Performance Management: At the Brink of Evolution

The majority of companies and HR professionals are pursuing the belief that performance does, in fact, look like a bell shaped curve. The problem here is, very few organizations actually have a bell shaped curve. In order for the curve to be a normal distribution, you need to have as many performers at the bottom of the performance as you do at the top. So when 90-95% population falls under the top three categories, it is not possible to have a bell shaped curve. Some organizations have tried to address this by having fewer levels in the performance ranking system to have a better distribution. Other organizations try the forced performance ranking distribution approach. This is successful in the short run in giving a better distribution, but it is more of a compliance measure, as opposed to helping organizations assess performance.
Virtually, no organization is satisfied with their performance management system today. Usually when I speak to an audience of 300 or more and ask if they have an effective performance management approach, I usually get one or two hands in the audience and that's the most we see. This is an area that continues to be perplexing to organizations probably because there is the design aspect as well as the execution aspect. HR professionals tend to think it is the design problem, but most HR professionals don't realize it is an execution problem more often than not the program is just poorly executed. The training, selection of managers and supervisors to do this effectively, commitment by leadership are all very important aspects of execution which tend to get missed out.

Q. Can you give a few examples of these newer/next gen practices with respect to performance and rewards?
A. HR is always looking for the next breakthrough practice. But I think in this case, there isn't anything pathbreaking. Simply put, it is about going back to the fundamentals of performance management. There are two critical elements -
i) how organizations approach goal setting, the communication and further cascading of those goals, and
ii) selection of effective resources to manage this process. I know that doesn't sound very next gen but that's what best-in-class organizations are focusing on.
One of the most serious problems is that managers don't know what defines good performance. So they don't know when some goal has been achieved or not. Having clear goals, cascading them down, giving examples of how they have been achieved are critical to an effective performance management system.

Q. Do you think there are many companies which are doing away with bell curves or are looking at alternate approaches?
A. Yes, there are organizations which are experimenting with the performance management systems while there are others, which are doing away with the performance ratings altogether. They work on a calibration type of arrangement. Managers use performance calibration to discuss how to apply similar standards for all employees. So in a way, it takes away the possibility of manager bias or unjust review system by establishing a fair and equitable standard by which all employees are measured. For example, reviews between two teams with different managers would be calibrated to take into account the different reviewing styles and get a better idea of actual performance. After implementing calibrations, the managers will hold each other accountable for their ratings and extremely hard and extremely easy reviewers will be brought into line with the rest of their peers for more transparent performance reviews. Organizations are trying to be more effective at this. But it boils down to the two things I said earlier -
i) having clear goals and outstanding execution, and
ii) recognizing performance and providing honest feedback. These are some of the key parameters of effective performance management.

Q. With the increasing interest towards alternate approaches, are more companies actually looking at differentiated rewards or rethinking the approach to pay for performance? At what stage of maturity does an organization usually adopt such practices?
A. This is an interesting question since this moves into a different dimension, where we are talking about differentiating rewards. Our data shows that in the US, around 25% of companies are taking a more aggressive approach to provide

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