respondents stated that they are either “currently evaluating” or have recently “reviewed and updated” their performance management systems. (Deloitte University Press, March 4, 2014, Lisa Barry, Stacia Garr, Andy Liakopoulos)
The Impact on Pay
This trend is making the need for a strategic approach to compensation planning more urgent than ever. In our work with client companies throughout the United States and beyond, business leaders inevitably want to know how to marry their pay approach—especially with incentives—to whatever employee appraisal system they have adopted. Now, with the reinvention of those systems well underway, organizations large and small can’t wait to start addressing many of the questions regarding pay that these changes are forcing to the surface. For example:
- How do you determine pay increases when there’s no systematic employee review or performance appraisal?
- How do you build rewards that fit an environment of constant change and innovation?
- How do you align compensation with team performance but still reward key contributors?
- How do you adopt more flexible performance appraisal methods but still tie pay to results?
And the list goes on. Once you change your method of performance appraisal, your pay strategy is going to be affected. It’s inevitable. So what do you do?
Introducing VisionLink's New Report
To answer that question, VisionLink has published a new report—The Reinvention of Performance Management. We have studied the research, tracked the trends and assessed the new role pay will have in this changing environment. Now we want to grant you access to what we’ve learned. You can do so by simply downloading our free new report. Learn what the changes in employee evaluation methodology mean to you.
The demise of formal performance evaluations—at least as they used to be applied—is simply a reaction to the pace at which the talent landscape is changing. It’s an acknowledgment of an empowered workforce and the need for companies to become “irresistible” if they want to attract, develop and retain the best people. All of that is requiring business leaders to think more strategically and creatively about the value proposition they construct for their workforce.
It’s an exciting time but not one for the faint hearted. Those who choose to ignore these trends will likely find themselves first falling behind, then fading away. For those who embrace “the new frontier,” the possibilities for accelerated growth are really limitless.
So you don’t find yourself falling behind in this accelerating movement, download our free new report today.